The case of the missing word: are compromise agreements still worthwhile for employers?

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The case of the missing word: are compromise agreements still worthwhile for employers?

Since their introduction through legislation in 1993, compromise agreements have been extensively used by employers to effectively close the door on future employment claims by, usually, former employees.  However, since the new Equality Act came into force on 1 October 2010, this comforting certainty has been put in jeopardy for the want of just one word in the new legislation.

Let us explain the problem. The new Equality Act provides for compromise agreements to be used to settle discrimination claims, but the wording defining who is an independent adviser has changed.  Under the new wording, a solicitor (or other appropriate adviser) cannot be independent if they are acting for or connected to either the employer or employee.  On a literal reading of the wording, this means that as soon as a solicitor advises a client on a compromise agreement (which he or she must do before signing the appropriate adviser’s certificate), that solicitor is no longer independent and therefore does not meet the requirements of the legislation. This could then mean that the employee is not effectively giving up their discrimination claim, which may make it pointless for the employer entering the compromise agreement in the first place.

The government’s view is that the relevant section should be read in context and that there is no real problem.  A large number of lawyers (including a senior QC who provided an opinion to the Law Society) do not agree with this view and believe that there is a fundamental problem caused by the missing word: “other”.

So what should employers do now?  The first thing to remember is that compromise agreements are still binding in relation to claims other than discrimination, so they are still a worthwhile option when looking at compromising, for example, potential claims for unfair dismissal.  As far as discrimination claims are concerned, there are various options which should be considered:
  • delaying payment of any or part of the compensation until after the expiry of the limitation period
  • using the pre-claim conciliation service offered by ACAS (although they are probably very busy at the moment) 
  • change the wording of the compromise agreement to deter employees from signing the agreement and still then pursuing the claim
Ultimately, we will have to wait until there is a test case which a brave employer defends all the way through the higher courts to find out whether the government is correct or whether there is an error in the wording of the Equality Act as many employment lawyers believe.  In the meantime, consider the alternatives for reducing your risk. 

Published: 15 Dec 2010

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