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COT3s as an alternative to Compromise Agreements - The Section 147 Headache


Section 147 and Compromise Agreements


The Law Society’s practice note on Compromise Agreements dated 13th January 2011 provides useful assistance to solicitors who advise employees or employers in relation to compromise agreements that contain provisions relating to statutory claims for discrimination within the ambit of the Equality Act 2010 (“the Act”).

As stated in the Law Society’s practice note, Section 147 of the Act sets out the requirements that must be satisfied in order to properly settle claims under the Act by way of compromise agreements. Section 147 is intended to provide a safeguard for employees who may not otherwise understand the full implications of a compromise agreement and crucially, it stipulates that complainants must receive advice from an ‘independent adviser’ about the terms and effect of any compromise agreement.

Concerns have been raised about the possible interpretation of this section. This suggests that there may be a risk that such agreements may prove unenforceable.

Less than helpful is the fact that two leading employment Counsel from whom the Law Society have obtained opinions have reached diametrically opposed conclusions as to the accuracy of the Government Equalities Office statement that “section 147 does not prevent the complainant’s legal representative acting as the qualified adviser for the purpose of a compromise agreement because the section has to be read as a whole”.

COT3s as an alternative

Given the conflicting advice many advisers may well decide that it is better to be safe rather than sorry and attempt to settle potential, existing or future claims via a different route.  Section 3.2 of the Law Society’s practice note suggests that ACAS conciliated COT3s could be used as an alternative to compromise agreements.  The practice note quotes from an ACAS statement, “Where no final agreement has been concluded, even though there may have been prior direct negotiations between the parties and/or their representatives, there may well be scope for a conciliator to act and to incorporate any subsequent final agreement in a COT3”.

Drafting the COT3

All well and good then, if you can find an ACAS conciliator to agree COT3 wording then the matter can be settled and we can all move on with our lives?  Well, before that is done the wording has to be agreed and COT3 wording tends to be much more concise than the wording of a compromise agreement.

It is normal to see the particularisation of any specific future or potential claims being compromised within a compromise agreement in line with Lord Justice Mummery’s guidance at paragraph 25 in the decision of Dr David Hinton –v- University of East London [2005] EWCA Civ 532 (CA):

If the compromise is of a particular claim raised which is not yet the subject of proceedings, it is good practice for the particulars of the nature of the allegations and of the statute under which they are made or the common law basis of the alleged claim to be inserted in the compromise agreement in the form of a brief factual and legal description.

Although it is commonplace to see such lengthy exposition in compromise agreements it is rarely found in ACAS conciliated COT3s.  COT3s tend to contain much more general clauses dealing with future or potential claims, and regularly include wording such as, an employee accepts compensation in “full and final settlement of these proceedings and of all claims the Claimant has or may have against the Respondent”, or alike.

In the House of Lord’s case of Bank Credit and Commerce International SA –v- Ali [2001] IRLR 292, a COT3 clause which stated that the employee accepted the terms set out “in full and final settlement of all or any claims . . . of whatsoever nature that exist or may exist” was held not to compromise the employee’s breach of contract claim which could not have been contemplated at the time the COT3 was agreed.  The House of Lords gave guidance to the effect that in the absence of clear words the scope of claims covered by a settlement agreements such as a COT3s would be narrowly confined.

The law in respect of releases regarding potential or future claims was summarised in the EAT case of Royal National Orthopaedic Hospital –v- Howard [2002] IRLR 849 at paragraph 9 by Judge J R Reid QC:

In our judgment the law as to contracts for release is pretty straightforward. The law does not decline to allow parties to contract that all and any claims, whether known or not, shall be released. The question in each case is whether, objectively looking at the compromise Agreement, that was the intention of the parties, or whether in order to correspond with their intentions some restriction has to be placed on the scope of the release. If the parties seek to achieve such an extravagant result that they release claims of which they have and can have no knowledge, whether those claims have already come in existence or not, they must do so in language which is absolutely clear and leaves no room for doubt as to what it is they are contracting for. We can see no reason why as a matter of public policy a party should not contract out of some future cause of action. But we take the view that it would require extremely clear words for such an intention to be found.

The COT3 in Howard stated:

1. That the Respondent will pay to the Applicant within 28 days the sum of £12,000 in full and final settlement of these proceedings and of all claims which the Applicant has or may have against the Respondent (save for claims for personal injury and in respect of occupational pension rights) whether arising under her contract of employment or out of the termination thereof on 29 November 1998, or arising under the Employment Rights Act 1996 , the Sex Discrimination Act 1975 or under European Community Law. This payment is with no admission of liability.

2. That the proceedings be dismissed.

In Howard it was held that the COT3 in question was not effective to exclude the Claimant from bringing a victimisation claim under the Sex Discrimination Act 1975 regarding an act that occurred around two years after the date of the COT3.  It was held that the agreement did not show any intention to contract out of future claims and did not bar the claim for victimisation.

Howard was again considered by the Employment Appeal Tribunal (“EAT”) in the case of Miss McLean –v- TLC Marketing PLC and Others [2008] UKEAT/0429/08/LA.  In McLean the EAT considered the following COT3 wording:

Without any admission of liability the Respondents will pay the total sum of £28,000 to the Claimant who will accept it in full and final settlement of her Employment Tribunal claims against the Respondents and of any other claim whatsoever arising out of or connected with her employment with the Respondents and its termination.

The EAT concluded that the wording did not preclude a fresh claim of post-termination and post-COT3 victimisation brought under the Sex Discrimination Act 1975.


The upshot of all this is that although it appears to be accepted practice that the provisions of COT3s are much more concise and general than those found in compromise agreements, care should still be taken by those acting for employers who wish to compromise employees’ potential or future claims.  If an employer is aware of a potential claim that an employee does not know about, it will have to be brought to the attention of the employee and its release clearly stated within the terms of the COT3 agreement.  Failing this, the COT3 may be a less effective cure to the Section 147 problem than desired.

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