Prince Andrew v Virginia Giuffre – Lessons in the limits of Settlement Agreements

Prince Andrew’s legal team have failed with attempts to halt civil proceedings against their client after a judge ruled that the royal could not rely on a historic settlement made between Virginia Giuffre and Jeffrey Epstein. Whilst that case – which is being heard in the U.S. – doesn’t directly impact on employment law in England and Wales, the decision nevertheless highlights issues relating to settlement agreements that U.K. employers ought to consider.

In this article, we assess what British employers can learn from the decision and the limits of what can be achieved under a settlement agreement in the context of a U.K.-based employment relationship.

The Importance of Clarity

Amongst other legal submissions made, Andrew’s legal team argued that Giuffre had waived her right to sue the royal under a previously confidential $500,000 (£360,000) settlement made with Jeffrey Epstein in 2009. Under that settlement, Giuffre agreed to not bring any future claims against other “potential defendants”, and so Andrew’s team argued that their client could not be sued by Giuffre insofar as he could have been a “potential defendant”.

The Judge rejected this argument on the basis that ‘potential defendant’ was too vague, or in the Judge’s own words: “The 2009 agreement cannot be said to demonstrate, clearly and unambiguously, the parties intended the instrument ‘directly’, ‘primarily’, or ‘substantially’, to benefit Prince Andrew.”

The Judge’s reasoning highlights how courts generally – be it a U.S. civil court or a U.K. employment Tribunal – are usually reluctant to enforce ambiguous clauses where it is not otherwise clear what the parties intended.

Under U.K. employment law, it’s legitimate for settlement agreements to compromise claims against 3rd parties and so lawyers representing employers will frequently draft agreements to prevent the employee from claiming against individual colleagues and/or the employer’s associated companies.

For claims against 3rd parties to be enforceable though, unambiguous wording is required. Had the Virginia Giuffre and Jeffrey Epstein settlement referred to Prince Andrew directly, the royal might well have benefitted under it.

The Limits to What Settlement Agreements Can Achieve Under U.K. Employment Law

Parties are generally free to approve the terms of their own settlement. However, U.K. employment law overrides this in places on the grounds of public policy.

The below represents some non-exhaustive examples that U.K. employers should be aware of:

Absolute Silence

Settlement agreements that include provisions around confidentiality will amount to a type of Non-Disclosure Agreement (NDA). NDAs can be legitimately used to protect commercial interests, reputation, etc. and can operate to the mutual benefit of both parties.

NDAs are lawful but not unrestricted in their scope. Within the context of a U.K. settlement agreement between employer and employee, an NDA clause purporting to preclude an individual from doing any of the following will be void by operation of the law:

• Raising a protected disclosure under section 43A of the Employment Rights Act 1996 (i.e. a genuine case of ‘whistleblowing’ as defined by statute).
• Reporting a suspected criminal offence to the police or cooperating with the police regarding a criminal investigation.
• Making a disclosure to, or co-operating with any investigation by, HMRC.
• Complying with an order from a court or tribunal to disclose or give evidence.
• Doing anything that is required by law.

Therefore, care should be taken when considering the scope and application of any proposed confidentiality clauses.

For example, it is important for employers to be aware that where an employee is alleging behaviour of a criminal type – such as workplace sexual harassment capable of amounting to sexual assault, or workplace racial harassment capable of amounting to a hate crime – the settlement agreement will not be able to achieve absolute silence on these issues, factoring the restrictions summarised under the bullet points above.

If you have specific concerns about someone divulging potentially commercially damaging information, we recommend taking expert legal advice before agreeing settlement terms.

Contracting Out of Regulatory Obligations

Employers who are subject to a regulatory regime (such as the FCA) must be especially careful when committing themselves to mutual NDA provisions.

The applicable regulatory framework may require the employer to report an employee’s behaviour notwithstanding the settlement’s confidentiality terms. Failure to include the appropriately drafted carve-outs may put the employer in a difficult position as it chooses between remaining silent (and risking regulatory non-compliance) vs reporting the apparent regulatory violation (and risking a breach of contract claim from the employee).

Tax

It’s a common misconception that all settlement payments avoid tax. Actually, the rules are far more complex than this and it is certainly not possible for parties to simply make their own arrangements regarding tax.

Failure to get the tax treatment and drafting right could end up costing the employer if HMRC ever conducted an audit of their accounts or payments processed by the employer.

Employment Claims That Cannot Be Settled

Claims for the right to statutory maternity, paternity, adoption or shared parental pay cannot be settled.

Meanwhile, certain claims under TUPE and the Agency Worker Regulations 2010 cannot be compromised under an ordinary settlement agreement but can be settled under an ACAS conciliated COT 3 agreement.