Compromise Agreements and Section 147 Equality Act 2010
Compromise Agreements and Section 147 Equality Act 2010 - 13 January 2011
Contents
- 1. Introduction
- 2. The Structure of Section 147
- 3. Ways in which you may address the situation
- 4. More information
1. Introduction
1.1. Who should read this practice note?
Solicitors who advise employees or employers in relation to compromise agreements that contain provisions relating to statutory claims for discrimination within the ambit of the Equality Act 2010 ("the Act").
1.2. What is the issue?
Section 147 of the Act sets out the requirements that must be satisfied in order to properly settle claims under the Act by way of compromise agreements. This section is intended to provide a safeguard for employees who may not otherwise understand the full implications of a compromise agreement and crucially, it stipulates that complainants must receive advice from an 'independent adviser' about the terms and effect of any compromise agreement.
Concerns have been raised about the possible interpretation of this section. This suggests that there may be a risk that such agreements may prove unenforceable. The Law Society has sought opinions from two leading counsel, John Bowers QC and Tom Linden QC which disagree. See below for details:
- Opinion of John Bowers QC (PDF)
- Opinion of Tom Linden QC (PDF)
The Law Society has raised the issue with the Government Equalities Office (GEO) which is keeping the position under review. Their current position is however that there is no problem with the section as drafted. While the Society considers that there is considerable force in the Government view, it is not free from doubt.
Pending any resolution of the question, you should consider the implications of the interpretations before you advise a client upon the terms and effect of any compromise agreement or execute any agreement in relation to that section.
2.The Structure of Section 147
2.1 A 'qualifying compromise contract'
Section 147(2) describes a 'qualifying compromise contract' as one in relation to which all the requirements in section 147(3) are met.
Section 147(3) (c) states the requirement for 'advice from an independent adviser about the terms and effect' of the agreement. It is clear therefore that the intention of this section is that the complainant and the independent advisor must be different people.
Section 147(4) sets out the broad range of persons who may qualify as an independent adviser including at sub-section (a) 'a qualified lawyer' which is defined in section 147(6).
Problematically however, section 147(5) then excludes certain persons as being an 'independent adviser' in relation to a qualifying compromise contract:
"(a) a person who is party to the contract or 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 complaint?."
Materially, the 'contract' referred to in (d) above seems to relate to the compromise contract which is the subject of the section and the 'complaint' must be the application(s) to the employment tribunal which it seeks to settle.
2.2 The ambiguity
On a literal reading of s.147(5) and supported by the opinion of John Bowers QC, it appears arguable that a solicitor could not be recognised as an 'independent advisor' if he or she:
- is acting in ongoing proceedings and/or
- gave advice on a complaint to a Tribunal (but probably not a grievance leading up to it); and
- has accepted instructions to advise on the agreement itself.
There is a risk that the section may be interpreted to the effect that a solicitor:
- who was instructed by the employee prior to the production of the final contract; or
- who acted in any way for the employee during the course of his/her complaint (even in a supporting role to the lead adviser perhaps as holiday cover), including advising on the compromise agreement itself
will be precluded from acting as an independent adviser in that compromise contract.
Section 147 would then have the effect of rendering unenforceable any discrimination-related elements of a compromise agreement on which that solicitor had advised.
A Tribunal could, therefore, read section 147 in such a way as to allow a claim to proceed, i.e. strike down the compromise contract as non-compliant. This has occurred in analogous cases under the Employment Rights Act 1996.
While this is obviously a matter of concern for solicitors advising employees, those advising employers should take a view on whether or not it is appropriate for the employer to agree to an agreement which has been completed and signed by the solicitor who has been advising the employee.
2.3 The Government's interpretation
The Government's position is that a cross-reference of ss147(3), (4) and (5) produces a consistent picture in which:
- the complainant and the adviser cannot be the same person,
- the independent adviser is one of 4 defined in s147(4)
- the exclusions in s147(5) are limited to one of those 4 also being one of the 6 categories in s147(5) and
- the definition of a 'party' in s147(5)(a) cannot mean the complainant.
Therefore, s147(5)(d) is simply precluding an adviser from being regarded as "independent" if he/she acts for another party to the complaint. It is also strongly arguable that this was the intention of Parliament. This position is set out at the Equalities website, via the following link:.
Frequently asked questions on compromise agreements
This is supported by the opinion from Tom Linden QC and by the clear intention of the legislation. There is obviously a strong likelihood that a court would support this interpretation.
The Law Society is not in a position to advise on which interpretation is correct and this situation is clearly unsatisfactory for employers and solicitors. Unless amending legislation is forthcoming, the correct view can only be given by a court.
3. Ways in which you may address the situation
Whilst the correct interpretation of section 147 remains unclear, suggestions for approaching this issue are outlined below along with some comments on other possible courses of action where we are less convinced of their efficacy. The suggestions apply. whether acting for employers or employees. You should consider which approach is most appropriate in the light of your interpretation of the law and the best interests of your client.
These suggestions apply to compromise agreements seeking to settle discrimination claims under the Equality Act 2010, i.e where the act relied on took place either
- wholly on or after 1 October, or
- where it started before 1 October but continues after 1 October.
This will encompass the majority of all future agreements and some old ones.
You should advise your client of the enforceability problem and options. The following are suggestions for dealing with the issue, depending on the precise circumstances:
3.1 Client lives with risk
If your view is that, in fact, the Government's position is correct and/or if it is clearly in the interests of the employer to agree to the settlement even though it is witnessed by a solicitor who advised on the agreement, it is open to you to advise the client accordingly.
If a claim is brought after completion of the compromise agreement, it is clearly arguable that it should be upheld on the basis of the rules of statutory construction and the Tribunal can be asked to interpret the legislation so as to give effect to its obvious purpose.
There is a risk that the Tribunal would not interpret it in that way or that the matter could be taken to the Court of Appeal or even the Supreme Court.
While it is likely, but not certain, that the senior courts' ruling would be that advice from a lawyer who has previously advised the employee (but not the employer) is sufficient, the process would cause delay with continuing uncertainty. It would therefore be appropriate to advise your client of such risks.
3.2 Using a COT3
You may use a pre-claim conciliation procedure or appointed officer where the claim has been issued. However, this may be problematic if Acas is not prepared to get involved.
With this option, it is important to note that Acas has issued a statement to the following effect:
Where no final agreement has been concluded, even though there may have been prior direct negotiations between the parties and/or their representatives, there may well be scope for a conciliator to act and to incorporate any subsequent final agreement in a COT3.
3.3 Stagger payments
Payments may be staggered so that sums for discrimination are withheld for four months (or seven months for equal pay). Apportion compensation and attribute a significant sum to the discrimination claims. Amend warranties and claw back provisions to enable repayment of compensation provided for discrimination claims.
3.4 Claw back provision
Ensure that a claw back provision is included in the agreement, where the drafting expressly apportions some consideration to the waiver of the EA claims.
3.5 ET dismissal order
This option requires the employee to agree to issue an ET1, withdraw the claim and then get the claim dismissed. You could make payment conditional on withdrawal. In any event, apportion compensation and attribute a significant sum to discrimination claims. Amend the warranties and claw back provisions to enable repayment of compensation provided for the discrimination claims should further discrimination claims be brought.
3.6 Using a different advisor to sign the agreement
A firm has the option of insisting that the complainant's firm use a 'Chinese wall', ie getting another lawyer within the firm to finalise the compromise agreement and sign the certificate. A safer option could be for the complainant to go to a lawyer outside the firm. However, it is possible that neither option will work if interpretation of the section precludes any advisor from being 'independent' from the moment they become involved in any way.
3.7 Use a Tomlin Order to aid settlement
Such an Order may be used to settle contractual claims but it would not be possible to exclude future statutory claims using that route.
4.More information
4.1 Professional conduct
The following sections of the Solicitors' Code of Conduct 2007 are relevant to this issue:
- Rule 1.04 - Acting in the best interests of clients
4.2 Legal and other requirements
4.3 Further products and support
4.3.1 Practice Advice Line
The Law Society provides support for solicitors on a wide range of areas of practice. Practice Advice can be contacted on 0870 606 2522 from 09:00 to 17:00 on weekdays.
4.3.2 ACAS (Advisory, Conciliation and Arbitration Service)
Tel. 08457 47 47 47.
4.3.3 Law Society publications
4.3.4 Training and events
4.4 Status of this practice note
Practice notes are issued by the Law Society for the use and benefit of its members. They represent the Law Society's view of good practice in a particular area. They are not intended to be the only standard of good practice that solicitors can follow. You are not required to follow them, but doing so will make it easier to account to oversight bodies for your actions.
Practice notes are not legal advice, nor do they necessarily provide a defence to complaints of misconduct or of inadequate professional service. While care has been taken to ensure that they are accurate, up to date and useful, the Law Society will not accept any legal liability in relation to them.
For queries or comments on this practice note contact the Law Society's Practice Advice Service .
4.5 Terminology in this practice note
Must - a specific requirement in the Solicitor's Code of Conduct or legislation. You must comply, unless there are specific exemptions or defences provided for in the code of conduct or relevant legislation.
Should - good practice for most situations in the Law Society's view. If you do not follow this, you must be able to justify to oversight bodies why this is appropriate, either for your practice, or in the particular retainer.
May - a non-exhaustive list of options for meeting your obligations. Which option you choose is determined by the risk profile of the individual practice, client or retainer. You must be able to justify why this was an appropriate option to oversight bodies.
4.6 Acknowledgements
The Law Society Employment Law Committee, John Bowers QC, and Tom Linden QC.