Settlement agreements can settle future claims

The Employment Appeal Tribunal has confirmed that there is no reason in principle why a settlement agreement cannot extend to unknown future claims, as well as claims that have already arisen at the date of the agreement. This decision is the first binding ruling in England that addresses this issue head on.

The general rule is that you cannot contract out of statutory employment protections, for obvious public policy reasons. There is however an exception for settlement agreements. Assuming the other legal formalities are complied with, a settlement agreement can validly compromise most statutory claims provided that it “relates to the particular complaint”.

There has been a widespread assumption that this requirement would preclude contracting out of unknown future claims, since it is hard to see how these could be particularised adequately in a settlement agreement. This latest decision from the EAT (Clifford v IBM UK Ltd) has confirmed that there is no “temporal restriction” on the types of claims that can be settled, provided sufficiently precise language is used.

Mr Clifford had signed a settlement agreement (then known as a compromise agreement) with IBM back in 2013 when a grievance he had raised was resolved by him being moved to a long-term disability plan. The agreement extended to claims under a number of specified jurisdictions (including disability discrimination) “whether or not they are or could be in the contemplation of you or IBM at the date of this Agreement”. Additional wording included a number of exceptions, including future claims that did not arise from his grievance or his transfer to the disability plan.

In 2022 he issued proceedings in the employment tribunal, complaining, among other things that IBM’s failure to uprate the benefits under the plan amounted to disability discrimination. The EAT has upheld the employment judge’s decision that the 2022 proceedings were validly compromised by the settlement reached in 2013.

The employment judge had drawn a distinction between future claims that could arise “on the same basis” and a claim that arose from wholly new acts of discrimination (for example a new incident of sexual harassment). This distinction was not endorsed by the Employment Appeal Tribunal, but it seems highly unlikely that an employer would be able use a settlement agreement with a current employee to insulate itself from the effects of further acts of discrimination.

One could draw the conclusion that the facts of Clifford v IBM were relatively unusual, as were the facts of last’s years ruling from the Scottish equivalent of the Court of Appeal (Bathgate v Technip) which reached a similar conclusion on the interpretation of a particular compliant.

The reality is that “future claims” come in all sorts of shapes and sizes, and it is highly unlikely that a well-advised employee in a continuing relationship with their employer would give them a blank cheque about future acts of discrimination. What this ruling does illustrate however, is that a “clean break” is possible when an active employment relationship comes to end, provided that the wording in the settlement agreement is sufficiently clear.