Enforceability of Compromise agreements – ambiguities in the Equality Act 2010

The Law Society has recently raised concerns over an ambiguity (or more correctly errors) in the drafting of section 147 of the Equality Act 2010, which came into force on 1 October 2010. This drafting error is likely to have an immediate effect on the use and effectiveness of compromise agreements (now referred to as compromise contracts) made under the Equality Act (the “Act”).

 The concern of the Law Society, which is echoed by many employment law practitioners, is that S.147 of the Act does not mirror the definition of who is considered to be an “independent advisor”, as set out in the Employment Rights Act 1996 (the “ERA”). The ERA provided that a lawyer will not be independent if he is employed by, or is acting for, the employer or associated employer.

 Section 147[1] sets out the requirements that must be fulfilled for a qualifying compromise contract to settle claims arising under the Act. Most important is that the complainant must receive advice from an ‘independent adviser’ about its terms and effect.  However, section 147 (5) (d) of the Act provides that an independent adviser cannot be “a person who is acting for” a person who is a party to the [compromise] contract or complaint; or someone connected to that person. This leads to the absurd position, highlighted by Counsel’s advice to the Law Society, (referred to in the press release) that a court or tribunal would construe section 147(5)(d) as meaning that a solicitor who was instructed by the employee prior to the production of the final contract for consideration; or who has acted in any way for the employee during the course of their complaint – even in a supporting role to the lead adviser perhaps as holiday cover – will be precluded from acting any further as an independent legal adviser in that compromise contract[2].

 The Law Society has gone to great lengths to seek clarity on the interpretation of this issue including instructing Counsel, requesting an urgent meeting with the Government Equalities Office, and even notifying the Home Secretary. Advice from Counsel also indicates that a solicitor to whom the client was referred solely for the purpose of advising on the agreement would not be able to provide such advice. I would hope that a legislative amendment can be made sooner rather than later to correct the drafting errors.

 The Government Equalities Office (“GEO”) issued a press release at the end of October to state that it is not a proper reading of section 147 to suggest that the complainant’s adviser is debarred from being the qualified adviser, because the section has to be ‘read as a whole[3]. The official view of the GEO is that ‘the situation that existed prior to passage of the Act’ remains unchanged and, by implication, that a solicitor who had advised a client in respect of an action would also be able to provide advice on a compromise agreement. This is unlikely to provide much comfort to practitioners before the matter has been considered by Parliament or an Employment Judge.

An obvious consequence is that compromise agreements will not be as widely used and ACAS will see a huge peak in demand for assistance with conciliation. Many will question whether ACAS has the means to deal with such further demands on its already stretched services.

A practical matter, which may have dipped below the radars of some practitioners, is the payment of legal fees. It is usual for compromise agreements to include a clause providing that the employer will make a contribution towards the legal fees of the employee, for the purposes of receiving advice about the terms of the agreement, or entering into the agreement. For taxation purposes such fees are usually payable on receipt of an invoice addressed to the employee but marked payable by the employer[4]. Payments of such contributions are often conditional upon the employer receiving a signed compromise agreement from the employee and/or a signed independent adviser’s certificate. It is foreseeable that some employers may try to argue that they do not have to pay for the legal advice if the compromise agreement itself has not been concluded and as a result they have not received the signed compromise agreement and/or adviser’s certificate. On a similar note practitioners may wish to check their client care letters (and terms and conditions) to ascertain that any costs estimate provided to the client does not merely record that the employer’s contribution towards legal fees (as per the terms of the compromise agreement) will be sufficient to complete the matter, without any further contribution from the client, and that it expressly states that the client is primarily responsible for paying the legal fees.


Leave a comment

Filed under Legislative Changes, settlement agreements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s