Compromise Agreements ~ Their Impact on Equal Pay Claims

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A landmark judgment was announced recently by the UK Supreme Court, allowing equal pay claims to be brought in the Civil Courts, where in the past the only route was through the Employment Tribunal:

http://www.guardian.co.uk/commentisfree/2012/oct/25/victory-birmingham-equal-pay?newsfeed=true

A key factor in this decision is the differing timescales or eligibility periods between the Employment Tribunal and the Civil Court processes.  In the past, Equal Pay claims would time out after six months of leaving employment – a constraining factor which had always played into the hands of the employer.  However, the civil courts allow a greater and far more reasonable 6 year period of opportunity – vital when preparing more complex cases, or in allowing employees who may be unaware that they have suffered through unequal pay, more time to discover the facts and take up legal support in order to prepare a case.

The above link refers to a number of determined female employees, 170 in total, who had worked for Birmingham City Council, and who brought their cases to the High Court against a background of double-dip recession, austerity and central government cuts, in a climate where many large council employers were busy cheaply shedding posts across a number of years.

Many councils, including Cheshire West and Chester for example, have been encouraging employees either made jobless, taking voluntary redundancy or early severance / retirement, to consider taking small financial settlements and sign compromise agreements.  These are legal documents which take the form of full and final settlements.  They’re written up ostensibly in order to give a “clean break”, but motivated by self-interest as they encourage the ex-employee to enter a binding contract to waive any legal claims against their former employer in the future.

Compromise agreements are powerful and pretty much all-encompassing instruments.  The only legal avenue which cannot be closed off in this manner is that of personal injury claims.  Each compromise agreement will usually cost the employer around £250 to draw up and process.  This cost will rise if the employer seeks to include gagging clauses, preventing the employee from talking about details of the contract or even the contract itself.  To make the document lawful and above board, employees, as signatories to the document, will need to access and receive legal advice as part of their exit procedure.

In January 2011, exercising my statutory Freedom of Information rights, I conducted research encompassing 345 English councils.

http://www.easyvirtualassistance.co.uk/page12.html

I asked these councils to provide details for the number of compromise agreements they had processed during the previous 6 years.  This was restricted to those drawn up in circumstances of dispute, such as grievances, investigations and whistleblowing cases.  If I’d requested ALL agreements, including those drawn up in redundancy situations or equal pay claims, it’s highly unlikely the councils would have been in a position, due to the sheer numbers involved, to provide the information without going above the £450 costs limit.  This is a provision within the Freedom of Information Act 2000 which takes into account an organisation’s resources / workload and is given to data controllers as one of the exemptions under which information which is held does not have to be released.

Some councils responded instantly, generally the smaller, well-run ones.  Many more took a few weeks to reply, but did respond within the 20 working days that the Act allows them.

To receive all the answers took many months, but eventually, following numerous internal reviews and 55 appeals to the Information Commissioner’s Office, I finally had answers from all 345 councils.  The last one to respond was my own council, the Metropolitan Borough of Wirral – an organisation which has been mired in scandal upon scandal, a very small portion of which is covered elsewhere on this blog.

In total, there were approaching 300 English councils who responded and provided figures, mostly for a period of 6 years, between 2005 and 2011.  Around 50 of them gave varying reasons for not responding, and engaged various exemptions within the Act, usually the costs exemption, claiming that the act of going through their records and providing the data would cost more than £450.  Others claimed that releasing the data would be an infringement on the ex-employees’ personal privacy.  I appealed many times with the Information Commissioner, but ultimately, only 22 appeals were successful in overturning the councils’ decision not to comply.

The total number of compromise agreements drawn up in circumstances of dispute, grievance, investigation and whistleblowing was 4,410 or an average of 15 per council.  Applying estimated costs of £350 per agreement (as such agreements are very likely to contain one or more gagging clauses), this works out to a total of £1,543,500.

The use of such agreements followed a trend which has been rising exponentially over the last 6 years.  One could reasonably speculate that council employers will be tempted to make even greater use of these agreements in equal pay and redundancy situations.

The graph above indicates steady growth in the use of compromise agreements in dispute circumstances over the last 6 years. 2010 figures were still working through, and with 55 requests refused, the adjusted figure may eventually fall into line with the rising historical trend.

Should compromise agreements as full and final settlements still be regarded as valid following the recent Supreme Court judgment – and there’s no reason to conclude that they won’t be – what a wise and profitable move it will have been for the employers who issued them.

However, what’s good for employers is not usually good for their staff…. or indeed their former staff.

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