Compromise Agreements and the Equality Act 2010


A recent survey by XpertHR found that 80 per cent of the companies surveyed use compromise agreements to protect their organisations against Employment Tribunal claims from ex-employees, albeit not on a routine basis. Only one in five organisations said they used them as a matter of course in redundancy negotiations.

For a compromise agreement to be legally binding, it must comply with certain conditions set out in the Employment Rights Act 1996. One of these conditions is that the agreement must relate to the particular proceedings in respect of which the compromise agreement is made.
On 1 October 2010, the core provisions of the Equality Act 2010 came into force. Employers are reminded that compromise agreements made after that date that are intended to settle discrimination and equal pay claims should specifically refer to claims under the Act as well as to the legislation it replaced with regard to periods of employment prior to that date.
A further condition is that for a compromise agreement to be valid, the employee must have received advice from a relevant independent adviser.
The wording of the Equality Act has raised some doubt as to who qualifies as a relevant independent adviser in relation to a compromise agreement over discrimination claims as the literal wording of the Act provides that an adviser who has acted for an employee with regard to the contract or complaint would not qualify as an independent adviser in respect of any compromise agreement reached. As it stands, this means that the employee’s own solicitor would not qualify, whereas the previous position was that only an adviser to the other party was excluded. This would seem to be a drafting error, as the explanatory notes accompanying the Act indicate that the relevant section is intended to replace provisions in previous legislation which had the same purpose.
This raises the possibility that an agreement compromising claims under the Act could be challenged as invalid and it is to be hoped that Parliament will clarify the position as soon as possible.
Employers are advised to seek advice before contemplating entering into such an agreement.

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