Future claims that have not yet arisen can be waived under a settlement agreement

Future claims that have not yet arisen can be waived under a settlement agreement

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The Employment Appeal Tribunal (EAT) has confirmed that future claims can be waived under a settlement agreement, providing that appropriately clear language is used. 

This applies regardless of whether employment is terminating or whether the settlement agreement is entered into while employment continues. 

The courts have long grappled with the question of whether a settlement agreement can satisfy the condition of relating to “a particular claim” if, at the time of entering into the agreement, no such claim has arisen and is not in the parties’ contemplation. The EAT has now confirmed that, yes, a settlement agreement can validly waive a future claim that has not yet arisen and is not in any party’s contemplation, providing that the agreement refers to either a generic description of the claim, such as “unfair dismissal”, or to the relevant statutory reference for that type of claim.

The EAT, choosing to follow a decision of the Scottish Court of Session, emphasised that the condition that settlement agreements relate to “a particular claim” is intended to protect against employers using a blanket waiver under which the individual signs away significant employment rights without a proper understanding of what they are doing. There does not appear to be any limitation on the type of claims which can be waived, such as future claims, nor any requirement for such claims to be linked to an existing claim or cause of action.

As things currently stand, an employee who continues in their employment after entering into a settlement agreement that includes a waiver of future claims could well find themselves with very little recourse if they are subsequently mistreated by their employer. Many employees may be reluctant to give such waivers, unless these are narrowly defined and heavily caveated. It will also be difficult for either side to place a value on a waiver of future claims when negotiating a settlement sum, when the risk of such a claim arising and even its very nature are unknown.

There is scope for this judgment to be appealed to the Court of Appeal. Although any appeal would unlikely overturn this decision in its entirety (based on the general direction of recent case law), the Court may decide that the waiving of future claims needs to be limited and with inbuilt safeguards, to protect vulnerable employees, especially where their employment continues.

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