In the recent case of Glasgow City Council v Dahhan UKEAT/0024/15 the EAT held that an Employment Tribunal (the “Tribunal”) has jurisdiction to set aside a settlement agreement on the basis that the Claimant lacked the mental capacity to contract at the time of signing.
On 19 June 2014 the parties entered into a settlement agreement under which, to the extent generally permissible, Mr Dahhan waived his right to pursue further any claims arising from his employment at the Council. The Tribunal was informed that settlement had been reached and Mr Dahhan’s instant claims were subsequently dismissed. However, in early July 2014 Mr Dahhan wrote to the Tribunal applying for a reconsideration of that Judgment, asserting that, at the time of signing the settlement agreement, he had lacked mental capacity to make decisions and instruct his solicitor. Perhaps inevitably, the Council objected and a preliminary hearing was held to consider the question of whether the Tribunal had jurisdiction to set aside the settlement agreement. The Tribunal held that it did. The Council’s appeal to the EAT was dismissed.
The enforceability of settlement agreements is governed by section 203 of the Employment Rights Act 1996 and sections 144 and 147 of the Equality Act 2010. The EAT held that these provisions require a settlement agreement to be valid “in both form and substance” if the Tribunal is to dismiss a claim because it has settled. It relied upon the analysis of Silber J in Industrious Ltd v Horizon Recruitment Ltd (in liquidation) and Vincent UKEAT/0478/09 that, emanating from these statutory provisions, there is an obligation on a Tribunal to consider whether a settlement agreement is valid, which, in turn, gives rise to jurisdiction for a Tribunal to set aside a settlement agreement if it is not valid.
The Council argued that a distinction should be drawn between the power of a Tribunal to set aside an agreement because of the absence of consent arising from misrepresentation, economic duress or mistake (a power established in existing case law) and because of invalidity due to lack of legal capacity (a point being considered for the first time in this appeal). However, the EAT held that such a distinction is “artificial and unsound”.
The EAT also rejected an argument that the Tribunal’s power to set aside a settlement agreement should only extend to the claims pleaded before it or to matters over which it would otherwise have jurisdiction. It held that, even in circumstances where the settlement went well beyond matters over which the Tribunal has jurisdiction, it is the validity of the contract as a whole that is disputed and “where the contract is said to be a nullity, its component parts will stand or fall together” – concluding that, where appropriate, either party could still pursue a res judicata argument in relation to any subsequent litigation in another forum.