"…there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don't know we don't know."

The well-known interview comment above was made by former US Secretary of Defence, Donald Rumsfeld. While he was referring to matters of national security more than 20 years ago, the question has often arisen in the context of settlement agreements entered into with departing UK employees – to what extent can an employer settle future claims that are unknown?

A recent decision from the Scottish Court of Session makes clear that employers can settle future claims which are unknown at the time of entering into a settlement agreement, even if the basis for the claims has not yet arisen (Bathgate v Technip Singapore Pte Limited).

Background

In January 2017, following a redundancy process Mr Bathgate entered into a settlement agreement with his employer, Technip Singapore Pte Limited ("Technip"), in which he agreed not to bring any claims against Technip for, amongst other things, direct or indirect age discrimination under s.120 Equality Act 2010 (the "Act"). The settlement agreement also contained a general waiver which stated that it applied "irrespective of whether or not, at the date of this Agreement, the Employee is or could be aware of such claims or have such claims in his express contemplation …".

In addition to redundancy and notice pay, there was a potential additional payment, which was to be calculated by reference to a collective agreement and payable to employees who had not reached the age of 61 at the point of their redundancy. Mr Bathgate was 61 when made redundant and, after the settlement agreement had been signed, Technip decided he would not receive the additional payment.

Mr Bathgate brought a claim against Technip in the Employment Tribunal on the basis that the decision to withhold the payment amounted to direct or indirect age discrimination.

The question for the court

The key question for the court was whether the settlement agreement complied with employment legislation which requires, amongst other things, that a settlement agreement must relate to a "particular complaint". Could this requirement be met where the particular complaint, or even the circumstances on which it was based, did not exist at the time at which the settlement agreement was entered into?

At first instance, the Employment Tribunal had found that the requirement that the settlement agreement relate to a particular complaint could be met provided that any future claims were identified in plain and unequivocal terms. However, this was overturned in the EAT which found that the waiver of future claims was incompatible with the legislative requirement.

The decision

The Court of Session found in favour of Technip and held that Mr Bathgate's claims of discrimination were covered by the settlement agreement. It found that future claims could be included "so long as the types of claim are clearly identified and the objective meaning of the words used is such as to encompass settlement of the relevant claim".

The requirement for the settlement agreement to relate to a 'particular complaint' did not mean that the complaint had to be known, nor did the circumstances on which the complaint was based have to exist, prior to entry into the settlement agreement. So it did not matter that Technip's decision to deny Mr Bathgate the additional payment had not been made until after the settlement agreement was signed.

Does the decision apply in England & Wales?

This is a decision of the Scottish courts and therefore it is not strictly binding in England & Wales. Nevertheless, such decisions are highly persuasive and it is anticipated that this decision will be followed in the employment tribunals in England & Wales, particularly since the decision builds on earlier case law from the English courts on this point.

Implications for employers

This is obviously a welcome decision for employers as it means future employment claims can be settled, even where such claims are unknown or the facts and circumstances on which such claims are based have not even arisen at the date of the settlement agreement.

It remains the case, however, that blanket waivers that seek to settle "all and any claims against the employer" or that simply refer to a settlement of "all statutory rights" will be unenforceable for lack of specificity. In order to satisfy the 'particular complaint' requirement, the settlement agreement must contain a generic description of the claim (such as 'direct or indirect age discrimination') or a reference to the section of the statute under which the claims could be brought. In addition, of course, there must be very clear wording that the settlement includes claims arising in the future, whether they are known or unknown and whether their facts and circumstances have arisen or not.

So employers need to review the wording of their settlement agreements to see what might need to change in order to take advantage of this decision, and in our view, there are some practices that should remain unchanged. For example, our recommendation remains that, where there is a material gap (more than two weeks) between the signing of the settlement agreement and the employment termination date, the employee should be required to sign a 're-confirmation letter' at the time of termination (and their lawyer should sign a further adviser certificate). Although it could be said that the Bathgate decision removes the need for this practice, it will avoid any argument on the point should something arise during the intervening period.

It is also worth mentioning that employers facing threatened or ongoing employment tribunal proceedings may wish to consider using a COT3 agreement (a settlement conciliated through ACAS) as an alternative to a settlement agreement, since there is no similar requirement for a COT3 to relate to a 'particular complaint'.

It remains to be seen whether there will be an appeal of the Bathgate decision to the Supreme Court but, whether there is or not, this is unlikely to be the final word on this point. As Mr Rumsfeld commented: "…it is the latter category [the unknown unknowns] that tends to be the difficult one".

You can read the full Bathgate judgment here.

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