Settlement agreements and future claims

Settlement agreements are contracts between an employer and employee where the employee agrees not to pursue certain legal claims in return for compensation. They are often used at the end of employment, especially in redundancy situations, to provide the employer with certainty against future litigation. In Bathgate v Technip UK, the EAT has given advice on the kinds of claim that a settlement agreement can legitimately compromise.

The employee was a chief officer working for an onshore and offshore energy company. For most of his 20 years of service he worked on ships outside the UK and EEA and, as such, was not subject to the terms of the Equality Act 2010. However, for the last 6 months of his employment, he worked onshore in Scotland. The employer decided it needed to make redundancies and the employee was selected. He accepted an enhanced redundancy payment and an enhanced pension payment which was governed by a collective agreement. The collective agreement was outdated and said that the enhanced pension would only be paid to employees under the age of 61. The employee was 61 when he signed the agreement. After he had signed the agreement, the employer refused to pay the pension payment but only told the employee just before he was due to receive it. The employee brought an age discrimination claim. The employer said he couldn’t bring the claim because he had agreed to waive future discrimination claims in the settlement agreement.

The EAT disagreed. They said the wording of the Equality Act 2010 refers to settling ‘the particular complaint’ indicating that Parliament was referring to either an actual complaint or facts which might give rise to a particular complaint. The EAT said those words did not cover a potential future discrimination claim. The employee had signed the agreement before he knew about any potential age discrimination claim. It was not in his contemplation at the time he signed the agreement. Even though generic age discrimination claims were referred to in the agreement, that was not enough to cover the particular age discrimination claim that arose after the agreement was signed.

In this case, there were other reasons relating to his offshore work that meant the employee lacked the jurisdiction needed to bring a discrimination claim. However, this case shows that future discrimination claims cannot be settled. Only claims which have arisen, or where the facts that would lead to a potential claim are known, at the time of signing the agreement, can be settled by its terms. Employers must ensure that settlement agreements are tailored to the individual employee. Settlement agreements may not always signal the end of the story if something else happens, or unknown matters come to light, after the agreement is signed.