Setting aside a settlement agreement – new EET guidance

Setting aside employment settlement agreements – new Tribunal guidance

In Seng Yap v Champion Tech Ltd (acting by Joint Receivers) (22/42) (01.05.26), the Employment & Equality Tribunal has set out guidance on when an employment settlement agreement may be set aside, where breach of contract is alleged. The Tribunal refers (at § 116 i) to: “the difficult burden to be overcome whenever breach of contract is alleged”.

The Tribunal noted (at § 18) that this was the first case before the Tribunal relating to setting aside a settlement agreement negotiated via MIRS.

Champion Tech concerned the payment to the Claimant, 14 days late, of a sum of money, pursuant to a settlement agreement negotiated by MIRS. Before the Tribunal, the Claimant alleged both material breach of contract and misrepresentation. He sought to set aside the settlement agreement.

In its earlier decision of June 2025, upheld in March 2026 on appeal by the High Court, the Tribunal had held that it did indeed have jurisdiction to consider whether to set aside the settlement agreement.

On the issue of material breach of contract, the Tribunal emphasised that: “Finality in litigation is to be welcomed and upheld where possible”.  The Tribunal will now apply the same burden of proof as it applies for constructive dismissal (see below). A key factor is that the party alleged to be in breach: “must be proved to have demonstrated an intention no longer to be bound by the Settlement Agreement by its fundamental breach of contract”.

At § 116, the Tribunal (Chairman Douglas Stewart) set out the Tribunal’s view as to the correct approach as to setting aside an employment settlement agreement, where a breach of contract is alleged:

“a. Finality in litigation is to be welcomed and upheld where possible.

b. Material breach… was only a limited useful yardstick. It involved considering a wide spectrum as to the meaning of “material” – ranging at least from trivial to serious.

c. The Tribunal preferred something more easily determined and in the absence of any binding authority to the contrary have adopted and applied its own test for future use.

d. Where parties have settled the litigation, whether through MIRS or in an otherwise valid Settlement Agreement negotiated between the parties, the Tribunal has decided that when breach of contract is alleged, the burden of proof when seeking to get it set aside must be the same as would be applied for constructive dismissal.

e. This means that such a party must establish a fundamental breach of contract with the need to show that the party allegedly in breach was repudiating the contract.

f. This approach will ensure that the intention of the Employment Act 2006 as to the finality of litigation, after a Settlement Agreement, can much more readily be upheld. The burden of proof in constructive dismissal cases is well recognised and understood from so many decisions whether from across or emanating from this Tribunal. Examples are the benchmark Court of Appeal decision of Western Excavating as followed here in Decisions such as Bean v Jet Aviation and Jones v Office of the Clerk of Tynwald. In Western, Lord Denning said this: “If the employer is guilty of conduct which is a significant breach going to the root of the contract of employment, or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract, then the employee is entitled to treat himself as discharged from any further performance. If he does so then he terminates the contract by reason of the employer’s conduct. He is constructively dismissed.”

g. That robust approach as to what needs to be proved in constructive dismissal translates readily to the Tribunal’s view on a party seeking to set aside a decided Settlement Agreement.

h. The Tribunal has no wish to see further attempts to set aside a Settlement Agreement where the approach of Mears as to interpretation of material breach needs to be considered at length and involving legal argument as to interpretation. As was demonstrated in the instant case, differing views were taken between the parties as to the seriousness of the breach.

i. Henceforth, a robust approach must be adopted. The party in breach must be proved to have demonstrated an intention no longer to be bound by the Settlement Agreement by its fundamental breach of contract. By adopting this approach there will be a clearer route map as to the difficult burden to be overcome whenever breach of contract is alleged.

j. Floodgates of litigants, disenchanted with a Settlement Agreement, will not be opened.

k. By following this approach in the present situation, the evidence was overwhelming that Champion, through the Receivers and its advisers, had made every reasonable effort to comply with their obligations and had no intention of breaching the Agreement, let alone repudiating it by a fundamental breach.”

The Tribunal also considered the Claimant’s allegation of misrepresentation. At § 126, the EET concluded:

“The Tribunal had no problem in determining that, on the present facts, Mr Yap had not proved misrepresentation. However, for the guidance of future litigants, had he done so, the Tribunal would have had no hesitation in setting aside his Settlement Agreement. It will be essential to prove misrepresentation based on the long-established common law principles including that the complaining party had been induced into a false position by such misrepresentation.”

Note for practitioners: The Tribunal’s recent decision in Champion Tech provides clarity on the Tribunal’s approach as to when a settlement agreement may be set aside, specifically where breach of contract is alleged. The bar is high.

Both the EET and the High Court have previously considered whether to set aside an employment settlement agreement on the alternative ground of duress (see RL360 Services Ltd v Smith & others (ORD 2017/22) (22.02.18) (§§ 26-27)).

Disclaimer: professional advice should be sought before applying any information in a given case.

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