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.]