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Compromise Agreements

November 2010

There has been concern recently about a potential drafting error in the Equality Act 2010 (which came into force on 1st October 2010) and its impact on Compromise Agreements. The Law Society has asked the Home Secretary and the Government Equalities Office to look into the problem as a matter of urgency. Simply-docs will try to provide some clarification on this issue, while we wait for a definitive response from the above bodies.

A compromise agreement is a contract through which an employee or ex-employee can settle their statutory claims with their employer and agree not to take further action against the employer.

For a compromise agreement to be valid the claimant employee must receive independent legal advice. The Equality Act 2010 appears to provide that a lawyer or legal adviser advising an employee on their compromise agreement is not an ‘independent legal adviser’ for the purposes of the Equality Act. This is also the case if the solicitor/legal adviser has acted for the employer during the course of the issue. As the relevant section (147(5)(d)) is in the Equality Act 2010 this whole issue is only relevant in the context of a discrimination claim. The implication of all this is that where there is a potential discrimination claim and a solicitor/legal adviser has been used to advise the claimant on the matter and a compromise agreement is subsequently agreed and signed, that compromise agreement is potentially unenforceable. This could apply to any compromise agreement, where the issue involves a potential discrimination claim, signed after 1st October 2010.

For the purposes of the relevant section of Equality Act 2010 the following advisers would not be ‘independent legal advisers’:
- a qualified lawyer;
- an officer, official, employee or member of an independent trade union certified in writing by the trade union as competent to give advice and authorised to do so on its behalf;
- 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 authorised to do so on its behalf.

Important Document Updates

Simply-Docs has updated its Compromise Agreements and Termination and Resignation folders so that each relevant document now contains a note to warn users of this issue and its implications.

So in the meantime what can be done? Some experts have suggested using ACAS to act as the ‘independent legal adviser’ on compromise agreements which deal with discrimination claims until there is appropriate Government clarification on this issue. Another alternative may be to use 'clawback' provisions in the terms of the settlement in order to avoid subsequent claims against the terms of the settlement. It may be advisable to delay part of the settlement payments until after the period within which an ex-employee could make a claim. We would suggest that you consult a lawyer for more detail on such ‘clawback’ provisions or delay of settlement payments.

Simply-Docs will keep you updated with any further Government clarification as it becomes available.

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.

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