• Tribunal has Power to Decide whether a Settlement Agreement is invalid due to Lack of Mental Capacity

    Tribunal can determine whether settlement agreement invalid for lack of capacity

    In Glasgow City Council v Dahhan, the EAT has held that the employment tribunal has jurisdiction to set aside a settlement agreement on the ground that it is invalid because the claimant did not have mental capacity at the time the agreement was concluded.

    D brought claims of direct discrimination, harassment and victimisation on the ground of race against his employer, Glasgow City Council. On 20 June 2014, the tribunal was advised that the parties had settled and D wished to withdraw his claims. The claims were accordingly dismissed by Employment Judge MacLean in a judgment issued on 24 June 2014. However, on 9 July 2014, D wrote to the tribunal asserting that he had lacked mental capacity to instruct his solicitor and make decisions at the time of the purported settlement, and applying for reconsideration of the 24 June judgment. When the Council objected to D’s application for reconsideration, a preliminary hearing was held to consider the tribunal’s jurisdiction to set aside the settlement agreement. The tribunal accepted that it had such jurisdiction, and the Council appealed against this decision to the EAT.

    The EAT dismissed the appeal. It noted that S.203 of the Employment Rights Act 1996 and Ss.144 and 147 of the Equality Act 2010, which govern the enforceability of settlement agreements, require a settlement agreement to be valid in both form and substance if an employment tribunal is to be prevented from hearing a claim settled by it. While it acknowledged that the powers of both the employment tribunal and the EAT are limited to those bestowed by statute, the EAT considered that the EAT’s decision in Industrious Ltd v Horizon Recruitment Ltd (in liquidation) and anor (Brief 894) had established that an employment tribunal does have power to set aside a settlement agreement, and that this power arises from the statutory requirement upon the tribunal to consider such an agreement’s validity. As articulated by Mr Justice Silber in Industrious, the statute permits parties to make valid settlement agreements, ‘but the word “agreement” must mean a valid agreement and the employment tribunal has to ensure that any purported [settlement] agreement is valid’.

    The EAT went on to reject as artificial and unsound the Council’s argument that a distinction should be drawn between invalidity on the ground of absence of consent – for example, as a result of misrepresentation, economic duress or mistake – on the one hand, and invalidity on the ground of lack of capacity to contract on the other. Where it is claimed that one party to an ostensibly valid agreement had no capacity to contract, the duty of the employment tribunal to examine that issue and refuse to acknowledge that agreement as enforceable, if a lack of capacity is proved on the evidence, is all part of the exercise laid down in the relevant statutes (previously S.203 ERA, and now Ss.144 and 147 EqA). The EAT also noted that while parts of a settlement agreement might go beyond the specific issues being litigated before the employment tribunal, the question of validity applies to the whole agreement; where a contract is said to be a nullity, its component parts will stand and fall together.

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