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Compromise Agreements: Council Employees Let Down By Legal Advice

Judge unhappy with way staff treated before signing Compromise Agreement

For help with all Employment Law issues, including Compromise Agreements,  please contact us.

COMPROMISE agreement: a legal phrase which too many people didn’t know the meaning of two years ago but which, in another sad economic indicator, they now know all about.

It’s usually where employers decide to dismiss an employee, either for financial reasons or due to the employee’s conduct, but don’t want the employee pursing them at a Tribunal.

It can suit the employers either because they don’t want the uncertainly or disruption of a legal case hanging over them for the next two years, even when they think they are in the right.

And it can also suit the employer because the Inland Revenue usually allow a lump sum to be paid tax free which is more than he or she would get as either a redundancy payment or through their notice.

The price to be paid by the employee for the lump sum is that they are giving up their right to take matters further, while for the employers, they have to ensure the document is legally watertight.

A test cast at the Employment Tribunal in Glasgow has looked closely at the city’s biggest employer had done everything required of it – or whether the employees could now take it further.

Employees of Glasgow City Council presented around 10,000 female employees with compromise agreements in 2005 which, in this case, offered them one-off payments in return for dropping equal pay claims.

Six of the employees attempted to have the Compromise Agreements overturned because they were unhappy with the information and advice they were given by the Council before signing the documents.

Rather than take the four-figure sums offered by the Council, the women could have decided instead to fight on with colleagues. The Tribunal heard evidence that the sum of £40 million has been set aside by the Council to resolve the long-running issue, which is the subject of multiple separate actions.

The six women in the case of McWilliams and others were unhappy that they were not told by solicitors who had been brought in by the Council to give them advice what their prospects of success in the equal pay case would have been, rather than simply told that they would lose the right to pursue such a claim.

Judge Susan Walker said it was reasonable for the women to expect to have been given more advice than they had been about what would happen if they did not sign the Compromise Agreements.

“Each said she wanted to be told by the lawyer whether the deal was a good one for her personally and whether she should accept it. This was an entirely reasonable expectation based on what the Council told the employees,” she said in her judgement.

“They were specifically told by the Council that the lawyers would help them decide what was the right thing to do. The lawyers did not do that and had collectively decided that they would not do that on the individual information they had.”

The Council paid six firms of solicitors from Glasgow the sum of £1000 a day to provide advice to thousands of employees on the Compromise Agreements. After hearing nine days of evidence from witnesses including 11 different employment solicitors, the judge was critical of the limited advice the women had been given.

“It seems to me that generally the point of getting legal advice is to get some guidance as to what course of action is in your best interests that this is what the Claimants quite reasonably expected and they did not get.”

However, crucially, Judge Walker did not allow the six women to escape the legal effect of the agreements they signed, even with the deficiencies she identified. She held that, although the women were unhappy at the advice they had been given, the Compromise Agreements remained valid as they met the requirements of the Sex Discrimination Act (SDA), and therefore they could not now be overturned.

She said the relevant sections of the SDA required only that employees were told what the legal effect of signing a Compromise Agreement was, not whether it represented a “good deal” or not.

The Judge – who is Vice-President of the Employment Tribunal in Scotland – said her ruling was not the end of the matter as lawyers for the women had indicated the case is likely to be appealed.

Until then, however the judgement is a relief to the Council, who faced the prospect of thousands of cases they thought had been “compromised” being reopened.

It will also come as relief to the six firms of solicitors who were brought in to advise, even though their reputations have taken something of a battering in the judgement.

Given this is not the end of the story, the lessons of the case are essential for any employer thinking of going down the “compromise” route.