DLP Insights

The validity of waivers and settlements within the employment relationship

Categories: DLP Insights, Case Law | Tag: employment relationship, Waivers and settlements, contracts

01 Dec 2020

The Supreme Court of Cassation, with its ruling no. 23385 of 23 October 2020, stated that regarding waivers and settlements, the employee’s declaration may be considered as a waiver if the settlement agreement was issued with awareness of determined or objectively determinable rights and with a conscious intent to waive or settle them.

Facts of the case

This case originated from an appeal filed by a manager of a public limited company, who was appointed company CEO in 1995. No specific remuneration was paid to the manager for this position. Having ceased to hold office, the manager applied to the Court of Venice asking for the payment of the remuneration, indicating as a quantification parameter the remuneration that had been determined in 1998 in favour of a new CEO.

The Court of First Instance and the Court of Appeal rejected the manager’s request on the grounds that the remuneration issue was settled under an agreement reached between the parties on 17 September 1998, despite the fact that the text was unclear. The Court of Appeal considered that the settlement had definitively ended the management relationship and all matters relating to the CEO position, including remuneration. This decision assumed that when interpreting contracts, the agreement wording cannot be the only element to be considered but it must include other factors such as subsequent conduct, to identify the parties’ common intention.

The manager appealed to the Court of Cassation against the decision on the merits, complaining of an “unjustified” devaluation of the settlement agreement’s literal elements. He argued the parties had used the terms only in the singular and referred only to the management employment relationship, while there was no reference to the CEO position and no waiver of the related remuneration.

The Supreme Court of Cassation’s ruling

The Court of Cassation considered the appeal filed by the manager to be unfounded and referred to several basic principles regarding the interpretation of waiving and settlement acts concerning reciprocal rights deriving from the employment relationship.

Firstly, it was stated that “Regarding waivers and settlements, employment relationship and its termination, the employee’s declaration may be considered as a waiver provided that, based on the interpretation of the settlement agreement, it is ascertained it was issued with the awareness of determined or objectively determinable rights and with the conscious intent to waive or settle them. (see 10056/1991; Court of Cassation ruling no. 1657/2008).

According to the Court of Cassation the settlement agreement subject must be identified not by literal expressions used by the parties, but the objective situation of conflict that they have begun to settle through mutual concessions in the dispute and any dispute that they intend to prevent. To investigate the scope and content of a settlement agreement, the trial judge may draw on any element suitable for clarifying the agreement terms, even if not directly mentioned, without this entailing a violation of the principle according to which the settlement must be proved in writing (cf. 729/2003; Court of Cassation ruling no.  9120/2015).

The Court of Cassation stated that “on the general interpretation of contracts, if the literal expressions used are insufficient to reconstruct the common will of the parties, it is necessary to consider the common intent they have pursued.” To verify the nature of such a settlement agreement and its content, it is necessary to investigate whether the parties tried to end the dispute through the agreement. It is not necessary, however, for the parties to express their disagreement on the opposing claims, nor to use directly revealing expressions of the settlement agreement, the existence of which can be inferred from any element expressing the will to end any further dispute.

According to the Court of Cassation, the decision of the trial judges can only be considered legally correct and logically appropriate, thus avoiding any Court evaluation.

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