Tribunal finds settlement agreement invalid

The Employment Appeal Tribunal (EAT) has agreed with the decision of an employment tribunal that it had jurisdiction to find that a settlement agreement, used to settle a race discrimination claim was invalid on the basis that the claimant lacked mental capacity at the time the agreement had been entered into.

The Employment Rights Act 1996 (Section 203) states that any agreement which tries to prevent someone from bringing proceedings in an employment tribunal in relation to the act will be void, unless the agreement is a valid settlement agreement or an ACAS conciliated agreement (or some other limited exceptions). There are similar clauses within the Equality Act which deal with discrimination claims.

A settlement agreement is only valid if:

It is in writing;
It relates to particular proceedings;
The employee has received advice on the agreement from a lawyer, an accredited trade union advisor or an accredited trade union adviser;
The adviser has in place insurance, and;
The agreement identifies the adviser and states that the conditions relating to settlement agreements under the legislation are satisfied.

This is the first time that the EAT has had to deal with the question of whether or not a settlement agreement is invalid because the claimant lacked mental capacity. This case will be of concern to employers because it means that the certainty of entering in to a settlement agreement could be challenged later. Of particular concern is the fact that capacity is determined at the time the agreement is entered into, in many cases the employer will not be present at the time their employee signs the agreement.

That said, there are stringent tests which are applied to the question of whether or not someone has the capacity to make decisions or to conduct legal proceedings and it is only likely to be in the most extreme of cases that someone will be found to lack capacity.

Glasgow City Council v Dahhan [2016] EAT

6 October 2016

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