Another fine mess: are compromise agreements under the Equality Act 2010 enforceable?
Some of our clients have raised concerns with us about whether compromise agreements are still enforceable in relation to discrimination claims, following reports in the legal and HR press about the effect of the Equality Act on those agreements.
In this Alert we offer employers advice about best practice in an unusual situation.
The Equality Act 2010, like its predecessors, contains a section (section 147) which deals with the use and effectiveness of compromise agreements. The drafting of this section is ambiguous. The clause dealing with the definition of “independent adviser” (the employee’s adviser who signs the certificate) is a perfect storm of self-contradiction, leaving practitioners and employers alike doubtful as to whether a compromise agreement under this clause could ever be enforceable.
In short, the provision says that an adviser is not an “independent adviser” if he/she is acting for the employee in relation to the compromise agreement or the complaint. Therefore, it is difficult to see how anyone can be an independent adviser and, of course, if there is no independent adviser, there is no binding compromise agreement.
The legal and HR press are having a field day, and some of the reports have understandably caused concern to our clients who rely on the enforceability of their compromise agreements every day.
The Government Equalities Office has insisted that the status quo remains unchanged by the new Act. It did not mean this to happen. The Law Society, however, disagrees - intention aside, the drafting says what it says. It has raised this issue with the Home Secretary.
What action should an employer take?
Employers should, of course, bear in mind that this ambiguity will affect only compromise agreements which settle claims brought under the Equality Act, i.e., discrimination claims arising since 1 October 2010. Agreements settling earlier claims under other Acts are unaffected.
The Equality Act is certain to be amended in due course. In the meantime, we would suggest a pragmatic approach. Tribunals are equally certain to adopt a purposive interpretation of section 147 and, as such, will likely consider any claims brought arguing this point to be an abuse of process.
However, we would not wish for our clients to be fighting the test case. There are precautions to be taken which will protect an employer’s position.
The first is the inclusion of a carefully worded repayment clause. A repayment clause essentially requires the employee to undertake not to litigate, with a provision requiring repayment if this is breached. Such clauses need to be drafted carefully to avoid legal pitfalls. However, the deterrent factor of such a clause even if not enforceable should not be underestimated.
The second is the inclusion of clauses confirming that the parties and the adviser himself or herself understand the adviser to be independent of the employer. Although of limited value from a legal perspective, this would clarify that critical fact.
The third option would be to agree a COT3 using ACAS. This has the clear benefit of avoiding the issue altogether but may not be appropriate in every circumstance.
The overriding message is – do not panic. Use your compromise agreements as usual and the issue will be resolved.
If you have any specific concerns, wish to discuss the drafting of the suggested clauses or the use of ACAS, please get in touch with the Employment team at McDermott, Will & Emery UK LLP.