Employment Litigation – Understanding the Changes

Kerry Wigg, LL. M.

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Introduction

The Governments ongoing review of employment litigation will impact on every aspect of employment relationships. In July 2013, three key changes were implemented as follows:

  • the introduction of employment tribunal fees payable by Claimants to submit a claim,
  • the introduction of a cap of 12 months’ pay on unfair dismissal compensation; and
  • new rules governing Employment Tribunal procedure.

The changes to the Employment Tribunal System aimed at early resolution of workplace disputes and  simplification of the Employment Tribunal process are expected to have a profound impact on both employers and employees and how they conduct themselves in litigation. With further changes on the horizon including the  introduction of mandatory conciliation and  penalties for employers losing at Tribunal, these radical reforms are set to shape the conduct of Employment Litigation into 2014 and beyond.

Employment Tribunal Fees

Before the end of July 2013, Claimants were not required to pay a fee to bring an Employment Tribunal Claim.  Employees were therefore able to get their claims off the ground easily and at low financial risk.  Consequently, there was little incentive for claimants or their legal representatives to consider whether their claim had a reasonable prospect of success. A recently dismissed employee, regardless of whether his case had any merit, had little to lose by submitting a short form to the Tribunal to test whether the employer would prefer to settle the claim rather than incur the  legal costs and drain on their management time  required to defend a claim. As a result, the Tribunal was inundated by numerous vexatious claims, with little or no prospect of success. Unsurprisingly, the Government became concerned about the financial burden this placed on the taxpayer and undertook a review of the Employment Tribunal process to implement a system to redress the balance.

The main purposes of the introduction of fees in the Employment Tribunal was to deter such vexatious claims by employees. The new fee system will mean that  an employee will have to pay a fee of between £160 and £250 (depending on the complexity of the claim) to submit his or her claim, and another fee of either £230 or £950 in order to proceed with a hearing. These fees should mean that employees (and their lawyers) will  think twice about bringing unmeritorious claims.

Obviously there is concern that fees may reduce access to justice for those Claimants on low incomes, however, such Claimants may not be required to pay the full fees due to a remission system based on an assessment of their personal finances. It is also intended that the level of fees payable will be subject to review to assess their impact.

With the introduction of Tribunal fees, it is likely that early settlements from employers will decline too. Employers are far more likely to adopt a “wait and see” approach. It is likely that Employers will use the payment of the upfront fee by an employee as an  indicator of whether they are really serious about their claim.

Although it may seem that the introduction of fees favours the Employer,  the impact of the change is not all  good news for them.  It is likely that the cost of settling claims  will rise.  Employees will inevitably seek the cost of the Tribunal fee to be added to any settlement payment and there is a real prospect that Claimants may feel that, if they have paid for access to the Tribunal, they would rather take their chances with the legal process and have their ‘day in court’ rather than entertain settlement proposals.

Unfair Dismissal Compensation

Since the introduction of unfair dismissal rights in 1971, the compensatory award has been capped at £74,200. However, the level of this cap was thought by the government to give an unrealistic perception about the level of awards employees could receive,  which has prompted a review of the capping level. As a consequence,  employees have now seen a 12 month pay cap on unfair dismissal compensatory awards. The current overall maximum cap of £74,000  remains, but there is also be a lower cap of one year’s salary, for those who earn less than £74,200. In practice, it is not thought that this cap will not have much of a financial impact for most employees, as the current average award in the Employment Tribunal for an unfair dismissal claim stands at around £4,500. However, the introduction of the new lower cap, together with the introduction of fees, may deter some employees from bringing a claim altogether. Although the governments intention is clearly to deter claims by employees against business, it is unclear whether desperate employees will simply consider adding  allegations of discrimination or whistleblowing to their claims to bolster their chances of a higher award. In recent years, claims for age discrimination, race discrimination and disability discrimination have attracted significantly higher awards.

Employment Tribunal Rules

Existing Tribunal Rules were lengthy and a mine field for anyone unfamiliar with the Tribunal process. A review of the current rules also identified that they were too elaborate and could act as an obstacle to successful case management. Consequently, the new rules have been reduced and simplified to make them accessible to unrepresented employees or advisors without legal qualifications. It seems universally accepted that any  uniformity will give certainty for both employers and employees and must therefore be embraced as a welcome change.

Sift and strike out

The new measures provide Employment Judges with stronger case management powers, including an initial consideration of the Claim Form and response by an Employment judge. This initial ‘sift’ of claims is intended to weed out, at an early stage, any claims with little prospect of success and Judges will also have the power to strike out claims without reasonable prospects. Those lawyers acting for the employer will of course  be keen for Judges to exercise this discretion, but in practice Judges may be unwilling to do so, especially where the employee has no legal representation.

Combination of Case management and pre-hearing reviews

In future, case management and substantive issues will be dealt with at a preliminary hearing. This change is intended to lead to swifter disposal of cases and achieve a cost saving to all the parties. Employment tribunals will also have greater power over the timetabling of hearings to preclude disproportionate evidence, submissions or questioning of witnesses.

Whilst the sifting process by a Judge should weed out weak claims and employers will find themselves faced with less unmeritorious claims, employers will need to ensure that those cases they do face on a restricted timetable are fully prepared and thoroughly presented to the Tribunal in writing.

Conciliation

It is generally accepted that resolving disputes in the workplace is less costly to both parties and delivers more positive outcomes in terms of continued employment and business productivity. Ultimately, it also reduces the demands on the Employment Tribunal. Conciliation can also achieve outcomes which are not an option in the Tribunal, such as an apology. The Government therefore launched an Early Conciliation initiative in November 2011, encouraging prospective claimants to send the details of their claim to ACAS before lodging their claim with the Employment Tribunal. An Early Conciliation Support Officer (ECSO) would then contact the prospective claimant and pass the relevant details to the conciliator to facilitate discussions and settlement between the parties. If conciliation was successful, a legally binding agreement is signed by both parties and no claim would be brought at the Employment Tribunal. However, if conciliation is  unsuccessful then the Claimant can continue to bring an Employment Tribunal claim.

In April 2014, it is intended to make the ACAS conciliation a mandatory process before a claim is submitted to the Tribunal. The intention is clearly to encourage the parties to consider and participate in settlement or mediation. However, whether this will succeed in reducing employment litigation remains to be seen. Given only one- fifth of claims actually made it to a Tribunal last year, it seems that most parties already consider settlement and on balance it  is unlikely that this rule will have any significant effect on the number of settlements. In fact,  with the introduction of Employment Tribunal fees, employers adopting a ‘wait and see’ approach may be more reluctant to engage in early settlement discussions.

Conclusion

Employment Law is currently undergoing a revolution. At the heart of these changes is the aim to encourage early resolution of workplace disputes and to simplify a cumbersome and over burdened Employment Tribunal process. Although the introduction in 2013 of Tribunal fees and caps on Unfair Dismissal awards may appear to favor the Employer, as these changes bite, employers will nevertheless need to modify their approaches and consider employing different strategies to resolve disputes. Whilst the new rules in 2013 may appear to take a tough line on employees, the future looks brighter for employees with the introduction of compulsory ACAS mediation in 2014. The proposed introduction of penalties of up to £5,000 for employers who lose at Employment Tribunal will also probably discourage small business from defending claims to a Hearing and will be exploited as a tactic by employees to negotiate higher settlements. In our view, whilst the changes may achieve a reduction of claims in the Employment Tribunal and streamline procedures, we are also likely to see an increase in the tactical games of employers and employees. But who will  prove to be the strongest tacticians?

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