In a decision that will be welcomed by employers, the EAT has upheld the Scottish Court of Session’s decision that settlement agreements can effectively waive both existing and future claims. We’ve summarised where it leaves the law on settlement agreements (or compromise agreements in Northern Ireland).

 

Background

Whether settlement agreements can effectively waive both existing and future claims has been uncertain, with conflicting tribunal decisions culminating in the Bathgate case in 2022. In this case, the EAT decided that settlement agreements could not be used to waive claims which had not arisen at the date of the agreement. This decision went against previous EAT cases and left the legal position uncertain.

The EAT’s decision in Bathgate was reversed by the Scottish Court of Session on appeal in 2024, which ruled that the settlement agreements could be used to waive claims which had not arisen at the date of the agreement, even if the dispute giving rise to the new claim happens after the agreement has been signed. This was a welcome decision for employers who want to achieve a “clean break”. Technically, as a Scottish decision it was not legally binding on tribunals in England & Wales or Northern Ireland.

 

Decision

This week, in Clifford v IBM United Kingdom, the English EAT has applied the Scottish court’s ruling in Bathgate, confirming that settlement agreements can be used to waive both existing and future claims.

In Clifford, the employee was absent from 2008 and brought a grievance in 2012 about being moved onto a disability plan. The parties entered into a settlement agreement in 2013 which saw the employee move onto the disability plan, receiving salary payments at a set level, while waiving a number of specified employment claims, including disability discrimination, whether or not the claims were in the parties’ contemplation at the date of signing. Future claims were excluded from this waiver except where related to the grievance or disability plan.

After several years, the employee brought disability discrimination claims on the basis that he had not received an annual salary review since moving onto the disability plan, meaning his salary payments were less than comparable employees not on the plan.

This claim was struck out at a preliminary hearing for having no reasonable prospect of success, on the basis that moving onto the plan in 2013 had been beneficial to the employee. The EAT dismissed the employee’s appeal, finding that the claims had been effectively waived by the settlement agreement in 2013.

The EAT agreed with the Scottish court’s ruling that the relevant statutory provisions on settling claims (in this case section 147 of the Equality Act) did not preclude settling future claims. It agreed that the statutory provisions only cover how to enter into an effective settlement agreement rather than what types of claims can be settled.

 

Requirements for effective settlement agreements  

These recent cases have helpfully clarified the main principles for legally effective settlement agreements:

 

• The agreement must relate to the “particular complaint” (meaning the actual or potential claim) being settled.

 

• These particular claims must be clearly identified by reference to the applicable legislation or description.

 

• General or “blanket” waivers of unspecified claims will not be enforceable.

 

• Settlement terms for future claims which an employee is not, and could not, be aware of when signing must be clear and unequivocal.

 

Where does this leave settlement agreements? 

Employers use settlement agreements to achieve a clean break with employees to resolve ongoing or anticipated disputes. With this in mind:

 

• As the settlement agreement can waive both existing and future claims, in circumstances where employees will remain employed for a period after signing (usually working their notice or on garden leave), they should not need to sign a second “reaffirmation” of the original agreement to cover claims arising in the interim period.

 

• The reaffirmation approach may continue as a guarantee of good conduct during that period, though employees could be suitably incentivised by the payment terms in the original agreement.

 

• The practice of including a standard list of all or most potential employment claims within the agreement should be permissible, so long as each claim is properly identified.

 

• These decisions bring settlement agreements in line with ACAS conciliation agreements which have always been able to settle existing or future claims within their remit. However, the conciliation route may still be preferable in many cases as the employee does not need to take independent advice before signing.

 

• There is a technical possibility that employers could take advantage of these decisions by requiring employees to enter settlement agreements at the beginning of employment or periodically, with this effectively waiving future claims, although adequate consideration would be needed.

 

• This would seem entirely contrary to the intention of the legislation and public policy; especially with the growing discomfort about using settlement agreements with confidentiality terms in discrimination and harassment cases. There would also be employee relations implications which should usually outweigh any potential benefits.

 

What about Northern Ireland?

EAT and Scottish decisions are not legally binding in Northern Ireland. However, the equivalent Northern Irish provisions on entering into compromise agreements are almost identical, and these decisions should be highly persuasive for the Northern Irish tribunals unless there are compelling reasons to take a different approach.

 

If you have questions about settlement agreements or Employment Law queries, please contact our Employment Team for more information.

While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.