Is a clean break from a damaged employment relationship ever possible?

A recent Employment Appeal Tribunal decision has highlighted an important limitation to the effectiveness of employment settlement agreements. It has said that a general mention of the age discrimination jurisdiction in the list of claims to be settled was not effective to settle a claim of this type of which the employee was not aware at the date the agreement was signed.

While a settlement reached with the assistance of ACAS can provide for a general release of all statutory employment claims, the same is not true of employment settlement agreements. These agreements need to comply with several formal requirements to be valid, including that they must relate to “the particular complaint”. There is no reason why a settlement agreement cannot relate to a number of particular complaints, but they must all be specified in the agreement. That has led to the practice of including a long list of potential claims in a settlement agreement typically covering most or key types of complaints, on the basis that all of them could potentially arise from the termination of the employment.

In the latest case to consider this issue, Charles Bathgate, a merchant seaman, was made redundant and agreed to sign a settlement agreement, in return for which he received a redundancy payment, plus, it appears, the promise of an additional payment set out in a collective agreement, which was to be paid later. However, some months after the settlement agreement was signed, his former employers told him that he did not qualify for the additional payment because the collective agreement said that employees of 61 and over were not eligible.

It is unclear whether Mr Bathgate could have found this out before the agreement was signed, but it is a fair assumption that his employers were not clear about his eligibility, even if they did not formally change their position. When Mr Bathgate did find out that he was not eligible for the additional payment, he sought to issue age discrimination proceedings, challenging his employer’s decision to apply the upper age limit in the collective agreement. The employment tribunal dismissed the claim, on the basis that it had been settled by inclusion of age discrimination in the list of potential claims in the settlement agreement Mr Bathgate had signed.

The EAT has reversed the decision of the employment tribunal. On the particular facts this is not surprising, but the decision also questions whether a generic list of claims can ever satisfy the statutory requirement that the agreement must relate to the “particular complaint”. One further quirk of this decision is that the EAT went on to decide that, although Mr Bathgate's age discrimination claim had not been settled by the settlement agreement, he still could not proceed with it because his employment had been outside the territorial reach of the Equality Act.

This decision is the latest in a line of cases that have explored the limits of claims that can be settled via a settlement agreement. It has been clear for some time that claims that have not arisen at the date of the agreement can’t be included, to which could now be added claims that may have arisen at the date of the agreement, but of which the claimant was not aware until later.

It seems unlikely that this latest decision will result in a radical re-think of the way employment settlement agreements are drafted, but there is no doubt that there is now a greater incentive for employers to be transparent in the agreement about their reasons for terminating the employment relationship, the claims both parties intend to compromise and the way the termination payment is being calculated. Employers will be all too aware that, given the extent of statutory employment-related rights in Britain, there is always a risk that some claims will end up outside the reach of a settlement agreement, however skillfully drafted.

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