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Settlement Agreement in Employment and Future Claims

If your employee has a complaint against you that they may bring to an employment tribunal or a court, you may wish to attempt to resolve the dispute in order to avoid filing a claim or pursuing an ongoing claim any further.

A settlement agreement is an agreement between an employer and an employee that is legally binding on both sides in order to terminate the employment. In most cases, this stipulates that the departing employee would get a severance payout in exchange for the employment contract’s promise not to pursue any claims in a tribunal or a court. The settlement agreement often requires maintaining confidentiality on the terms of the employment contract’s termination, including the amount, as well as the amount and circumstances of its termination.

A settlement agreement may include many forms of payment. They usually include any outstanding right to notice, any accumulated but untaken holiday, and any compensation or “ex gratia” payment.

For a settlement agreement to be enforceable, it must satisfy the relevant legislative conditions. The settlement agreement must specify the “particular complaints” or “particular proceedings” that it is meant to waive, and the employee must have obtained independent legal advice on the terms and impact of the settlement agreement. Claims that are being resolved as part of a written agreement must be specifically defined, and a broad waiver of claims is not acceptable. The objective is to make certain that employees are aware of the possible consequences of waiving any of their entitlements.

In particular, the issue that needs to be emphasised is future claims. In the past, it was unclear if employees might waive claims that weren’t anticipated by the parties at the time of settlement. The tribunal’s decision of Bathgate v. Technip UK Ltd. and others appears to establish that future statutory claims that are unforeseen to the parties at the time of signing the settlement agreement cannot be resolved. The Employment Appeal Tribunal found that the broad renunciation of statutory rights did not fulfil the criterion for establishing a ‘particular complaint’.

The tribunal’s approach shows that employers should not assume that terminating an employment via a settlement agreement would result in the total break with the employee. Employers may be motivated to reduce the associated risks by creating a contract that is uniquely tailored to the facts and claims at present. Moreover, depending on the circumstances, it may be better to get a representation from the employee that they are not aware of any other claims and have no plans to make any future claims.

Mr Charles Melvin Bathgate v Technip UK Ltd and Others: [2022] EAT 155: