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compromise agreements

compromise agreements – the law of unintended consequences

The government seemed to find it mildly surprising that over half the respondents to its consultation used compromise agreements often; most of those directly involved with employment law in practice would not. But there is a cost involved for employers every time one is used, especially since the decision in Hinton v University of East London CA (2005 EWCA, Civ 532) which had a big impact on drafting practice and then the advent of s.147 of the Equality Act 2010, which undoubtedly had unintended consequences, even though the government stoutly maintains that it is “fit for purpose”.

Hinton made it clear that compromise agreements must identify each and every claim that is being settled – thus the tendency to include a long list of possible claims in agreements to make sure that nothing is missed out, or the need to spend a lot of time identifying all possible claims to ensure that all necessary “i”s are dotted and “t”s crossed – meaning that agreements are generally cumbersome, and sometimes expensive to draft. The government proposes to revisit this, potentially providing a standard set of wording to be used in most cases, with the scope to include add-ons in the minority of cases where something additional like a confidentiality clause is required. The intention is that such a standard agreement would cover all current and future employment claims, but would exclude claims for personal injury and in relation to accrued pension rights. If the new drafting and standard wording do what it says on the tin, this will cut the cost of entering into compromise agreements (or “settlement agreements” – as they are going to be renamed) all round.

At the same time, the wording of s.147 of the Equality Act 2010 is to be changed. The wording of this raised doubts in the minds of many erudite and eminent lawyers about whether standard compromise agreements could validly settle discrimination claims because it provides that a person cannot be an “independent adviser in relation a qualifying compromise agreement” if he or she is “a person who is acting for” … “a party to the contract or the complaint”. This seems to exclude an employee’s own solicitor or other legal adviser from qualifying as an “independent adviser” in discrimination cases, leading practitioners to advise employers that there is a risk that compromise agreements are not effective in discrimination cases and to devise roundabout alternative ways of reaching a binding agreement. A revision of the wording to make sure there is no doubt at all is overdue.

Martin Malone

By Martin Malone

I'm a solicitor and the chief operating officer at Canter Levin & Berg. I was formerly head of the employment department.
I maintain this website so if you have any suggestions, criticisms or recommendations please email me at martinmalone@canter-law.co.uk.
Outside work my interests include national hunt horse racing, France and French wine and current affairs. I also design and maintain websites.