Can settlement agreements waive future claims that have not yet arisen?

What happened in the case?

The Claimant was made redundant in January 2017 at the age of 61.  He signed a settlement agreement which included a specific waiver (including a waiver of age discrimination claims) as well as a general waiver (including a waiver of future claims).  As part of the settlement, he understood that he was to receive an additional payment calculated by reference to a collective agreement.  His employer decided not to pay the additional payment because the collective agreement stated it would not be payable to those over the age of 61. He was not told about this until some months after his termination date.

The Claimant brought a claim for age discrimination but a tribunal held that he had lawfully settled his claim under the terms of the settlement agreement. He appealed arguing that the Equality Act 2010 (“EqA”) did not permit settlement of claims before they have arisen and that the statutory words “the particular complaint” limited settlement to claims that are known to the parties.

EAT decision

The EAT took the view that, at the time that the settlement agreement was entered into, there was no claim for the Claimant to bring.  The claim only came into existence at the point when the Respondent took the decision to not pay the additional payment.

Looking carefully at previous case law but distinguishing it from the facts of this case, the EAT agreed with the Claimant finding that the EqA prevents the settlement of claims before their existence is known. It looked in particular at one of the leading cases on this issue – the Court of Appeal’s decision in Hinton v University of East London – which found that an agreement that identifies an actual or potential claim by a generic description or a reference to the section of the statute giving rise to the claim is valid and enforceable.

However, the EAT held that Hinton is authority for the proposition that a known complaint can be settled; it is not authority for the proposition that the words “the particular complaint” mean a complaint that may or may not occur at some point in the future.  In other words, Hinton did not deal with a hypothetical claim; the facts that gave rise to that claim had already occurred.

The EAT accepted that its findings “may be inconvenient” for employers seeking a clean break and a waiver of all future claims.  However, it concluded (after reviewing Hansard) that Parliament did not intend to allow unknown future claims to be settled by way of a settlement agreement.

What does the decision mean in practice?

Firstly, it’s important to note that the decision does not just cover claims under the EqA – claims under the Employment Rights Act 1996 (which includes parallel wording to “the particular complaint” wording found in the EqA) are also covered, which theoretically brings future unfair dismissal claims into question as well, although circumstances where that would happen are rare, in practice.

Secondly, the EAT stated that the statutory requirement for a settlement agreement to relate to “the particular complaint” requires an actual complaint to exist or circumstances where the grounds for a complaint existed. It may therefore be enough for facts from which a potential claim arises to have been in existence at the time the settlement agreement is entered into.

Third, in the absence of higher appellate authority on this issue, this case now creates legal uncertainty.  Employers will need to be live to the risk of future litigation, and even the most careful wording of the waivers in a settlement agreement may not give protection against future claims which have not arisen at the time the agreement is entered into.

Fourth, as a change brought about by case law, the effect of this decision is retrospective, so there is a risk of employees who have signed settlement agreement in the past could now come back out of the woodwork if they’re not happy about subsequent events.

Last, but by no means least, you should seek legal advice at the earliest opportunity when dealing with settlement negotiations to ensure that your waiver is as robust as it can be and that risk is minimised as far as possible.