Compromised Compromise Agreements17/02/11
Compromise agreements have long been used by employers and employees to conclude settlements at the end of a period of employment or where an employment dispute has arisen.
Unlike breach of contract claims, an employee may only validly waive their statutory employment rights by signing a properly drafted compromise agreement.
Broadly, a compromise agreement will be a valid agreement if it is drafted in accordance with the provisions of section 203 of the Employment Rights Act (ERA) 1996. The discrimination legislation which existed before the introduction of the Equality Act 2010 had corresponding provisions for claims arising under those statutes. The requirements of the ERA are:-
- the agreement must be in writing;
- the agreement must relate to a "particular complaint" or "particular proceedings";
- the employee must have received legal advice from a relevant independent adviser on the terms and effect of the proposed agreement and its effect on the employee's ability to pursue any rights before an employment tribunal;
- the independent adviser must have a current contract of insurance, or professional indemnity insurance, covering the risk of a claim against them by the employee in respect of the advice;
- the agreement must identify the adviser; and
- the agreement must state that the conditions regulating compromise agreements have been satisfied.
Over the years, there have been a number of important cases which have sought to clarify how these criteria are interpreted and the system has, on the whole, worked well. Solicitors are for these purposes ‘relevant independent advisers’ and are well placed to sign off compromise agreements once a deal had been agreed.
On 1 October 2010, the Equality Act 2010 was introduced, repealing all of the preceding anti discrimination legislation.
At first, all seemed well…
However, section 147 of the Equality Act contains provisions relating to compromising discrimination claims. The majority of the clause simply replaced what had been in force previously but it also contained new wording around the definition of “qualified lawyer”.
These changes have led to serious concerns over the ability of solicitors who have been instructed by an employee prior to the production of a final draft of the agreement or have acted in any way for an employee during the course of a complaint, to act as independent advisers for these purposes. Whilst there is nothing to suggest this was ever the government’s intention, the risk now exists.
To assist matters, the Law Society has sought advice from John Bowers QC and Thomas Linden QC, both leading employment counsel. Mr. Bowers and Mr. Linden squarely disagree on the interpretation of section 147 and the government is currently saying that there is no problem with the wording.
In the meantime, employers are left with significant uncertainty when it comes to compromising certain discrimination claims.
Unless and until the issue is clarified either by the government or the Courts, employers are faced with the following options:-
- Taking a (very) commercial view – it is possible that the government is right and if a claim is brought after an agreement has been signed off, you will have the opportunity to argue the point to a court
- Use a Cot3 – A form used by ACAS when they conciliate an agreement between you and your employer that says you will accept compensation instead of making a claim at an employment tribunal. In our experience however, ACAS have been reluctant to ‘rubber stamp’ agreements and there seems to be a lack of clarity surrounding its current policy on Equality act related claims
- Stagger payments – payments due under a compromise agreement can be staggered such that the majority of the monies are paid after the expiry of the relevant limitation period (mostly 3 months but 6 months for certain claims). This may be difficult to achieve if employer is particularly keen to get a deal done.
- Claw back provision – agreements should include a provision allowing for monies that have been paid to be clawed back in the event of a claim being made as a result of the section 147 issue.
- Insist on a different advisor – this may not always be practical or cost effective.
If you require any further advice on the issues raised in this article please contact Sean McDonough or Tim Gofton on 01225 750000 or email seanmcdonough@mogers.co.uk or timgofton@mogers.co.uk.
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