Jack Straw’s plans to clamp down on no-win, no-fee solicitors may have little effect.
Last month, the Ministry of Justice announced it planned to clamp down on no-win, no-fee lawyers who exploit vulnerable clients. No-win, no-fee arrangements fall into two categories:
- Conditional fee arrangements (CFAs) – where lawyers’ fees are calculated on the basis of work done
- Damages-based contingency fees (DBCFs) – where lawyers’ fees are calculated as a percentage of compensation awarded or paid.
Currently, CFAs are permitted in most areas of litigation, but DBCFs are not a permitted form of funding for litigation conducted through the courts. Nonetheless, the classification of tribunals as non-contentious means that DBCFs are an available method of funding employment claims.
As they are currently unregulated, justice secretary Jack Straw believes that DBCFs allow lawyers to take a large proportion of damages as payment for excessive legal fees. In an attempt to rectify the situation, the government has announced its intention to regulate DBCFs and introduce the following provisions in the Coroners and Justice Bill:
- A cap on the percentage of damages that can be recovered (the amount of the cap is yet to be determined)
- A requirement that lawyers provide claimants with information on total costs, deductions used to pay their fees for taking on the case and alternative methods of funding.
Critics of DBCFs argue that such regulation is required as their use is currently open to abuse. The disadvantages of DBCFs include encouraging nuisance claims and making access to justice limited to low risk, high value claims.
DBCFs also have the potential to create a conflict of interest between claimants and their solicitors, whose primary concern becomes ensuring costs are recovered, rather than acting in the best interests of their client.
Another disadvantage is that DBCFs frequently contain settlement clauses providing that a client who does not act on advice to settle will have to pay hourly rates for the duration of the case. This effectively handcuffs clients to the settlement advice of their solicitor.
However, some argue that DBCFs should be permitted alongside CFAs and regulated accordingly. One advantage of DBCFs is that they are simpler than CFAs and are often welcomed by clients.DBCFs can also improve access to justice.For those without legal expenses insurance, and who are not members of a trade union, DBCFs provide an alternative method of funding employment litigation.
For those unable to afford to pay privately for legal representation, or gain access to free representation, DBCFs represent the only practicable alternative to self-representation.Another advantage is that DBCFs may actually reduce spurious claims, as practitioners are unlikely to offer DBCFs to clients bringing speculative claims.
Irrespective of the perceived advantages and disadvantages, DBCFs have been a feature of the employment tribunal regime for over 10 years and it is debatable whether the proposed regulation provides any additional protection to claimants.It is arguable that a cap on the percentage of recoverable damages is unnecessary, as competitive market forces prevent abuse.
A study by Moorhead and Cumming (2008) reported that although the approaches to charging DBCFs are inconsistent, there is no evidence to suggest that excessive percentage fees are charged.
Additionally, the Solicitors’ Code of Conduct already requires solicitors to give clients the best possible information about costs, including discussing various methods of funding.This suggests that as the proposed regulation does not seem to increase claimant protection, simply codifying existing requirements and practices, employers will still have to deal with claims being brought on a no-win, no-fee basis.
Sign up to our weekly round-up of HR news and guidance
Receive the Personnel Today Direct e-newsletter every Wednesday
Key points
- DBCFs are no-win, no-fee arrangements, which allow lawyers to take their fees as a percentage of damages won.
- They are not permitted in the civil courts. However, such arrangements have existed for many years in employment tribunals.
- DBCFs are currently unregulated. The Ministry of Justice wants to cap the percentage of damages recoverable from claimants, ensure claimants are given full information on costs and are told about different methods of funding.
Caroline Carter, head of employment, Ashurst
