Compromise Agreements under the Equality Act 2010

A number of people have spotted a bug in the provisions of the Equality Act 2010 dealing with compromise agreements. It may be worth explaining what the problem is and how it might be dealt with.

When legislation provides employment rights it tends to lay down restrictions on how far employers and employees can contract out of them. This is why employees are not asked to sign employment contracts which say ‘I promise never to sue you for unfair dismissal or discrimination of any sort’ – such a clause would be invalid.

But in the context of litigation, it is important that parties can enter into binding legal agreements to bring the case to a close. Otherwise settlement would be impossible.

The way this is tackled in the Equality Act is that s144 makes any contract that claims to exclude or limit a provision of the act void, unless it falls within one of a number of specified exceptions. A valid ‘compromise agreement’ meeting the conditions set out at s147(3) is one of these exceptions.

One of the conditions is that the complainant must have received advice from an independent legal adviser, such as a lawyer; a trade union adviser or an advice centre worker.

This is where the bug lurks. The range of possible independent advisers is limited by s147(5), which says:

Despite subsection (4), none of the following is an independent adviser in relation to a qualifying compromise contract—
(a) a person who is a party to the contract or the complaint;
(b) a person who is connected to a person within paragraph (a);
(c) a person who is employed by a person within paragraph (a) or (b);
(d) a person who is acting for a person within paragraph (a) or (b) in relation to the contract or the complaint;
(e) a person within subsection (4)(b) or (c), if the trade union or advice centre is a person within paragraph (a) or (b);
(f) a person within subsection (4)(c) to whom the complainant makes a payment for the advice.

So in order for the agreement to be valid, the complainant must receive independent advice. But by giving advice, the lawyer falls within s147(5). That disqualifies them from being an independent legal adviser.

This is obviously not what was intended. The explanatory notes to the section tell us:

476. The section describes who can be an independent adviser and includes a power to add new descriptions of people who may be independent advisers in the future. It makes clear that a conflict of interest prevents a person being an independent adviser.

Unfortunately, on a plain reading of the legislation, this is not what it achieves.

In practice, we suspect that this will not be a problem. Tribunals and courts are likely to take a purposive approach to the legislation (i.e. interpret it in light of what it was plainly intended to do). They will probably read s147(5)(a) as meaning a party to the litigation, other than the person receiving the advice. This is a fairly interventionist reading, but the alternative interpretation is so daft, and so plainly not what was meant, that we think it is likely to be adopted.

The other point is that, from the claimant perspective, even if the compromise agreement is invalid, it almost certainly does not matter. S 144(1) says:

A term of a contract is unenforceable by a person in whose favour it would operate in so far as it purports to exclude or limit a provision of or made under this Act.

The provisions of a settlement agreement that a claimant cares about are not those that exclude or limit the provisions of the Equality Act. In the vast majority of cases (including every case that either of us can remember dealing with or hearing about), the only clause that does exclude or limit a provision of a relevant Act is the one requiring the claimant to withdraw his claim, or settle at the same time other claims within the tribunal’s jurisdiction that he may have. The provisions about paying the settlement amount; requiring a particular reference and so on, do not exclude or limit the operation of the Act, and are therefore the same whether or not the compromise agreement is valid.

So if the compromise agreement is invalid the potential issue is that the Respondent cannot force the Claimant to withdraw. That’s obviously a potential issue for the Respondent, but need not trouble the Claimant.

In fact, even from the Respondent’s perspective, we don’t think there’s a real problem. Although they can’t force the Claimant to withdraw, they could apply to the tribunal for the claim to be struck out under Rule 18(7) on the basis that it was being conducted unreasonably.

But if even a small risk is unacceptable, a claim can always be settled via ACAS. ACAS Agreements are a separate exception to the contracting out rules and unaffected by this problem.

Further discussion of this issue can be found at the Cloisters website, where Robin Allen QC reaches a similar conclusion, for somewhat different reasons and the Martin Searle website, which has a good summary of the debate.

As so often, we were alerted to the issue by Daniel Barnett, through his newsletter.