Background
Compromise
agreements are part of everyday life for Employers wishing
to come to an arrangement for ending an Employee’s employment
or make an enhanced redundancy payment.
In
the current climate of mass redundancies, most employment
lawyers will be handling a large number of compromise agreements
on a daily basis.
These
agreements are often delivered under time constraints, imposed
by Employers keen to ensure that the redundancy process is
resolved quickly.
However,
even though compromise agreements may appear to be routine,
there are hidden dangers that could prove fatal to the legality
of the agreement itself, and which must not be overlooked
in the rush to get the job done.
The Conditions
S.203
of The Employment Rights Act 1996 sets out the conditions,
required for a compromise agreement to be valid:
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The
agreement must be in writing. |
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The
agreement must relate to a "particular complaint"
or "particular proceedings". |
|
The
Employee must have received legal advice from a relevant
independent adviser on the terms and effect of the proposed
agreement and its effect on the Employee's ability to
pursue any rights before an employment tribunal. |
|
The
independent adviser must have a current contract of
insurance, or professional indemnity insurance, covering
the risk of a claim against them by the Employee in
respect of the advice. |
| |
The
agreement must identify the adviser. |
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The
agreement must state that the conditions above have been
satisfied. |
In
the provision of independent legal advice, the lawyer must
certify that he and his firm are not acting for the Employer.
In any event, professional conduct rules dictate that a lawyer
must conduct a conflict of interest check before taking on
a new client. In consequence, if a lawyer agrees to act they
will, by definition, be independent.
Is
the Independent Advice Really Independent?
There
is another, less obvious, danger to a lawyer's independence,
which is easily overlooked in the rush to get an agreement
signed off. This is where an Employer recommends a lawyer
or a choice of lawyers to the Employee.
Human
Resources departments often provide Employees with a list of
lawyers when providing them a draft compromise agreement. Indeed,
we ourselves are on some HR lists, usually alongside half a
dozen or more firms.
Providing
Employees with a list of Employment lawyers to advise on the
agreement can be advantageous as it avoids an Employee taking
advice from those without appropriate experience or those
who see providing such advice as a rubber-stamping exercise.
Employers
usually pay between £350 to £950 plus VAT for
the Employee to receive this advice and so those Employers
selecting a particular lawyer are effectively selecting the
firm in which they are paying fees to.
However,
in recent times we have come across a number of practices,
which do call into question whether the lawyer is truly independent
and which are not in either the Employer's or Employee's best
interests.
Examples
of When Independent Advice is Jeopardised:
1.
Fewer than four law firms being on the recommended list.
2.
Employers specifying that they will only pay for the legal
advice if given by either one or two named law firms.
3.
Unions insisting that members use the in-house Union lawyer
to provide assistance with negotiations or litigation.
4.
Employers informing Employees that a lawyer is coming into
their work premises to advise on the compromise agreements
on a particular day.
Such
practices not only call into question the independence of the
lawyers giving the advice but also infringe upon the absolute
right of an Employee to choose their own lawyer.
Why does it matter to the Employer?
An
Employer may consider that once the compromise agreement is
completed, the question of the lawyer’s independence
is no longer their concern.
In
fact, the failure to provide independent legal advice can
undermine the whole validity of a compromise agreement with
claims that the advice was either received under duress or
that they were simply deceived into believing that it was
independent when, in fact, the lawyer was advising with the
Employer's best interests in mind.
Indeed
Employers may find themselves involved in litigation if the
compromise agreement is invalid despite having paid the Employee
a settlement sum to avoid such a situation.
In
such circumstances, courts will intervene and most certainly
decide that such practices are contrary to public policy and
are an abuse of the right to freely choose legal representation.
What should Employers be doing?
We
would recommend that Employers either do not provide a list
of recommended lawyers or, provide one which is not less than
10 firms long - this avoids the possibility of the Employer
being accused of sending the work to someone they know or
have a business relationship with.
Employers
should monitor how dependent one particular firm may become
on the income generated by the compromise agreements. This
is particularly important for large Employers, where one law
firm is used regularly and is earning substantial fees.
Any
law firm advising on a compromise agreement needs to be free
to recommend that the Employee sue their Employer. If a law
firm is regularly in receipt of a substantial fee income they
may well be reluctant to "rock the boat" by recommending
further negotiations or litigation.
That very reluctance of the lawyer actually harms both the
Employer and the Employee as it attacks the very validity
of the agreement itself.
What
should an Employee look out for?
There
are benefits to the Employee of using a lawyer who has previously
had dealings with their Employers. The lawyer will often be
able to tell them what can and cannot be negotiated based
on their experience of past negotiations. In many cases Employees
will go to the same lawyer because he or she can use the information
received from each Employee to negotiate a better deal for
all of them. However, the Employee needs to be wary of a lawyer
who is overly familiar with the Employer and their HR department.
Signs
That Advice May Not Be Independent:
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Lawyers
who are reluctant to negotiate on Employees behalf and
too readily accept that the first offer is the best
available. |
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Lawyers
who seem to be keen to breeze through the agreement
or who explain it in general terms seemingly, to get
Employees in and out through the door as quickly as
possible. |
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Lawyers
who seem to be always recommended by the Employer. |
|
Lawyers
who say they would not wish to act in a case where they
would have to sue the Employer. |
It
will not be easy for Employees to spot some of these issues
and often with a large number of redundancies there is little
that a lawyer can do to improve a deal, however, they should
at least be exploring the possibilities with the Employee.
Summary
Any
situation where a lawyer is dependent on the other side paying
them is open to abuse. The well advised Employer will seek
to steer clear of such controversies not only because it's
in the Employee's best interest but also because it is in
their own.
A valid compromise agreement provides a neat and tidy end
to the employment relationship. An agreement which is found
to be void can leave more problems than existed between the
parties in the first instance and so both must endeavour to
ensure that the conditions required for a valid agreement
are followed to the letter.
