Waiver of future claims in settlement agreement possible, rules EAT

In a helpful case for employers, the Employment Appeal Tribunal has ruled that a settlement agreement can settle unknown future claims provided that it clearly identifies the types of claim being settled and its wording encompasses settlement of the claim. There has been uncertainty on this issue for some time so this case, Clifford v IBM, is a welcome development giving credence to the practice of trying to include future claims in the drafting of settlement agreements. We’ll speak to an employment lawyer about that.  

This case builds on the decision of the Scottish Court of Session last year in Bathgate v Technip. In that case the court ruled that a settlement agreement may be used to waive an unknown future claim where it is “plain and unequivocal” that this was intended. Whilst not binding on courts in England and Wales, Bathgate is persuasive and it has now been followed by the EAT which means, for now at least, it is good law in England and Wales, subject to appeal. Helpfully, in Clifford the EAT has gone further the Court of Session and spelt out that there is no distinction between ‘clean break’ end of employment situations (as in Bathgate) and where there is a continuing employment relationship (as in Clifford). Both are to be treated the same.

The facts briefly. Ian Clifford entered into a settlement agreement with IBM in which he waived the right to bring various specified claims, including disability discrimination claims, whether or not they were or could be in the contemplation of the parties at the date of the agreement.  Clifford brought a claim of disability discrimination, which an employment tribunal struck out. On appeal the EAT agreed with the tribunal that Clifford was precluded from bringing a claim.  It made no difference that Clifford remained in employment. It was a future claim but was clearly barred by the terms of the compromise agreement. Also, the EAT made clear that future claims can also be settled by means of a COT3 and there is no sensible basis for drawing a distinction between statutory settlement agreements and COT3s for these purposes. 

So, let’s get reaction to this ruling which gives credence to the long-standing practice of listing all possible statutory claims that could be brought by the claimant. Earlier, Anne Sammon joined me by video-link to discuss it. I put it to Anne that it’s good news for employers:

Anne Sammon: “Yes, it is definitely good news for employers although I would err on the side of caution. I think it's always best to kind of be quite specific about which particular claims you're really concerned about, and make sure that those are properly included. I'm not a massive fan of including every possible claim under the sun. So, for example, if we were settling out a claim of a male employee, I would be very reluctant to include pregnancy discrimination in there unless there are particular circumstances that gave rise to risk around that.”

Joe Glavina: “So, is it best to avoid including every possible claim in the drafting, Anne? Is that how you read this case and the Bathgate case?” 

Anne Sammon: “I read it as still needing to give careful thought. So, we can't go to the kind of extreme that I suspect some organisations might like where you can just issue the same settlement agreement to every single person, or the same waiver wording to every single person. I still think there's a need to think quite carefully because everybody needs to know what claims are being waived otherwise it's unlikely to be valid and so I think there is still a need to think carefully about what you include, and also how much detail you include about what the circumstances are that give rise to the need for the settlement agreement.”

Joe Glavina: “Can I just ask you about the problem which can arise when you have a delay between the employee’s termination and their signing the settlement agreement. So, a common way to deal with that risk of claims arising in that gap is to get them to sign a reaffirmation letter. Does this case change things at all?”

Anne Sammon: “I would still be inclined, in most cases, to err on the side of caution and to have a reaffirmation letter and that’s because in order to waive a claim it has to be in contemplation between the parties. So, if for example you've got an employee who signs a settlement agreement and isn't leaving the business for three months, there is a real risk that during that three-month period something that nobody could have anticipated could arise and if you haven't got that second reaffirmation, then that piece might not be covered by the settlement agreement. So, to give kind of a real-life example, I had one client who decided that they didn't want to go down the reaffirmation route, they got the employee to sign a settlement agreement and literally the day after he signed the settlement agreement there was a fight with another employee where various words were used that that amounted to harassment from a kind of unlawful harassment perspective and we then got into an argument about whether that was captured by the settlement agreement because nobody could possibly have anticipated that that would arise. Whereas had the client had a requirement to enter into a second settlement agreement, or a reaffirmation, that would have been covered off by that because the employee could then have decided whether or not they were going to enter into that agreement and, if not, the reaffirmation is always the piece that payment is conditional upon so at least then the client wouldn't have paid out for the settlement, and then potentially had to settle a second claim.”

Joe Glavina: “On the drafting side of things, Anne, I’m aware that we advise clients against including ‘remote’ and ‘impossible’ claims. Why is that ?”
Anne Sammon: “I think there are a couple of things. One is, at least for the individual, if they see a whole list of claims that have nothing to do with them, or their circumstances, that's likely to kind of put them ill at ease, they won't really understand why you're asking them to waive claims that they couldn't possibly bring, but the other thing is I think it shows that the parties have paid attention to the circumstances and applied their minds at what it is that they're seeking to waive because even with this case, I still think the parties need to have the claims in contemplation in order to properly waive them from a legal perspective. I don't think you can say we anticipated the impossible when we were entering into this agreement. So, I would be inclined to take out the impossible claims so that it looks like there has been genuine thought given to what claims apply in this particular situation.”

Joe Glavina: “This might be pushing it, but is there any scope, do you think, for getting employees to sign up to settlement agreements at the recruitment stage? That’s an issue doing the rounds in the HR press I notice.”   

Anne Sammon: “I would be amazed if an employment tribunal would accept that in litigation, simply on the basis that you can't possibly go into a settlement agreement with your eyes open before you've even started employment. You have no idea of the environment that you're walking into, or the claims that you might potentially be subject to, and so I would expect that if employers started to go down that route the tribunals would find a way of interpreting this line of case law so as to make it very clear that that is not permitted under the legislation. Also, the other piece is that in order to waive a claim has to be contemplated by the parties. I don't think a new employee could reasonably be expected to contemplate that they might be walking into an environment where they were subject to unlawful discrimination, or harassment, because that's not something that you would have been open with the employee about during the interview process.”

Joe Glavina: “Final question, Anne, on the difference between a settlement agreement and the alternative of going down the Acas route and using COT3 to settle future claims. Is there any advantage in using a COT3 where, of course, you don’t need to identify particular complaints?”

Anne Sammon: “So, I think there are potential advantages and disadvantages to a COT3. The main piece with the COT3 is the fact that you need your Acas conciliator on board with whatever you're actually settling out and we do sometimes see circumstances where the conciliator wants very specific claim wording so that everybody's very clear on what's being waived. So, I've had cases in the past where conciliators have only allowed us to waive the actual tribunal proceedings that are live, and not a wider range of claims. So, I think if you're going down the COT3 route you have to be alive to the fact that you are in the hands of the conciliator, and they can refuse to include certain wording if they don't think it's appropriate for the particular circumstances. Now, that said there are other circumstances, for example when we're looking at collective redundancies, where a COT3 is far safer than a settlement agreement because you can't waive that type of claim under a settlement agreement. So, I think it's about looking at it in the round and it will all be dependent on the particular issues that are in play as to whether it's a COT3, or a settlement agreement.”
That case is Cliford v IBM and is a decision of the Employment Appeal Tribunal. We have put a link to the judgement in the transcript of this programme for you.

LINKS
- Link to judgment: Clifford v IBM