Compromise agreements and the Equality Act 2010

Consultant editor Darren Newman explains why the drafting of the provision in the Equality Act 2010 on compromise agreements could effectively mean that no compromise agreement under the Act is enforceable.

It is becoming increasingly clear that a small but important drafting error in the Equality Act 2010 has effectively rendered compromise agreements invalid.
Section 147 of the Act sets out the conditions that must be met for a compromise agreement to be reached under which a claimant, or potential claimant, reaches a binding settlement with the respondent whereby he or she is prevented from pursuing a discrimination claim in return, generally, for a financial payment. The Act calls this a “qualifying compromise contract”, but the old term of “compromise agreement” will no doubt continue to be used.

Section 147 replaces similar provisions in each of the predecessor discrimination statutes and statutory instruments, and runs in parallel with s.203 of the Employment Rights Act 1996, which allows compromise agreements in respect of claims that can be brought under that Act, such as unfair dismissal. There are further compromise agreement provisions in other statutes and statutory instruments relevant to employment law. Although the detailed wording can vary, they all fundamentally have the same requirements. Or at least they did, before the Equality Act 2010 came along.

Compromise agreements are designed to protect potentially vulnerable claimants from signing away their claim accidentally, or too cheaply, by providing that they must have received independent advice about the terms and effect of the agreement. It is in the definition of an independent adviser in s.147 that the problem with the Equality Act 2010 arises. Under s.147(4) of the Act, an independent adviser can be a qualified lawyer, a certified trade union official or an advice worker. The problem is in relation to s.147(5), which seeks to ensure that the adviser is genuinely independent. Section 147(5)(a) states that the adviser cannot be a party to the contract or complaint (the contract in this context is the compromise agreement itself). Section 147(5)(d) then states that an independent adviser cannot be “a person who is acting for a person within paragraph (a) … in relation to the contract or complaint”. Since the claimant is clearly a “party” to the contract or complaint, and is therefore a person within paragraph (a), this must exclude anyone who is acting for the claimant in relation to either the dispute at issue, or the compromise agreement that is being negotiated.
This makes no sense. It means that a lawyer hired by the employee to represent his or her interests, pursue a claim or negotiate a settlement is deemed not to be an independent adviser by virtue of the fact that he or she is acting on behalf of the claimant who is a party to the dispute. However, it is those very lawyers who negotiate and sign thousands of compromise agreements ever year – not to mention the trade union and advice centre representatives who are caught by the same trap. If they cannot be independent advisers, then who can?

The Government Equalities Office has sought to argue that there is no problem and that those who consider that there is are mistaken. A statement put up on its website says:“Section 147(3)(c) makes clear that the complainant and the independent adviser are separate people. Sections 147(4) and (5), which are concerned with who can and cannot be an independent adviser, cannot therefore be referring to the complainant at all, and so section 147(5)(d) cannot be referring to a person acting for the complainant.”

However, the fact that the adviser and the complainant are separate people has nothing to do with the definition of the adviser in s.147(5). Simply asserting that, when s.147(5) refers to a “party”, it cannot be referring to the complainant is nonsense. Of course the complainant is a party to the dispute. If the provision did not mean to include complainants in the term “party”, it could have simply used words such as “respondent” or “other party”. If it had done so, this problem would not exist. Section 147(5) would have provided that the adviser should not be acting for the “respondent” or the “other party”, and that would have made perfect sense in terms of ensuring his or her independence. In fact, all of the previous discrimination legislation carefully excluded advisors acting for the “other party” rather than “a party” – see, for example, s.77(4BA)(a) of the Sex Discrimination Act 1975. Just why those who drafted the Equality Act 2010 thought that these provisions needed to be rewritten is not clear – but I bet they are regretting it now.

Some commentators have argued that, because the drafting of s.147(5) is clearly an error, a tribunal would interpret s.147(5) with a large dose of common sense and hold that a claimant’s lawyer could act as an independent adviser. Perhaps so, but this cannot be taken for granted. The principle usually applied is that the best way to interpret the intention of Parliament is to read the words of the statute. In this case the words are clear – there is no real ambiguity, just a catch-22 requirement that excludes most advisers on the grounds that, by advising the employee, they have lost their independence.

In a potentially crucial development, the Law Society has weighed in and announced on its website that it has taken counsel’s opinion on the issue. The opinion is that neither solicitors acting for the employee prior to the formation of the final agreement, nor solicitors to whom the claimant is referred for the purpose of advising on the agreement can be independent advisers within the meaning of the Act. The Law Society concludes that there “is no way” that compromise agreements under the Equality Act 2010 can be made enforceable.

This must surely make it questionable if any solicitor can agree to act as a claimant’s independent adviser for the purposes of a compromise agreement. Such an agreement must state that independent advice has been given and identify the adviser concerned. Given the position taken by the Law Society, what solicitor would represent him- or herself as able to give independent advice as required by s.147? And what employer would pay out under a compromise agreement that the Law Society says is unenforceable?

The problem may be not that we will have years of niggling uncertainty while we wait for a test case, but that employers and employees who want to settle their claims will simply have no confidence in compromise agreements. The implications go far beyond pure discrimination claims. Almost every compromise agreement refers to discrimination as well as to unfair dismissal and other potential claims. If an employer agrees to make a payment to an employee being dismissed, will it accept a compromise agreement that covers unfair dismissal and redundancy but cannot rule out a discrimination claim?

The brunt of this may be borne by Acas. If they cannot put their trust in a compromise agreement, the parties to a dispute are likely to opt for a conciliated settlement through Acas, which importantly now offers a pre-claim conciliation service. But does Acas have the resources to deal with the flood of applications that might come its way?

Ultimately there is only one solution. The Equality Act 2010 has to be amended to make it clear that a claimant’s representative can give independent advice on a compromise contract. And if the name could be changed back to compromise agreement, that would be good too.

Do you agree with Darren Newman? Contact us at [email protected].

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