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When can an employee enter into settlement agreement?

Barry Walsh



Settlement agreements are widely used in Ireland to compromise and discharge liability to employees in termination of employment and other potentially contentious employment situations.

The use of such agreements, often called compromise or waiver agreements, to resolve disputes has been extensively upheld and approved by various employment law adjudication bodies in Ireland over the years.

Unlike the UK, Ireland does not have a statutory regime prescribing when and how such arrangements can be used. However, it has become clear from case law that such agreements are generally enforceable in principle and will be recognised by the various adjudication bodies as long as certain conditions are satisfied. This is important as employers need to know that they can rely on such agreements to be enforceable, and that they will not unravel where an employee subsequently changes their mind and attempts to issue legal proceedings in relation to the underlying dispute.

The conditions generally required for the agreement to be enforceable are that:

  • the agreement is in writing and signed by the employee,
  • the claims being waived and discharged are clearly set out; and
  • the employee has taken independent expert advice.

While situations are always fact specific, adjudication bodies have generally taken a pragmatic approach and are usually reluctant to allow employees to change their mind once the above conditions exist and a valid arrangement appears to exist.

However, what happens where an employee does not obviously have the mental capacity to sign an enforceable settlement agreement? This issue was recently considered by the UK Employment Appeals Tribunal in Glasgow City Council v Dahhan[1].

The UK Tribunal ultimately held that it had the right to declare that an otherwise valid settlement agreement was unenforceable where the employee in question did not, on the evidence available, have the mental capacity to enter into such an agreement. The employee had signed a settlement agreement, but changed his mind 3 weeks later claiming he lacked mental capacity to instruct his solicitor and make decisions at the time.

The UK has a reasonably detailed statutory regime which regulates the use and validity of employee compromise agreements. In Ireland, the precise scope for the WRC to refuse to enforce an agreement is not clearly set out in statute. However, considering the long standing practice of generally enforcing such agreements it is likely that the WRC (or the Labour Court on appeal) will be reluctant to refuse to enforce such an agreement unless clear evidence is established by the employee and the burden of proof is likely to be clearly on that employee.

Mental capacity situations will probably not be very common. However, employers should be satisfied that their employee reasonably understands what they are signing up to. In exceptional cases a medical opinion may be needed at the time of signing to ensure that the employee has the capacity to enter into such an agreement.

[1] UKEAT/0024/15