Compromise agreements and the Equality Act 2010

09/12/2010

By Nick Hobden, Partner and Head of Employment.

You will no doubt be aware that on 1 October 2010, the main provisions of the Equality Act 2010 came into force, replacing nine existing pieces of anti-discrimination legislation. With an Act this large, there were bound to be a few teething problems. But one particularly difficult issue has come to light regarding compromise agreements.

The problem

You will be aware that a properly drafted compromise agreement is one of only a couple of different ways in which statutory claims, such as complaints of discrimination, can be bindingly settled. Under the old law, in order for a compromise agreement to be binding, the employee was required to take independent legal advice from a suitably qualified legal adviser; normally a solicitor. As long as the adviser had not acted for the employer in the matter in question, he could be said to be 'independent'. So the adviser would frequently be someone who had acted for the employee in the period up to the production of the compromise agreement, potentially pursuing a claim or negotiating the severance package or both.

It was presumed that in relation to compromise agreements, the provisions in the Equality Act 2010 would very much mirror the old law. However legal commentators have recently suggested that the relevant section of the Equality Act 2010 could be interpreted as preventing a legal adviser who has acted for the employee prior to the production of the final version of the compromise agreement from acting as the 'independent' adviser. Indeed some have gone further and suggested that it is no longer possible to settle discrimination claims under a compromise agreements at all and only conciliation through ACAS can settle such claims.

The Government Equalities Office has sought to offer reassurance, stating that the position regarding independent legal advisers has not changed. However the Law Society is unconvinced and is seeking confirmation that action will be taken to amend the Equality Act, to put the position beyond doubt.

Be careful

For now, employers seeking to enter into compromise agreement with their staff must proceed with caution. This is particularly the case where the employee has intimated that he believes that he may have a discrimination claim. If you are using a standard compromise agreement that you have not reviewed since the Equality Act 2010 came into force, then this most certainly needs to be updated; we would be pleased to help you with this. Even if you have already updated your precedent compromise agreement, if you are proposing to use it at this time, we are on hand to advise you regarding the apparent problem with the enforceability of such agreements under the Equality Act 2010.