Is it possible for a settlement agreement to waive unknown future claims?

Yes, says the Scottish Court of Session (CoS), Scotland’s supreme civil court, in Bathgate v Technip Singapore PTE Limited.

In 2022, we discussed the Scottish Employment Appeal Tribunal’s (EAT) decision in Bathgate v Technip UK Limited. Despite prior case law seeming to suggest that it was possible to waive unknown future claims, the EAT cast doubt on that and held that it was not possible. However, in December 2023 the CoS disagreed with the EAT and confirmed that it may in fact be possible to waive unknown future claims after all: no doubt a relief to employers looking to achieve a "clean break" in employee settlement agreements.

Background

Despite settlement agreements having been introduced over 20 years ago, the effectiveness of a purported waiver of future claims has continued to spark debate among practitioners.

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”, with the crucial premise being the word “particular”.

The EAT Decision

Our previous blog, which includes an overview of the facts of the case in the EAT, can be read in full here.

In short, the employment of the Claimant was terminated following his election to take voluntary redundancy. As part of that voluntary redundancy, the Claimant signed a settlement agreement. The terms of the settlement agreement provided a specific waiver of a number of claims, including age discrimination under the Equality Act 2010 (EqA) as well as a more general waiver (which is customary in many settlement agreements) which sought to exclude future claims. Subsequently, the Claimant sought to bring a claim of direct and / or indirect age discrimination in response to a decision by the Respondent, taken after the settlement agreement had been entered into (ie a future claim), not to pay an additional payment to employees (including the Claimant) aged 61 or over at the time of their termination.

The Respondent had successfully argued in the Employment Tribunal that the claim was validly compromised by the settlement agreement. However, the Claimant appealed to the EAT, arguing that for a settlement agreement to be valid, it must refer to a “particular” complaint, which is not possible where the complaint was not known to the parties at the time.

The EAT held that the prospect of a future unknown age discrimination claim was insufficiently certain to be validly settled by the settlement agreement. The EAT was not satisfied that clauses that list a series or type of compliant by reference to their nature or section number adequately identifies the “particular” compliant. Having regard to parliamentary debates, the EAT concluded that the intended meaning within the legislation of a “particular” complaint envisaged a cause of action that had already arisen, rather than meaning any possible future causes of action. The decision was subsequently appealed to the CoS.

The CoS’s Decision

The CoS stated that “a future claim of which an employee does not and could not have knowledge may be covered by a waiver where it is plain and unequivocal that this was intended” and held that, in the present case, it was clear that the agreement intended to do just that.

The CoS felt, in respect of the parliamentary commentary referred to by the EAT, that the relevant minister was in fact “focussing on protections for employees settling a particular issue during the parties’ relationship, not on clean break agreements of the present kind”. The CoS considered that the applicable legislation does “not exclude the settlement of future claims so long as the types of claim are clearly identified and the objective meaning of the words used is such as to encompass settlement of the relevant claim”.

In the CoS’s view, the requirement (under s.147 of the EqA) for the contract to relate to a “particular” complaint simply requires “one to ask whether the complaint being made is or is not covered by the terms of the contract. They import no temporal barrier to post-employment claims of the kind”. 

The Takeaway

In direct contrast to the decision in the EAT, the CoS’s answer to the question in the title seems to be that yes, it may be possible for a settlement agreement to waive unknown future claims, provided it is clear that that is the intention of the parties. Although an appeal from the CoS is only binding in Scotland, and not in England and Wales, it may be of persuasive value to the English courts. So while not entirely clarifying the law in England and Wales, it certainly gives a good indication of how future cases might be dealt with by the courts here.  

From the perspective of employers, this decision will likely represent a welcome return to the possibility of a "clean break" that settlement agreements purport to bring (but which had previously been cast into doubt by the EAT decision). That being said, it remains advisable to include as much detail as possible in a settlement agreement about the specific complaint(s) being settled and, for a belt and braces approach given the constant state of flux in this particular area of law, it remains prudent to include 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, it will likely be more difficult, following the CoS’s decision, to argue that it is not possible to waive future unknown claims and that such a waiver should accordingly be excluded from any settlement agreement. It is likely therefore that we will continue to see a waiver of future claims as a relatively standard inclusion within employee settlement agreements.

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

© Farrer & Co LLP, January 2024