UK: Court of Session rules that settlement agreements can waive unknown future claims

In a judgment which will be highly persuasive for English tribunals, the Inner House of the Court of Session has overturned a Scottish EAT decision and ruled that it is possible for a settlement agreement to waive future statutory employment rights claims which are unknown to both parties at the time of entering into the agreement, including where the cause of action has not yet arisen, provided that the type of claim is clearly identified.  Employers may wish to review their template settlement agreements in light of the ruling.

Legislation provides that a settlement agreement must “relate to the particular complaint” to effectively waive it, and in Bathgate v Technip Singapore PTE Ltd the EAT had ruled that this means that the complaint must have been known of or, at the very least, the grounds for the complaint must have existed, prior to the agreement.  The Court of Session took a different view, holding that the words simply required that the terms of the settlement agreement cover the claim being made.  It considered that the purpose of the legislation is to protect claimants from signing away rights without understanding what they are giving up.  While a waiver of “all statutory rights” would not be sufficient to provide this understanding, a generic description or reference to the statutory provision for the type of claim would be sufficient identification (as provided by the Court of Appeal in Hinton v University of East London) and there was nothing in previous caselaw to suggest that a future complaint could not be sufficiently particularised.  The Court also thought it would be strange if future claims could not be effectively waived by a settlement agreement on which independent legal advice is required, when they can be waived by a COT3 agreement (conciliated through Acas, where the claimant does not receive legal advice).

The Court did not discuss whether it was material that the settlement agreement in this case was signed as part of a clean-break termination, and therefore whether the answer would be the same if the employee’s employment relationship is ongoing (which obviously increases the potential for future, unanticipated claims).   There must be strong public policy arguments that a waiver of future claims in the latter scenario should not be enforceable.

The judgment will not be binding on tribunals in England & Wales, but is likely to be followed (pending any appeal or future case). Employers may therefore want to consider extending settlement agreement waivers to future claims, at least where the employment is terminating and a clean break is sought. In particular, the employers may wish to address the following scenarios:

• Where a settlement agreement is signed a few days before the termination date (and reaffirming the waivers on termination would be considered excessive), the termination itself will be an event post-agreement. In light of the green light provided by this ruling, it would be prudent (and reasonable) to ensure the terms of the waiver cover claims arising from that post-agreement termination and, potentially, other claims that may arise between signature and the termination date.  Where there will be a longer period between signing and termination, given the lack of English authority, it remains safer to require the employee to sign a fresh waiver on termination.
• A broader waiver covering all (specified) types of employment claims occurring at any point in the future would prevent the ex-employee bringing victimisation or detriment claims, for example in connection with references, or claims under outstanding incentive entitlements or in relation to an ongoing grievance appeal. The ex-employee may therefore seek to expressly exclude specific types of potential claim if the employer seeks such a broad waiver.  The outcome of negotiations will depend on the parties’ relative bargaining positions and the amount of compensation on offer.