can a compromise agreement waive future claims where employment continues?

28 June 2024

can-compromise-agreement-waive-future-claims-didlaw

The short answer is yes. The Employment Appeal Tribunal (EAT) recently held in Clifford v IBM United Kingdom Ltd that the Employment Tribunal (ET) was right to conclude that the compromise agreement Mr Clifford entered into with IBM in 2013 precluded his disability discrimination claims that he filed in 2022.  The EAT concluded that the compromise agreement met the necessary statutory prerequisites for a qualifying settlement agreement within the meaning of sections 144 and 147 of the Equality Act 2010. 

In March 2023 the ET struck out Mr Clifford’s claims. The judge gave two reasons: (1) that the discrimination claims had been compromised by a 2013 compromise agreement between the parties; and (2) on the basis that in their view neither the unlawful deduction of wages nor any of the discrimination claims had reasonable prospects of success. In our view the decision was erroneous. Having represented Mr Clifford in the ET, we acted pro bono with barrister Conor Kennedy of Old Square Chambers in the EAT on an important point of principle.

Mr Clifford joined IBM in 2001 following a TUPE transfer. He is disabled and has been incapacitated from working since 2008.  In 2013 he entered into a compromise agreement with IBM where he was transferred to a salary replacement scheme. This scheme replaced a permanent health insurance (PHI, permanent health insurance, or GIP, group income protection) benefit offered by his previous employer as part of the TUPE transfer, whereby he receives 75% of his salary for the remainder of his working life because he is incapable of working. Mr Clifford contributed financially towards this insurance throughout his employment with IBM.

While Mr Clifford agreed to waive his rights to pursue claims that were the subject of his grievances at the time of the compromise agreement, he argued that such agreement did not compromise future claims which had not arisen at the time of the settlement. Mr Clifford’s position was that the intent of the compromise agreement was never to encapsulate future claims, however he was only given a very short time to review and sign the compromise agreement and IBM refused to incorporate changes that would have clarified this despite assurances given to the solicitor advising him at the time.

Mr Clifford’s claims were for unlawful deduction of wages on the basis that he had accrued contractual annual leave and should have been able to carry over annual leave between holiday years, and discrimination claims in relation to his disability benefit payments not being reviewed or increased since 6 April 2013. Mr Clifford was informed by IBM that payments were reviewed annually yet IBM were unable to provide him with any evidence these reviews ever took place following a Data Subject Access Request.

Mr Clifford attempted to resolve his complaints internally but met with a blanket refusal from IBM to consider his complaints.  Their response was simply to say that his benefits were not subject to review or increase. The compromise agreement included provision that the payments under the salary replacement scheme would be reviewed regularly. 

A preliminary hearing was held by the ET to consider the impact of the 2013 compromise agreement on claims arising after the compromise agreement was signed. The hearing also dealt with whether the claim for unlawful deduction of wages should be struck out for little or no reasonable prospects of success. The judge found in the Respondent’s favour and dismissed all Mr Clifford’s claims, even his discrimination claims which he was not given an opportunity to defend at hearing. Mr Clifford’s case was very complex and fact specific and the decision meant he was unable to present the evidence he had in support of his case.

Mr Clifford’s appeal was that the judge had erred in law in finding that the disability claims were validly waived by the 2013 agreement, in that it failed to follow the binding authority of Bathgate v Technip UK Limited. At the time the appeal was filed, the EAT in Bathgate had held that only claims that existed at the time of the compromise agreement are capable of being validly waived. The case was authority that the words “particular complaint” did not describe a potential future complaint that does not exist at the time of a compromise agreement that could be waived. However, after the EAT appeal was filed, the Court of Session in Scotland overturned the Bathgate EAT decision and held that future claims could be validly compromised by a qualifying settlement agreement. That judgment is here.

Mr Clifford argued that the Court of Session was wrong and in the alternative that this case was distinguishable from Bathgate as here both parties remained in an employment relationship after the compromise agreement. In Bathgate, the employee had left his employment and signed a COT3.

However, the EAT said that the pleaded case fell within the waiver in the compromise agreement and that it did cover future discrimination claims. The only issue was whether it complied with the statutory requirement in section 147(3) (b) of the Equality Act 2010, that “the contract relates to the particular complaint”.  The Court of Session had held that a “particular complaint” requirement does not mean that the complaint must been known or its grounds at least be in existence at the time of the agreement, just whether the complaint being made is or is not covered by the terms of the contract. The EAT agreed and said that there was nothing in this statutory language that precluded the settlement of future claims, provided appropriate clear language is used. The EAT said the purpose of the legislation was “to protect claimants from the damage of signing away their rights without a proper understanding of what they are doing (emphasis added). It is not to prevent the waiver of all future claims.” The EAT recognised that Mr Clifford still being employed was a distinction but held that it did not make a difference.

The EAT dismissed the appeal on this basis. It is also held that none of Mr Clifford’s discrimination claims had reasonable prospects of success and upheld the ET decision to strike out his case. 

This decision underscores that if an employee signs a settlement agreement waiving their right to pursue claims against their employer, then it will include future claims unless it is expressly set out in the agreement what claims are excluded from the scope of the waiver. Employees should consider their position carefully and ensure that they understand the scope of the waiver is they are agreeing to in a settlement agreement with respect to potential future claims. 

This update was written by Anita Vadgama, Partner at didlaw, who represented Mr Clifford in the EAT.

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