Terms of settlement agreements must be drafted tightly

Claims against an employer can be costly – in both time and financial terms.  All the more important, therefore, to make sure settlement agreements are well worded.

When a claim is made, the employer has an option to settle the matter through ACAS with what is known as a COT3 agreement, or to use a settlement agreement.  A recent case, however, shows that it is important to get the wording of the agreement right if the employer is to be protected.  Sloppy drafting can be costly! 

In this case, the employee presented disability discrimination claims on 14 July 2014.  The employer settled the matter by means of a COT3, which stated that the claimant accepted the terms in ‘full and final settlement of her claim against the employer’ and ‘all of the relevant claims arising from the facts of the proceedings open to and including the date of this agreement’. 

In this case, the COT3 settlement was agreed and signed in December 2014 but in June 2015, the employee presented a second claim. Her employer argued that she could not do that, as it believed that her second claim was barred by the terms of the COT3. 

The employer did not succeed!  The judge said that the wording of the settlement agreement did not say ‘or any claims arising within the period up to 11 December 2014’, nor did it say ‘all other relevant employment claims’.  He said that the COT3 qualified the relevant claims as those ‘arising from the facts of the proceedings’ which meant those arising from facts of claim one.  Although the employer appealed, the employment appeal tribunal dismissed the case. 

This case illustrates the risks for employers who enter into settlement agreements, especially if they engage with ACAS during the early conciliation period.  The ACAS officer has no duty to either the employer or the employee to ensure that the wording protects one or both parties.  The ACAS officer is simply there to facilitate settlement of the claim. Early settlement of claims saves money by preventing the claim from going through the tribunal system. 

This case illustrates the dangers of not taking proper legal advice on the terms of settlement before signing to ensure the terms satisfy the purposes required.  

Contact the Employment team.