(Now) settled for time

Settlement agreements are often described as providing an employer and a departing employee with a “clean break”. In return for the employee receiving a financial package, the employer gains comfort that employment tribunal proceedings will not be incoming, a mutual termination so to speak.

In Bathgate v Technip UK Ltd and others [2022] EAT 155, the clean break philosophy was somewhat dented. As we reported in  January 2023, the EAT drew on the statutory requirement for a settlement agreement to relate to a “particular complaint” to hold that potential future claims – which had not yet arisen and were therefore unknown to the parties at the time of the settlement agreement – could not be settled.

The Inner House has now reversed the EAT’s decision (Bathgate v Technip Singapore Pte Ltd [2023] CSIH 48). In its opinion (delivered by Lord Malcolm), the Inner House noted that:

• if Parliament had intended to restrict parties’ ability to settle potential future claims, the relevant statute would have presumably set out the restriction in clear and unequivocal terms;

• it did not share the EAT’s interpretation of a Hansard excerpt from when the relevant statutory language was being debated in the House of Lords; and

• it was difficult to understand why there would be a restriction on settling potential future claims via a settlement agreement, where there is plainly no such restriction for settlements made via Acas conciliation.

The agreement in Bathgate listed various types of claims and had a general waiver for all claims, whether past, present or future, which is a typical form used by solicitors. This level of detail was found to be sufficient.

Employers (and solicitors acting for them) will be pleased with the Inner House’s decision: confirmation that settlement agreements can validly settle potential future claims strengthens the prospect of a clean break when the employment relationship comes to an end.

Nonetheless, following the Inner House’s decision, solicitors drafting settlement agreements are still advised to give consideration to the following:

• avoid “blanket” settlement wording (Lunt v Merseyside TEC Ltd [1999] IRLR 458);

• ensure that claims being settled are referred to by at least a generic description or a statutory provision (Hinton v University of East London [2005] EWCA Civ 532); and

• ensure that settlement wording covering potential future claims is plain and unequivocal (Royal National Orthopaedic Hospital Trust v Howard [2002] IRLR 849).

Written by William Lane and Paman Singh who are solicitor members of the Law Society of Scotland's Employment Law Subcommittee