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Equality Act flaw 'undermines compromise agreements'

Outside lawyer requirement makes things tougher for employers

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A flaw in the just-enacted Equality Act makes it impossible for an employer and an employee to settle all their differences through a compromise agreement, according to employment lawyers and the Law Society.

A compromise agreement is a contract through which an employee or ex-employee can settle an employee's statutory claims with an employer and agree not to take further action against it.

But a drafting error in the Equality Act, most of which came into force on 1 October 2010, undermines the ability of employers and individuals to settle discrimination claims by insisting that the lawyer who advises an employee is "independent".

"There is a fundamental error in the drafting of the Act which means that any compromise agreement which seeks to settle Equality Act claims existent from 1 October 2010 is potentially unenforceable," said Edward Goodwyn, an employment law expert at Pinsent Masons, the law firm behind OUT-LAW.COM. "The reason for this is that 'independent adviser' is defined in the Act in such a way that it excludes anyone who is acting for a party to the compromise agreement."

Goodwyn said that he would advise companies to use conciliation service ACAS (Advisory, Conciliation and Arbitration Service) to settle disputes or to use "claw back" provisions in any settlement to prevent later Equality Act claims against the terms of settlements.

Part of the settlement payments could also be delayed until after the period within which an ex-employee could take a claim, he said.

The Law Society, which represents solicitors in England and Wales, agrees that the law creates problems.

"The Law Society is aware that there is some ambiguity in the drafting of section 147 of the Equality Act which is likely to have an effect on the use and effectiveness of compromise agreements made under the Act," said a statement from the body. "The way this section is currently drafted suggests that a solicitor who was instructed by the employee prior to the production of the final agreement for consideration will be precluded from acting any further."

The Government Equalities Office (GEO), the government department responsible for equality policy, said that it believed that there was no problem with the law.

"The GEO and its legal team do not agree with the Law Society's interpretation of section 147(5) of the Equality Act 2010," said a spokesman. "However, we are aware of the society's concerns and are continuing to discuss the issue with them."

"The Government Equalities Office has stated that 'the situation that existed prior to passage of the Act' remains unchanged and, by implication, that a solicitor who had advised a client in respect of an action would also be able to provide advice on a compromise agreement," said the Law Society statement. "However, we have received advice from counsel which disagrees with this view."

"The advice indicates that a court or tribunal would construe section 147(5)(d) as meaning that a solicitor who was instructed by the employee prior to the production of the final contract for consideration, or who has acted in any way for the employee during the course of his complaint – even in a supporting role to the lead adviser perhaps as holiday cover – will be precluded from acting any further as an independent legal adviser in that compromise contract," the Society said.

"Advice from counsel also indicates that a solicitor to whom the client was referred solely for the purpose of advising on the agreement would not be able to provide such advice," it said. "The effect of this is that there is no way in which compromise agreements under the Equality Act can be made enforceable."

Copyright © 2010, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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