Can an employer settle future statutory claims in a settlement agreement?

Employees may have claims against their employer that can arise during the recruitment process, the employment or on termination.  In this case, the parties may enter into a formal settlement agreement to settle most statutory employment claims.  In order for any such agreement to be binding it must satisfy certain conditions.  The extent of these settlement agreements have been considered in various cases. The recent EAT case of Bathgate v Technip UK Ltd and ors held that a settlement agreement cannot compromise future statutory claims unknown to the employee at the time of the agreement.

Background

As mentioned above, a settlement agreement is the type of document used to document the terms of a settlement between an employer and employee.  Once the terms are agreed, it is signed by both parties and the employee’s legal advisor and it acts as a waiver to almost any statutory claim that an employee can bring against their employer, generally in exchange for a termination payment or other terms as negotiated.  For a settlement agreement to be valid, there are certain conditions that must be met which are set out in 203(3) Employment Rights Act 1996 (ERA), these include:

• It must be in writing;
• It must relate to a “particular complaint” or “particular proceedings”; and
• The employee must have received legal advice on the terms and effect of the agreement.

Facts

The claimant was employed by TSPTE Ltd, a company incorporated in Singapore, for about 20 years as a Chief Officer on a number of sea vessels.  From 19 August 2008 he worked on “Deep Blue” which was registered in the Bahamas and which operated outside the UK and EEA waters.   In June 2016 he moved to an onshore role in the UK and he then accepted voluntary redundancy in January 2017.  He was offered a settlement agreement which included an enhanced redundancy payment and notice pay and made reference to an additional payment under a maritime collective agreement, which would be paid in June 2017.  The employee signed the agreement in January 2017.  However, in March 2017 the company determined that no additional payment was payable to the claimant under the collective agreement as he was aged 61 or over at the time of the dismissal.   He was notified of this decision in June 2017.  He then claimed indirect and direct age discrimination. However, the employer argued that he could not bring the claim as he had compromised his rights by signing the settlement agreement.   The Employment Tribunal held that the claim had been effectively compromised by the settlement agreement and that the claimant therefore had no claim.  The Tribunal however rejected the respondents’ claim that the territorial scope of the Equality Act did not extend to the claimant as he was a seafarer.  The claimant appealed to the Employment Appeal Tribunal (EAT) against the decision that his claim was validly settled and the employer appealed against the decision that the claimant was not within the territorial scope of the Equality Act (EqAct).

EAT decision.

The EAT allowed the claimant’s appeal. 

For an agreement to be valid to settle a claim under s147 EqAct it must relate to the “particular complaint”.   The employee submitted that although the additional payment was referred to in the settlement agreement, it was only after the settlement agreement was signed that the employer determined that the employee had no right to receive any payment under that collective agreement because of his age.  It was therefore submitted that since he had no basis for claiming discrimination until the respondent decided not to pay the additional payment, the right of action did not accrue until after he had left the respondent’s employment and signed the agreement.  The potential age discrimination claim could not therefore be covered as a “particular complaint”.  

The respondents argued that in the case of University of East London v Hinton, Lady Smith had said that although blanket agreements were prohibited, an agreement that identified “an actual or potential claim… by a generic description or a reference to the section of the statute giving rise to the claim” was lawful.  She stated that “Whilst parties may agree that a compromise agreement is to cover future claims of which an employee does not and could not have knowledge, to do so effectively, the terms of their agreement must be absolutely plain and unequivocal.”  This gave authority for the fact that future claims could be covered even if not known at the time as long as it was absolutely clear.

However, the EAT disagreed with the respondent that this meant that the “particular complaint” had been satisfied

• First, it considered the parliamentary intention regarding settlement of employment rights.  It considered that the intention was that a “particular complaint” was a matter which had already arisen between the parties.  In this case no right of action had emerged until after the agreement had been signed. 
• It also considered that to allow the future complaint to be covered would be contrary to the construction of the broad purpose of s203 ERA.   The broad purpose of the statutory provisions is to protect employees when agreeing to relinquish their rights. In this case, the employee signed away his rights before he knew whether he had a claim or not.  Whilst it is possible to do that at common law, the ERA restricts the employee’s ability to do so under statute. 
• The EAT also felt that the inclusion of a claim in a settlement agreement, defined merely by reference to its legal character or its section number does not satisfy the language of s147 EqAct.  Although language can be used loosely so that ordinarily a complaint might include a potential compliant, the precision of the statutory language excludes this possibility.  As such there does not appear to be a difference between a rolled up waiver and a waiver which lists a variety of possible claims by reference to their nature or section number.

The EAT discussed the position arising from the Hinton case which was relied on in the case of Hilton UK Hotels Ltd v McNaughton to give the view that potential future claims may be settled by agreement provided the nature of the claim or the section number is listed.  However, this ignored the context of the ruling in Hinton.  In the Hinton case the claimant had not been dealing with a hypothetical claim that might arise in the future.  He had intimated his belief that he had a right of action under s47B of ERA but it had been omitted from the list of complaints.  Hinton is therefore only authority for the proposition that a known complaint can be settled, it is not authority that a particular complaint can include a complaint that may or may not occur in the future.  In this case the employee had entered into an agreement that waived his right to pursue a long list of claims, which included direct or indirect age discrimination, but this could not necessarily mean that a “particular complaint” had been identified.

The EAT did say that this conclusion may be inconvenient where there is a mutual desire to avoid future claims and a wish to end the employment relationship permanently.  However, this was not something that Parliament had considered should be covered by a settlement agreement. 

However, the EAT went on to allow the respondents’ cross appeal against the tribunals decision regarding jurisdiction of the Equality Act.  The EAT rejected the argument that the employee was not a seafarer.  It was necessary to look at the context of his employment and the fact that he was onshore at the time of termination of his employment, was only a small fraction of his career with the employer.  In this context he did not cease to be a seafarer because he was no on board a vessel at that time.  As a result under s81 EqAct the employee was excluded from bringing a claim as individuals working on foreign registered ships are excluded.  His claim therefore could not proceed on that basis.

Conclusion

Although employers may accept the decision that a settlement agreement cannot be used to compromise claims that have not arisen, there is difficulty for the parties where they are seeking to come to some form of financial settlement and have listed those claims that fall under the provision.  This case suggests that a list of statutory provisions is similar to a general waiver and is not enforceable.  In that sense employers may have to be more particular regarding the recitals and facts that they are seeking to rely on so that it is clear the claims that are being covered.