Compromise agreements and the Equality Act 2010

by Laurie Anstis on October 11, 2010

It has become common practice to settle employment disputes by means of a “compromise agreement”.  These agreements are provided for in most employment legislation, and enable the employer and employee to settle their dispute.  In order to be  binding on the employee, the agreement must comply with certain formalities, and the employee must have been advised on the agreement by a “relevant independent adviser”.  Typically the mechanism adopted is for the employee to consult a solicitor, with the employer paying towards the cost of the advice.

In an update (subscribers only) published the day before implementation of the Equality Act, Practical Law drew the legal profession’s attention to a problem with the way in which the Equality Act dealt with compromise agreements.

The Equality Act adopts a rather different formulation to other employment legislation. There is still a requirement for the agreement to identify the “particular complaint” intended to be compromised, and for the lawyer to have insurance, but the requirement for the lawyer to be an “independent adviser” is different.

Under the Employment Rights Act 1996 (s203(3B)(a)) the lawyer will not be independent (in relation to the employee) if:

“… he is … employed by or is acting in the matter for the employer or an associated employer”

In the Equality Act (s147(5)) the lawyer is now no longer independent if they are:

“(a) a person who is a party to the [compromise agreement] or complaint, [or]

(d) a person who is acting for a person within paragraph (a) or (b) in relation to the contract or the complaint”

The employee themselves is always going to be a person who is a party to the compromise agreement, and a literal interpretation of these provisions leads only to one conclusion – that a lawyer acting for an employee cannot be a “independent adviser” for the purposes of advising on a compromise agreement under the Equality Act.

Since any lawyer consulted by the employee might be said to be acting for them, this leads to the absurd conclusion that there is no lawyer who can validly count as an independent adviser. Immediately they start to advise the employee, they will be “acting for” the employee and no longer independent.

This has caused some consternation amongst employment lawyers. Some are arguing that the courts and tribunals will have to interpret section 147(5)(a) as referring to “a person who is another party to the compromise agreement” in order to avoid an absurd result that could not have been intended by Parliament.  They will point out that the explanatory notes (pdf) of the Bill as presented to Parliament state (at paragraph 464) that: “The clause replaces provisions in current legislation which have the same purpose.

Others will no doubt be looking to the ACAS pre-claim conciliation procedure, but universal adoption of this in preference to compromise agreements would be unmanageable by ACAS.

However this is resolved, it does seem to be a major drafting error in the Equality Act.

[Update 18 Jan 2011 – see now the Law Society’s extended guidance note.]

[Update 26 March 2012 – the problem is rectified by The Equality Act 2010 (Amendment) Order 2012, which comes into force on 6 April 2012.]

13 comments

[…] down in a mire of statutes, regulations and reported cases. For instance, Laurie Anstis’s blog at Work/Life/Law has just highlighted a major drafting error in s.147(5) (a) of the Equality Act that makes it […]

by compromise agreements, Equality Act 2010, Darren Newman, Duncan Bannatyne | News | Jobsworth by Michael Scutt on 11 October 2010 at 12:03 pm. #

It’s clearly intended to act more like a connected persons test, not to stop lawyers acting for their own clients.

Imagine a piece of legislation being badly drafted (!)

by Steven on 11 October 2010 at 1:26 pm. #

A very informative blog for employment practitioners.

This anomaly needs to be addressed as quickly as possible. It is not helpful to either employer or employee as it could mean increased financial contributions towards legal fees for the employer for a new solicitor to read all the relevant paperwork in order to be able to properly advise and sign off. For employees this may cause delay and will deprive them of the solicitor whose advice they trust.

While the Cot 3 is an alternative, if this is required as part of the pre-claim conciliation service, the strict time limits for issuing claims could cause huge demand which is likely to be unworkable for Acas which has limited resources to service this need.

by Compromise Agreement solicitor on 12 October 2010 at 1:09 pm. #

I’ve trawled through Hansard to see if the issue was debated. I found this:

27 January 2010 Col 1469
7.15 pm:

Clauses 129 to 147 agreed.

So not a very extensive debate then!

Seems to me that S.147(5)(d) is actually nonsensical. It requires an independent person to not be acting for a party ‘in relation to the contract or the complaint’. The contract for these purposes is the compromise contract itself it seems. How can you advise on the contract without acting for the party in relation to it?

Even if you accept however that you can interpret these provisions to avoid an actual nonsense,that doesn’t solve all problems. Evenif you allow an independent adviser to advise on the compromise itself – that doesn;t mean it can be the same adviser wo advised on the issue leading up to the compromise. Seems to me that at the very least you would ahve tohave two advisers. One dealing with the issue and negotiating the deal – the other advising on the compromise contract itself.

This is of course ridiculous – but it is clearly what the Act says.

Acas will be kept busy I think. I wonder if they’ve budgeted for a sharp increase in the demand for conciliation by parties worried that the compromise contract won’t be valid?

by Darren Newman on 12 October 2010 at 2:58 pm. #

Hilariously, once news had spread that section 147 was err… meaningless, the Government Equalities Office published this gobbledegook to explain why section 147 doesn’t actually mean what it says, and we should all stop worrying and get back in our collective box.

We all know it’s MEANT to just repeat the old law. The explanatory notes say as much. The idea is that the independent adviser must be independent from the EMPLOYER. The problem is that’s not what it says, and we have to hope that either the government amend it sharpish, or that the tribunals can be persuaded to apply one of those antiquated rules of statutory interpretation (The Golden rule, perhaps?) to avoid the absurdity. But that would take considerable time, and who wants to be in the position of having to argue that particular case?

Acas are already overburdened as a result of the recession, and this has already driven their success rate down according to recent tribunal statistics. If the s.147 issue makes more work for them, there will be a knock-on effect. It means their settlement rate will suffer even more, and so more cases will reach the tribunal for a hearing. Something really must be done.

by Mrs Markleham on 12 October 2010 at 4:26 pm. #

Here’s what I’ve advised a solicitor to do (advising an employee), to avoid a professional negligence claimtell them there is a theoretical loophole which might mean the employer can try to get out of the agreement
but it’s very unlikely any employer will try, especially if they’ve paid over the money
any court asked to order that the money be returned to an employer would be very reluctant to find there was no consideration for the compromise agreement; even if the consideration is as trivial as going and consulting a solicitor.
If advising an employer who is worried about having a claim brought despite the employee having signed a compromise agreement, my view is that (a) any tribunal will adopt a purposive approach of s147 (okay, a re-writing) to find that the compromise agreement is binding; and (b) any ET1 would be struck out under rule 18(5) of the Procedural Regs as being an abuse of process.

by Daniel Barnett on 12 October 2010 at 4:48 pm. #

As an observational aside from the excellent comments above, the literal reading of s147 is manna from heaven for freelance employment advisors that don’t qualify as a ‘relevant independent advisor’. Deal with the negotiation, then get the CA rubberstamped by a lawyer – everyone complies with the literal reading of the section. Result.

by cesareurban on 12 October 2010 at 5:34 pm. #

I have heard this morning that ELA (the Employment Lawyers’ Association) has decided to write to the Government to highlight this issue and urge them to address it. ELA will publish the reply when it comes in.

by Mark Tarran on 25 October 2010 at 10:10 am. #

Further developments – the Law Society have now got involved. They have obtained counsel’s opinion suggesting that the GEO advice is wrong, and that there is “no way in which compromise agreements under the Equality Act can be made enforcible”.

They have requested an urgent meeting with the Government Equalities Office, and have written to the Home Secretary.

See the Law Society press release, 28 October 2010.

by Mark Tarran on 29 October 2010 at 8:57 am. #

How typical of the Law Society to undermine its members and state that we cannot advise our clients on compromise agreements!

by Paul Roberts on 5 November 2010 at 2:14 pm. #

ELA have published a questionnaire on their website. The intend to use the results to assess the scale of the problem and what action lawyers are taking in response to it, before lobbying government for a solution.

The deadline for responses is Monday 6 December. Lots of people have responded already, but ELA want as many as possible.

The questionnaire is here.

by Mrs Markleham on 3 December 2010 at 2:24 pm. #

[…] this would also be a good opportunity for the government to rectify the problems with the compromise agreement provisions of s147 of the Equality Act. This entry was posted in […]

by Employment law reform - compromise agreements | Work/Life/Law on 31 January 2011 at 10:14 pm. #

[…] has been particularly useful for keeping on top of employment law issues. First, the problem with compromise agreements and s147 of the Equality Act, and then the problems with the transitional provisions for the abolition of the default […]

by #ukemplaw | Work/Life/Law on 12 August 2011 at 6:50 am. #