Costs of employment litigation

This week, a look at the way the two main forums for employment litigation – the courts and the tribunal – deal with the issue as to when an employer or employee may recover their legal costs.

The employment tribunal

The tribunal deals with the vast majority of employment disputes and has sole jurisdiction for claims of unfair dismissal, unlawful deductions from wages, redundancy payments, discrimination and virtually every other statutory employment claim. It can also hear breach of contract claims, although it can only award damages up to a maximum value of £25,000. There is uncertainty as to whenever any excess over this amount can be obtained in the courts.

Generally, a tribunal will not award costs to the party who wins. It may only award costs where it reasonably believes a party has “in bringing or conducting the proceedings acted frivolously, vexatiously, abusively, disruptively or otherwise unreasonably”. It is very rare (less than 1 per cent of cases) that a party recovers costs from the other side. Even then, there is a nominal limit of £5,000 unless the tribunal believes it right to award higher, assessed costs.

“Frivolous or “vexatious” conduct is generally where an employee either brings a hopeless claim out of spite or some other improper motive, where there is no substance to the claim, or where it is “bound to fail”, or is “so manifestly misconceived that it can have no prospect of success”.

The main circumstances where an employer may have costs ordered against it are where it has chosen to defend a hopeless claim or pursue a seriously flawed defence. Either party may be at risk on costs if they are guilty of abusive or disruptive conduct before or during the hearing. As costs orders are rarely made, it could be argued that this sometimes results in employees bringing weak claims, knowing that the employer may offer a commercial settlement rather than incur the legal costs of defending the action.

The courts

The County Court and High Court generally only become involved in substantial breach of contract claims. Where the claim is over £500, taking the matter out of the small claims court, a costs award will generally be made. This means the risks of losing for the employee, in practice – are much higher.

There is quite an array of procedural weaponry to obtain a cost order in the court. Parties can make “Part 36 Offers” and make “payments into court”. These formal offers of settlement may have serious cost penalties for a party who fails to accept these offers, and then recovers less than the offer at the hearing.

In litigation, offers are often made “without prejudice save as to costs”. This is where one party makes the other an off-the-record offer to settle, with the caveat that they will apply for costs if the offer is not accepted and the other party fails to recover more at the hearing. However, an employer’s representative will still have to persuade the tribunal to award costs even in these cases.

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