Employers are now at risk of claims being levelled against them in numbers not seen since before the fees regime took effect in July 2013.

The legal battleground

As Dylan Rowlands, employment law solicitor at the BPIF, outlines, employment tribunals were established in the early 1970s. “They were intended to be an informal forum for employment disputes to be resolved without the need for employers nor employees to instruct lawyers. Employment tribunals fell outside the normal court structure process, particularly with reference to the usual rules of litigation that the loser paid the winner’s legal costs.” This guiding principle, says Rowlands, did not last for long and very soon tribunal decisions became very legalistic and the procedure strayed from what was intended.

The tribunal service was and is not, he adds, particularly well-funded or resourced. The backbone of the system is part-time or fee-paid judges – experienced lawyers who sit occasionally at the tribunal as well as maintaining legal or academic careers. 

It doesn’t take a rocket scientist to see that the law has become a valuable tool to those seeking to gain advantage over another. Tribunal claims have increased year on year fuelled by an increasing awareness of employment rights and a number of lawyers who would undertake claims on a no-win no-fee basis. “This,” says Rowlands, “has resulted in the tribunal system being clogged up with claims – cases are being pulled from final hearing (often the day before) if other cases overrun and no judge is available.”

And so to the regime at the heart of the case. Philippa Dempster, managing partner of the London office of Freeths LLP, says that the ‘Fees Order’, introduced by the coalition government in July 2013, brought a two-tier fee structure to employment tribunals and employment appeal tribunals. Essentially, the order required claimants to pay between £160 to £1,200 depending on the nature and progression of their claim. 

She says: “The fees were intended to help transfer the cost burden from general taxpayers to those that used the system; to incentivise earlier settlements; and to dis-incentivise those pursuing weak or vexatious claims.”

The case, ‘R (on the application of Unison) v Lord Chancellor’, was a dramatic conclusion to a four-year legal battle between Unison, the public-sector trade union, and the government. After a string of appeals the Supreme Court found in favour of Unison in an appeal centring on a toxic cocktail of indirect discrimination, access to justice and unconstitutional behaviour. The decision means that the fees regime has been quashed and those fees already paid must be refunded.

Why did Unison win? Dempster says it had successfully argued that a sharp drop in the number of tribunal and appeals tribunal claims was disproportionately hard on women as well as a real risk that the order was placing restrictions on access to justice. “It was this restriction,” she says, “that came to form the central plank of the Supreme Court’s decision to allow the appeal and find the fees unlawful.”

Should employers be concerned?

From a business perspective, Dave Stallon, commercial director at the Federation of Small Businesses (FSB), says the ruling “means employers could now be open to more claims, potentially costing thousands of pounds in legal costs.” He’s also worried that employers could see a spike in the number of vexatious claims – “curbing the number of vexatious claims was one of the main reasons for bringing in employment tribunal fees in the first place.”

Rowlands says employers should be concerned: “We will now go back to the pre-2013 position, namely there will be more claims. Such claims can be lodged online and will often be brought by claimants who are not represented. The claims will often be badly written and will take a huge amount of time to unravel – both for employers and the tribunals.”

By way of background, when the fee regime was first introduced the number of new cases being issued fell by around 80%. Will we return to the same high levels? Dempster says not necessarily, “as much will depend on how employers react”.

The ruling means there will be other problems for the system to cope with though. Mark Stevens, a solicitor specialising in employment law at VWV, points to procedure. He says: “In the short term, the president of the Employment Tribunals in England and Wales has issued a case management order to say that any claims or applications made by parties relying on the Unison case will be ‘stayed’, or paused, pending the outcome of a review of the decision by the Ministry of Justice and HM Courts and Tribunals Service.” He adds that this will impact on any applications made by claimants and employers.

In terms of the types of claims that will be brought, Rowlands thinks that nothing much will change, saying that “unfair dismissal, discrimination, whistleblowing, unlawful deduction from wages and breach of contract is a pretty accurate list of potential claims.”

Apart from wasted management time, the main problem with tribunal cases that employers have to contend with is that they are expensive to defend. The CIPD found in August 2015, through a Freedom of Information request, that the average cost of defending a case can be around £8,500. Clearly this is why many employers were making a value judgement and settling cases even if they had little merit. On this, Dempster says that “the philosophy of ‘I might as well pay some compensation rather than spend time and legal fees’ is laudable but it can engender a claims culture”. She suggests that employers should be aware of the precedents that they set and be firm but fair. “Fighting some cases to show that the employer is not a pushover is important,” she adds.

But it’s not all bad news for employers, Dempster says a number of the recent changes to the employment tribunal process remain in place and incentives to settle at the pre-tribunal stage remain: “For example, the ACAS (the government’s arbitration service) early conciliation process survives and encourages settlement early on. Employers should be using this service as it is a powerful tool and does encourage realistic settlements. Likewise, employment tribunal decisions will continue to be posted in the public domain.” Those wishing to keep matters private may wish to seek a private settlement. 

Now that there are no financial hurdles to employees bringing claims there is concern that ACAS will not have the resources to cope. Dempster also raises the dark prospect of “tribunal claims being brought in respect of matters beyond their time-limit where the claimant was previously deterred because of the now-unlawful fees.” Interestingly, a question also hangs over whether employers who have been ordered to pay the claimants’ fees will be able to recover these monies.

How does the ruling affect the constituent parts of the UK? Stevens says that although the judicial system in England and Wales is different from that in Scotland and Northern Ireland, the Supreme Court’s decision affects tribunals across the UK, including Scotland and Northern Ireland. 

What now?

It’s going to be interesting to see how the government reacts. Considering the Brexit machinations, will it have time to revisit and revise the regime? The fees were outlawed because they are set at a level which prevented access to justice; could the government reintroduce the fees at more appropriate levels in the future?

Stevens thinks that the Supreme Court’s decision will have practical ramifications for the administration of claims. He says: “In particular, it will require a rewriting of the online claim form system and the tribunal rules.” It’s going to have to be done soon to cope with the likely immediate spike in claims, including those for unfair or wrongful dismissal, discrimination and unlawful deduction of wages. 

In terms of an alternative method of controlling the tribunal system, Stevens thinks that the government might look at strengthening the power of the tribunals: “They could award costs against the losing party or have wider powers to strike out hopeless or vexatious claims at an earlier stage.” 

From a commercial and pragmatic standpoint, Stallon says that employment tribunal fees were the right thing to do and “put in place to curb the number of unfounded claims and help reduce the perceived risk of taking on staff”. The FSB, meanwhile, says it has long raised concerns that employment tribunal fees were set too high. Yet, Stallon adds that he doesn’t believe that abolishing fees altogether is the right solution as that would be out of step with other court systems: “The government should now look to establish a fee system that is set at a fair and proportionate level, balancing the rights and needs of both employers and employees.”

At the end of the day

Quite simply, the employment tribunal system is now far more affordable, particularly to women and other protected groups, wanting to bring claims that affect them. The government’s approach remains to be seen. One thing is certain – employers need to be more strategic in how they handle employees and claims, both potential and actual.

WHEN EMPLOYEES MAKE A CLAIM

Procedures to follow if a claim is made

If a claim is made, an employer has 28 days to respond in detail. Employers should not delay. Tribunal proceedings may be served at branch locations away from head office. This does not stop the clock ticking and all staff dealing with management at each location should be prompted to know what to look out for.

Following a disciplinary or grievance process, detailed notes and records should be made and kept for at least a year after the incident. This especially applies where situations might be subject to a challenge in an employment tribunal. 

A trusted member of staff (from human resources or another appropriate person) should attend all meetings to take contemporaneous and copious notes of what is discussed. These should be typed up quickly and sent to the employee concerned who should be asked to check them and confirm their accuracy by way of a signature.

Examples of documentation to preserve would include interview notes, which might help justify why a candidate’s job application was rejected, and minutes of meetings at which redundancies were discussed to evidence the factors that the employer took into account when considering the redundancy situation. Send the notes and data to a central hard drive password-protected location if appropriate.

An employee does not have to be right, just reasonable. In most cases a tribunal cannot substitute the decision made by an employer for its own reasons as long as the employer’s decision falls within a band of reasonable responses.

Ideally every employer should have written polices dealing with discipline, grievance and discrimination at work. Employers should also put in place and develop, performance management and whistle-blowing policies to ensure that any issues are resolved in a consistent and fair way. They should at the very minimum comply with the ACAS Codes and an employer should follow them to the letter. Details are available at www.acas.org.uk.

If proceedings are commenced employers will be required to preserve all relevant evidence, with a view to disclosing all relevant documents to the other side (whether the documents are helpful to their case or otherwise). Employers should also consider whether witness evidence might be necessary and prepare witness statements. Usually, the tribunal will issue an order around disclosure and witness statement exchange, including setting out a timetable for when the parties should exchange documents. 

Handling vexatious claims

Employers should consider every grievance made by an employee on a case-by-case basis – even if the employee has a history of making vexatious or irritating complaints. Deal with all disputes transparently and fairly. As above, it is always advisable to keep all records of any communication with an employee and, in the interest of cost, it is in the employer’s interests to deal with the matter quickly. 

An employee repeatedly making vexatious complaints can be part of a costly cycle that consumes considerable management time. Employers shouldn’t be afraid to stand firm. Tribunal procedures allow for applications to strike out such claims where they have no reasonable prospects of success or are vexatious. Some employers may even wish to explore the option of Civil Restraint Orders, which provide terms under which an employee can pursue a complaint against their employers.

Always act fairly, have good policies and follow them. Don’t discriminate, and give reasons for any actions taken. If good reasons cannot be given, employees (and others) may doubt that the actions are fair; it’s also difficult to prove an employer acted fairly if there’s no documentary evidence showing reasoning.

It’s entirely possible to reduce the risk of claims through insurance and membership of a legal advice scheme. Any advice and legal defence when fighting a claim protected under the scheme should be covered by insurance, so long as the advice has been followed.

Seeking advice

It is always advisable to seek advice from a human resources or legal professional who understands the law. Employers can take advice from industry bodies such as the BPIF, some have retainers with law firms or specialist insurance backed employment advice businesses such as that provided by the FSB, and some take ad hoc advice when needed.

In terms of the FSB, it has a legal protection scheme which offers members and their businesses automatic access to legal costs insurance including employment tribunal representation. It has a 24-hour legal advice helpline as well as an online legal information hub providing a comprehensive range of support materials.

BPIF members can take advice from a team of dedicated HR advisers and an employment law specialist solicitor.

If cost is an issue other options for free legal advice are:

Any insurance policy the employer holds may include legal advice

The government website (www.gov.uk) 

Citizens Advice Bureau (www.citizensadvice.org.uk)

Employment Tribunal Public Enquiry Line (www.justice.gov.uk)

Advice, Conciliation and Arbitration Service – (0300 123 1100)

Labour Relations Agency – (028 9032 1442 – Northern Ireland)