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Compromise Agreements and the Equality Act 2010

29th November, 2010

A ‘Compromise Agreement’ is a legally binding agreement which will usually provide for a severance payment or compensation, in return for which the employee will agree not to pursue particular claims that the employee may have to an employment tribunal or other court.

Although s203(1) of the Employment Rights Act 1996 (ERA 1996) makes these agreements void in general, s203(2) provides for a wide number of exceptions; and as such Compromise Agreements are widely used by employers, as a way of protecting themselves against claims (such as unfair dismissal).

In order to protect the parties when making such agreements, the ERA 1996 lays out a number of requirements which must be met in order for the Compromise Agreement to be valid. These conditions include the fact that the agreement must be in writing and it must relate to the particular complaints.

In addition, “the employee or worker must have received [advice from a relevant independent adviser] as to the terms and effect of the proposed agreement and, in particular, its effect on his ability to pursue his rights before an [employment tribunal].” This requirement is very detailed, and lists a number of conditions surrounding the concept of ‘an independent advisor.’

An independent adviser can of course be a qualified solicitor, who must have professional liability insurance or an indemnity. The Compromise Agreement must identify the adviser and state that the requirements of the ERA 1996 have been met.

A concern has now arisen regarding such agreements which are made under the new Equality Act 2010, which has recently come into force. On a literal reading of the Act, it would appear that a qualified lawyer, or indeed a trade union representative cannot be considered an ‘independent legal adviser’.

Despite most lawyers considering the relevant section of the Equality Act 2010 a drafting error, or that the relevant section is open to other interpretation, the issue has raised a great deal of concern about the effect on the use and effectiveness of Compromise Agreements made under the Equality Act 2010. Although the Government Equalities Office has stated that, “the situation that existed prior to the passage of the Act” remains unchanged, the Law Society is treading more cautiously. It has requested an urgent meeting with the Government Equalities Office and has notified the Home Secretary of its concerns. The Law Society has stated that it hopes to issue a practice note on the matter shortly.

If you are in anyway concerned about how this might effect your existing or future agreements, please do not hesitate to contact a member of our Employment team, who would be more than happy to advise you.

For more information on this, or any other Employment matter, please contact Helen Watson on 01244 405565 or email her here.

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