A compromise agreement is a legally binding agreement by which an employee undertakes to refrain from instigating Employment Tribunal (ET) proceedings against his or her employer or, if proceedings have already commenced, to discontinue them, in return for consideration.
Compromise agreements were created by the Employment Rights Act 1996 and must comply with certain conditions, one of which is that for the agreement to be valid, it must expressly specify the cause of action being settled. In order to ensure that the employee fully understands which rights are being waived, the compromise agreement should list all potential claims.
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 as to the terms and effect of the proposed agreement and, in particular, its effect on his or her ability to pursue a claim before the ET.
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 previously 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.
If you are contemplating entering into a compromise agreement, contact Gary Lee or Nicola Berry for advice.