Caution: Use of Compromise Agreements in light of Equality Act 2010

When terminating employment, Employers will often use a Compromise Agreement together with payment to the employee to ensure that the employees waive their rights to claim under the relevant contract or statute.

There are a number of situations in which compromise agreements should not be used. On e of which occurs when claims arise as a result of a failure to consult either in an redundancy or transfer of undertakings (transfer of a bloack of identifiable business). To the list you may be able to add another potential situation where Compromise Agreement should not be used or if used should be done with caution.

Tere is some confusion in the market following the enactment of the Equalities Act 2010 as to whether a valid compromise agreement can be created. Section 147 (4) and (5) provides that:
(2) A qualifying compromise contract is a contract in relation to which each of the conditions in subsection (3) is met.
(3) Those conditions are that–
(a) the contract is in writing,
(b) the contract relates to the particular complaint,
(c) the complainant has, before entering into the contract, received advice from an independent adviser about its terms and effect (including, in particular, its effect on the complainant’s ability to pursue the complaint before an employment tribunal),
(d) on the date of the giving of the advice, there is in force a contract of insurance, or an indemnity provided for members of a profession or professional body, covering the risk of a claim by the complainant in respect of loss arising from the advice,
(e) the contract identifies the adviser, and
(f) the contract states that the conditions in paragraphs (c) and (d) are met.

(4) Each of the following is an independent adviser–
(a) a qualified lawyer;
(b) an officer, official, employee or member of an independent trade union certified in writing by the trade union as competent to give advice and as authorised to do so on its behalf;
(c) a worker at an advice centre (whether as an employee or a volunteer) certified in writing by the centre as competent to give advice and as authorised to do so on its behalf;
(d) a person of such description as may be specified by order.

(5) Despite subsection (4), none of the following is an independent adviser in relation to a qualifying compromise contract–
(a) a person who is a party to the contract or the complaint;
(b) a person who is connected to a person within paragraph (a);
(c) a person who is employed by a person within paragraph (a) or (b);
(d) a person who is acting for a person within paragraph (a) or (b) in relation to the contract or the complaint;
(e) a person within subsection (4)(b) or (c), if the trade union or advice centre is a person within paragraph (a) or (b);
(f) a person within subsection (4)(c) to whom the complainant makes a payment for the advice.

By the construction of sub-section 5 (in particular) sebsection (b) a lawyer is a connected person to the employee being the employees lawyer and as such the employee is a party to the compromise contract.

So where now. A redraft of your standard compromise agreements especially to ensure that the agreement covers a potential claim for discrimination? There is some argument that where a compromise agreement complies with the appropriate requirements under the Employment Rights Act 1996 then it would be perverse for an agreement seeking to achieve the same result not to be compliant. So is this a change in the law or not. The Government Equalities Office says otherwise stating that the position remains the same as under previous law.

We are not so sure and suggest that this will be tested in the courts before too long.


This entry was posted in Blog / News. Bookmark the permalink.