Clarity covers a multitude of sins – Court of Session restores order to settlement agreement waivers (UK)David Whincupon April 10, 2024 at 3:22 pm Employment Law Worldview


Back in October 2022 we reported here on the EAT’s decision in Bathgate -v- Technip UK Limited. This was a particularly unnerving ruling to the effect that settlement agreements could not cover claims yet to arise because of the requirement under section 147 Employment Rights Act that such agreements must relate to “particular claims”. The Employment Appeal Tribunal concluded that you couldn’t identify a particular claim if the circumstances of it had not yet occurred, seemingly whether or not the employer and/or employee knew or believed that they still might. As a result, Mr Bathgate was in principle free to pursue an age discrimination claim in relation to the calculation of his severance payments even in the face of a signed settlement agreement saying specifically that he wouldn’t.

At the end of 2023 Technip’s appeal was looked at by the Scottish Court of Session, the equivalent of the English Court of Appeal. Its rejection of the EAT’s position on particular claims is comprehensive, indeed borderline dismissive. There is nothing in section 147 which limits the claims which can be validly waived in a settlement agreement to matters which have already occurred, it said. After all, if there were, then you could never have a meaningful protected conversation around an employee’s departure because you couldn’t settle claims in relation to a future termination. Having to dismiss the employee first would scupper the whole point of that conversation.

Instead, the Court said that the only test is whether the claim which the former employee is seeking to bring is sufficiently clearly covered by the terms of that settlement agreement. This is a much more sensible and logically sustainable position and brings the effective scope of a settlement agreement far more into line with ordinary contract principles.

But to gain that degree of protection reaching into the future, the employer must still do some spade-work. The Court of Session echoed the earlier words of the EAT that blanket waivers of “all claims of any nature arising out of the employment or its termination”, for example, would not be sufficient by themselves to identify particular statutory claims and so would not be effective to waive them. Employers must therefore apply their minds to the sorts of claim likely to be brought and then draft the settlement agreement so as to pre-empt them. It is possibly tempting not to make express reference to particular possibilities here, so as not to put the employee on notice of them and perhaps lead him to seek additional compensation. However, this decision makes it clear that you take that approach at your own risk – if the future claim isn’t sufficiently clearly identified in the settlement agreement, you will have no protection if the employee spots it anyway.

The issue in Bathgate was his entitlement to an enhanced severance payment under the terms of a collective agreement. The settlement agreement recorded that his rights under that agreement were to be respected. That agreement denied such payments to employees over 60, which Bathgate was. Nonetheless, even though he knew of the potentially discriminatory terms of the collective agreement and had taken the required legal advice, Bathgate had still signed a settlement agreement waiving claims for age discrimination. The Court of Session said that this was specific enough to deny him that claim.

However, the position would likely be different in circumstances where the future event is less foreseeable. Take a settlement agreement which includes some express provision for the later exercise of a discretion by the employer, for example in relation to a bonus for the year of termination or treatment under an equity or other deferred compensation scheme. In principle the employer could then exercise its discretion in those respects in a manner discriminatory on grounds of age. Would an earlier waiver of age claims in the settlement agreement be enough to forestall litigation on them? In my view, no. The employee may well be aware of the future decisions to be made in respect of him, but he must be entitled to expect them to be made lawfully. The discriminatory exercise of those discretions would be a new and technically unforeseeable act (unlike the age cut-off in Bathgate’s redundancy scheme), and there would have to be clear public policy considerations against allowing employers to discriminate afresh post the settlement agreement.

If you like that sort of thing, much time could be given over to whether even that discriminatory exercise could technically be covered off by sufficiently clear wording in the settlement agreement – “You waive your rights to make any age discrimination claim in respect of future bonus decisions even if we exercise that discretion in a manner which is flagrantly age-discriminatory”. Obviously no employee or advisor in their right mind would sign such a thing, so the question is sadly academic only and the Court of Session rightly didn’t go near it.  Maybe an issue for a quieter day.

Employment Law Worldview

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