Is it possible for a settlement agreement to waive unknown future claims that have not yet arisen?

No, says the Scottish Employment Appeal Tribunal (EAT) in Bathgate v Technip.

There has been much debate among practitioners in recent times about whether it is possible, under a settlement agreement, to waive unknown future claims that have not yet arisen or are not known at the time of entering into the agreement. Though case law had seemed to suggest this was possible, the recent decision in Bathgate appears to cast doubt on that by holding that section 147 of the Equality Act 2010 does not allow future claims, unknown to the parties at the time of the agreement, to be compromised under a settlement agreement.

Whether or not this decision is viewed positively or negatively ultimately depends on whether you are the employer or the employee in any given scenario. However, both parties will be able to agree that the decision has left the underlying legal position even less clear that it was before.

Background

For a settlement agreement to be valid, certain conditions set out in the Employment Rights Act 1996 (also replicated in other legislation) must be satisfied. One of those provisions is that the agreement must relate to a “particular complaint” or “particular proceedings”. In practice, there appears to be little difference between these two requirements, with the crucial premise being the words “particular”. For completeness, the requirement to validly settle claims under the Equality Act 2010 (for example discrimination claims, which was the relevant claim in Bathgate) is that the agreement must relate to a “particular complaint”. However, whilst Bathgate concerned the wording of the Equality Act 2010, the emerging principles should apply equally to the equivalent provisions in other statutes.

Despite settlement agreements having been introduced over 20 years ago, the effectiveness of a purported waiver of future claims is still not entirely clear. However, prior to Bathgate, case law had at least established a number of guiding principles, two of which are of particular relevance to this case:

• A settlement agreement that identifies an actual or potential claim by way of generic description or by using statutory references is lawful (Hinton v University of East London), and
• To effectively waive future claims of which an employee does not (and could not) have knowledge, the terms of the settlement agreement must be “absolutely clear and leave no room for doubt” (Royal National Orthopaedic Hospital Trust v Howard).

And then along comes Bathgate, which appears to deviate from, and shed doubt on, these principles. Don’t be fooled by the fact that the Claimant’s claim ultimately failed due to jurisdictional arguments: the decision as it relates to the waiver of future claims stands, and is one which we will all need to begin to grapple with.

Bathgate v Technip UK Ltd [2022] EAT 155

Facts

The employment of the Claimant (Mr Bathgate) was terminated in January 2017 following his election to take voluntary redundancy. As part of that voluntary redundancy, Mr Bathgate signed a settlement agreement, having taken advice from a solicitor, which referred to, among other payments, the possibility of an “Additional Payment” in June 2017 to be calculated in line with the Respondent’s (Technip Singapore PTE Ltd) collective agreement with a trade union (which stated that the payment applied to officers who had not reached the age of 61, predating age discrimination legislation). Mr Bathgate was expecting to receive this “Additional Payment” despite being 61 years of age at the date of his dismissal. In March 2017, after the settlement agreement had been entered into, the Respondent decided not to pay the “Additional Payment” to employees (including Mr Bathgate) aged 61 or over at the time of their termination. Of potential importance is that this decision was not communicated to Mr Bathgate until June 2017. Consequently, Mr Bathgate sought to bring a claim of direct and / or indirect age discrimination.

The terms of the settlement agreement that Mr Bathgate had signed provided a specific waiver of a number of claims, including age discrimination under the Equality Act 2010 as well as a more general waiver (which is customary in many settlement agreements) which sought to exclude future claims. Whilst the Respondent accepted that the additional payment was not made due to Mr Bathgate’s age, they argued, successfully before the Employment Tribunal (ET), that the claim was validly compromised by the settlement agreement. Mr Bathgate appealed the decision, arguing that the Equality Act 2010 requires a settlement agreement to refer to a “particular complaint” which is not possible where the complaint was not known to the parties at the time

EAT Decision

The EAT held that the settlement agreement did not waive Mr Bathgate’s claim of age discrimination. The EAT did not accept the submission that the specific waiver of a number of claims, including age discrimination under the Equality Act 2010, within Mr Bathgate’s settlement agreement satisfied the requirement for the “particular complaint” to have been identified, explaining that:

• It was evident in the parliamentary debates regarding the Equality Act that the intended meaning of “particular complaint” envisaged that a cause of action had “already arisen”, rather than meaning any possible future causes of action.
• Further, such a construction would be contrary to the broad purpose of the relevant legislation which was to stop people signing away their statutory rights without a proper understanding of what they were doing. Whilst potentially possible at common law, section 147 of the Equality Act 2010 prevents this.
• On a straightforward construction of the terms, the words “the particular complaint” suggest that parliament anticipated the grounds of a complaint existing, rather than as describing a potential future complaint.
• The EAT was not satisfied that clauses that list a series or type of complaint by reference to their nature of section number adequately identifies “the particular complaint”.

In coming to this conclusion, the EAT distinguished Bathgate from the aforementioned cases and reconciled them with the current understanding of the statutory regime. Taking each in turn:

• Referring to Hinton, the EAT explained that in that case the Claimant was not dealing with a hypothetical claim, rather, the Claimant there believed he had a right of action in respect of facts and circumstances of which had already occurred. In other words, Hinton is authority that a known complaint (albeit it may not yet have been brought to the tribunal) can be settled, but the EAT distinguished that case from the facts in Bathgate. Query whether, therefore, had Mr Bathgate been told before he entered into the settlement agreement that the Respondent would not pay the additional payment, his age discrimination claim would have been validly waived.  
• Referring to Howard, the EAT explained that this case was concerned with the law of contract, and the arguments made relied on reasons of public policy. However, Howard did not discuss the meaning of the words “the particular complaint”, nor did it address the statutory restrictions. The EAT in Bathgate, however, explained that public policy had no role in the interpretation of s.147 of the Equality Act 2010. Again, therefore, this case was distinguished from Bathgate.

Overall, the EAT held that the prospect of a future unknown age discrimination claim was insufficiently certain to be validly settled by the settlement agreement.

Implication

Even though this is a decision of the Scottish EAT, it is binding on English Employment Tribunals given the parity of the legislation. Given the divergence (or at least distinction) from earlier case law, and without appellate authority, it is probably too soon to draw definitive conclusions and unlikely that we will see a significant shift in the drafting of settlement agreements at this stage. We expect that practice in this area will evolve over time, but for now at least, we are left in a state of legal uncertainty.

However (and albeit a simplification), the basic position following Bathgate seems to be as follows:

• It is possible to waive existing and unknown future contractual claims, provided clear and unambiguous enough wording is used to demonstrate that this is genuinely intended.
• For statutory claims, the position depends on whether it is an existing / known complaint or an unknown future complaint:
  • It is possible to waive existing (known) complaints. The wording “the particular complaint” is satisfied if the settlement agreement identifies the particular complaint by a generic description (eg “unfair dismissal”) or by reference to the section of the statute giving rise to the claim.
  • It is not possible to waive unknown future complaints or hypothetical claims that may or may not arise at some point in the future. The EAT found that the words “the particular complaint” cannot describe a potential future complaint.

Key takeaways

To come back to the question in the title, the answer, for now, seems to be no. The EAT noted that although this is likely to have “inconvenient” consequences for employers seeking to avoid future claims, the intention of Parliament when enacting legislation had to prevail.

Whether or not one views this as a favourable or inconvenient decision, as is often the case, depends on whose perspective you are viewing the decision from. From the perspective of employers, the ‘clean break’ that settlement agreements purport to bring has been brought more strongly into doubt. It is important to be aware of the potential uncertainty / limitations which this case creates. It remains advisable to include as much detail as possible in a settlement agreement about the specific complaint(s) being settled, and it may now be more important than ever to consider including some form of warranty to the effect that an employee is unaware of, and has no intention of bringing, any future claims. On the other hand, if you are an employee being asked to enter into a settlement agreement this decision will add weight to your (likely) stance that it is not possible to waive future unknown claims and, where relevant, may strengthen your negotiating position in this respect. Either way, both parties will be able to agree that the legal position is even less clear than it was before.

With many thanks to Alex Evans, a current paralegal in our Employment team, for co-authoring this blog.

If you require further information about anything covered in this blog, please contact Natasha Nichols or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, November 2022