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The Employment Appeals Tribunal handed down an important judgement on 7th October 2022 in the case of Bathgate v Technip UK Limited (2022) which affects the ability of employers to settle certain claims by the use of a settlement agreement.
Settlement Agreements are widely used by employers to reach an agreed exit from employment or in order to settle potential Employment Tribunal claims with employees. The employer usually agrees to pay a sum of money to the employee in return for the employee agreeing to waive any rights they may have to take the Employer to an Employment Tribunal and often as part of the deal the employee agrees for their employment also to be terminated.
It is often perceived by employers to be a secure method of reaching terms with an employee which will afford them the ability to end the employee’s employment quickly and confidentially or resolve any potential for future dispute.
In order to provide a level of protection to employees being presented with the opportunity to agree terms of a settlement agreement, various pieces of legislation relevant to each type of claim that could be settled, or rights waived concerning the same, require certain conditions to have been met. The main essence of the requirements are that the agreement must be in writing, set out the particular claims that the employee is waiving, and the employee must have received independent legal advice on the terms and effect of the agreement which is covered by indemnity insurance before signing.
However, in order to be validly constructed Employers also have to bear in mind the requirements from Hinton v University of West London (2005) which is the leading case on validity of Compromise Agreements wherein general expressions of settlement were held to be insufficient by the Court of Appeal. In Hinton a particular claim concerning whistleblowing was not covered by the following general term:
“in full and final satisfaction of all claims in all jurisdictions (whether arising under statute, common law or otherwise) including, in particular, the following claims which have been raised by or on behalf of the employee as being claims which he may have for “
Some 17 years later we now have the decision of the EAT in Bathgate v Technip UK Limited (2022) which further clarifies the general requirements of the various pieces of legislation, most commonly summarised in S203 Employment Rights Act 1996, and provides that unknown future claims cannot be compromised by settlement agreement.
The background to the Bathgate case was that the Claimant has spent most of his 20-year employment Technip UK Limited working on foreign flagged vessels but for the last 6 months of his employment worked on shore in Scotland. This last 6-month period of employment would have been covered by the Equality Act 2010. Mr Bathgate took voluntary redundancy in 2017 with a settlement agreement which amongst other provisions set out a term which provided for a future payment, to be calculated in accordance with the terms of a collective agreement which had been created before the introduction of age discrimination legislation. Payments under this collective agreement were prohibited for employees of 61 years and over. At the time of signing the Settlement Agreement Mr Bathgate was unaware of the discriminatory provisions.
Mr Bathgate brought a claim at the Employment Tribunal which initially held that he had compromised any such claim under the terms of a settlement agreement which provided that he had waived claims whether known or unknown at the time of signing. Mr Bathgate appealed to the EAT.
The EAT determined that the settlement agreement had not compromised the age discrimination claim, as a settlement agreement cannot compromise unknown future claims.
“Section 147(3)(b) of the Equality Act 2010, provides that for a settlement agreement to be valid, it must relate to a “particular complaint “.
In focusing upon this requirement, the EAT also considered s 203(3)(b) of the Employment Rights Act 1996 which like s. 147 of the Act stated that a compromise agreement ‘must relate to the particular complaint’.” Morison, J stated:
“A compromise agreement cannot, therefore, seek to exclude potential complaints that have not yet arisen on the off-chance that they might be raised; it cannot, in other words, be used to sign away all the employee’s tribunal rights, as can be done in the case of a negotiated settlement drawn up with the assistance of a conciliation officer.”
The EAT therefore concluded that: “These remarks relate to the wording of the ERA96 s. 203(3)(b) and support the interpretation of s. 147 set out above. While the prospect of a future age discrimination complaint was more than an “off chance”, to use the language of Morison, J it was insufficiently certain to come within the ambit of a qualifying legal settlement. I therefore conclude that the Agreement could not settle the Claimant’s claim of age discrimination.”
As with the Hinton case above, Lord Summers who heard the EAT appeal from Mr Bathgate also highlighted and confirmed that a general waiver of unknown future claims is unenforceable, but also gave comment that the standard list of claims that is deployed in most settlement agreements these days, also does not meet the conditions for a qualifying settlement agreement.
Lord Summers added: “It does not seem to me that there is any difference in principle between a “rolled up” waiver and a waiver which lists a variety of possible claims by reference to their nature or section number. Both are general waivers. All that distinguishes them is the particularity with which they have been drafted. I do not consider that one provides any more protection than the other. I consider that both approaches fall foul of the guidance given by Mummery LJ and Smith LJ in Hinton. “
Employers embarking on seeking to agree exit terms with employees by settlement agreement will need to consider the ultimate enforceability of such agreements and how to seek to draft them in ways to maximise their chances of validity with also other mechanisms such as indemnities and warrantees to create the level of protection intended. The issues highlighted by Lord Summers in this case are very relevant to all future settlement agreements and how cases involving the same will be pursued in cases hereafter.
Contact Biscoes’ employment law specialists on 02392 660261 or at info@biscoes-law.co.uk