Employment law reform – compromise agreements

by Laurie Anstis on January 31, 2011

As part of its employment law reform proposals the government has, at page 20, asked a very open question on the use of compromise agreements: What factors (other than an unwillingness to settle) affect the use of compromise agreements?

As a general rule, statutory employment claims can only be settled by an employee through the use of a formal “compromise agreement”. This is subject to a number of precautions designed to limit abuse by the employer and to ensure that the employee knows what they are doing. Amongst other things, the compromise agreement must identify the “particular complaint” that is settled, and the employee must have been advised on the terms of the agreement by a “relevant independent advisor” (which includes qualified lawyers).

The provision that the agreement must describe the “particular complaint” to be settled is designed to limit the use of general waivers – but in practice compromise agreements have become lengthy and complex documents in which many “particular complaints” are listed in an attempt by the employer’s lawyer to cover everything, along with additional belt-and-braces provisions designed to deal with the situation if, for any reason, the settlement is not enforceable by the employer.

These requirements have lead to compromise agreements becoming longer and longer – typically ten pages or more, whereas it is rare to see an ACAS COT3 settlement (which is not subject to the same restrictions) running to more than three pages. Often an ACAS COT3 will be no longer than a page.

The tone of the government’s paper, with its emphasis on resolving claims without recourse to the tribunal system, would seem to encourage the use of compromise agreements as an alternative to litigation. With that it mind, it seems that this reform may well remove the requirement to identify the “particular complaint” and permit more general waivers (perhaps with exceptions for personal injury claims) subject still to the requirement for the employee to take legal advice.

At present the employee must have received formal advice, but there is no requirement for the adviser to sign any particular certificate (although commonly this will be required by the employer). It may be that part of this reform could also formalise the need for the adviser to give a certificate of some sort in a standard form to be part of the agreement.

Finally, 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.

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