To infinity and beyond: can a settlement agreement stop an employee bringing future claims?

A settlement agreement is a legally binding contract between an employer and employee that is used to settle employment-related disputes.  

In most cases, the settlement agreement will end the employment relationship either immediately or within a few weeks or months of the agreement being signed.  In some cases, a settlement agreement might be used to resolve claims whilst the employee remains in employment. Either way, the settlement agreement may contain a clause that seeks to prevent the employee from bringing future claims against the employer, even if the parties are unaware of circumstances that might give rise to such future claims.   

Is such a clause enforceable? 

The legal position  

There are several conditions that must be met for a settlement agreement to be binding.  One of these conditions is that the settlement agreement relates to a “particular complaint”. 

Two recent cases have considered whether settlement agreements can include employees waiving unknown future complaints.  The first, a decision by the Scottish Court of Session (which, as a Scottish case, is not strictly binding outside of Scotland), confirmed that so long as an agreement is worded in a way that explicitly covers unknown future claims, then this could be effective in preventing the employee from bringing claims in the future.   

This decision was applied in a subsequent case heard by the Employment Appeal Tribunal (whose decisions are binding on employment tribunals).  In that case, it was held that a disabled employee, whose employment was continuing, had validly waived future claims for discrimination based on clear wording to that effect in the settlement agreement the employee had signed.   

Where employment is ending 

In settlement agreements that include the termination of the employment, it therefore seems likely that a clause that waives future claims will be valid, provided the wording is clear and covers the “particular” future claim(s) to be waived.  Employees who are asked to sign an agreement that clearly includes waiver of future claims will therefore need to bear in mind that by signing the agreement, they are drawing a line in the sand in relation to their employment and its termination.  If they find something out later, or something happens after they have signed the agreement, that would give rise to a claim against their former employer, then they are unlikely to be able to pursue that.  

This needs to particularly be borne in mind where the employee is signing a settlement agreement and then working for several weeks or months before the termination date.   

Where employment is continuing 

The position is not as clear where employment is continuing.  As a matter of public policy, the courts are generally unlikely to prevent an employee from bringing a claim against their employer that they did not, and could not, know about when they signed a settlement agreement.  However, the cases above do suggest that in circumstances where the wording is sufficiently clear, future unknown claims may be able to be validly waived even if the employment is continuing.  That might particularly be the case where those future claims, whilst unknown at the time of signing the agreement, are linked to the matters settled by it.    

How can we help?

Need support with settlement agreements? At Smith Partnership in Leicester, our team offers a comprehensive range of services to guide you through all aspects of settlement agreements.

Get in touch with our specialist settlement agreement solicitors today. Contact our team by telephone on 0116 247 2000, complete our contact form, or send us an email via info@smithpartnership.co.uk. 

We also have offices across the midlands with expert settlement agreement solicitors, in Burton, Derby, Stoke-On-Trent and Swadlincote.