Avoid future claims with a settlement agreement

Employers can avoid employment claims from departing employees by using a settlement agreement. These agreements must follow a specific format and the employee must get legal advice before signing. Recent legal cases have examined if settlement agreements can validly settle future unknown claims—those based on facts not existing and not known at the time of signing.

In Bathgate v Technip, the Scottish Court of Session ruled that future unknown claims can be settled if the waiver is clearly worded. This has now been affirmed by the Employment Appeal Tribunal in Clifford v IBM.

Clifford v IBM

Mr Clifford, who was absent from work due to disability, entered a compromise agreement (now called a settlement agreement) in 2013 in which it was agreed that he would remain employed but would move to the company disability plan. Under the agreement, he waived the right to bring future disability discrimination claims, whether they were or could be in the contemplation of the parties at the date of the agreement, or not.  There was no exception for matters arising from his transfer to the disability plan.

A while later the employee claimed disability discrimination due to receiving no increase in payments under the disability plan. The tribunal struck out his claim. It was a future claim but was clearly barred by the terms of the compromise agreement. It made no difference that he’d remained in employment. This case is a reminder that it is possible to avoid future unknown claims by using a settlement agreement, but the wording used is crucially important. You must expressly state that the agreement covers claims which were not, or could not, be contemplated at the time the agreement was signed.