Knee-jerk payouts fuelling compensation culture

Fear of a compensation culture and a predicted rise in tribunals by experts is causing a knee-jerk reaction among too many employers of paying out before a claim reaches court, Croner has warned.

In fact, the HR consultancy said this behaviour could actually be fuelling the compensation culture.

Settling a claim early is giving the message to ‘have a go’ employees that if they file a claim, they will receive an out of court settlement from employers who are afraid of massive legal costs and the threat to their reputation, Croner said.

Of the 115,042 applications registered with the employment tribunal service in the year 2003/04, arbitration service Acas settled nearly half (48,108) of these cases.

Robert Kerr, head of litigation at Croner, said employers should not automatically settle out of court, as long as they always act reasonably and take time to understand their legal obligations.

“The increasing jurisdiction and complexity of employment tribunals mean that many employers need to seek professional representation,” he said. “However, the legal costs in such circumstances can be significant, and at times disproportionate to the level of award made by the tribunal.”

The highest award made at an employment tribunal during 2003/04 was £635,150, but the average award for unfair dismissal, which constitutes almost half of all claims, was just £7,275. For the jurisdictions of race, sex and disability, the average awards were all under £30,000.

“Statistics show that the threat is not as great as some may perceive,” said Kerr. “Rather than worrying about claims, employers need to tackle the route of the problem, which is understanding their obligations to, and reasonable treatment of, employees.

“Subject to doing this, they should not feel wary about taking appropriate steps to manage staff, and should not fear the threat of massive compensation costs.”

 

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