Financial penalties for tribunal time-wasters

Employment tribunals’ powers and willingness to award legal costs are
increasing, writes Gareth Brahams

Defending employment tribunal claims can be a hugely expensive business for
employers, both in terms of management time and legal costs. In most cases in
the civil courts, the winning party normally recovers their costs from the
other side. In contrast, awards of costs have historically been the exception
rather than the rule in tribunal proceedings. This means that, even if an
employee’s claim is ultimately rejected, the employer is often left with a
massive legal bill.

The rationale for this approach is that, since tribunals were designed as a
relatively inexpensive and informal forum for employers and employees to
resolve disputes, it would be inappropriate for litigants to be routinely
exposed to the risk of costs.

The no-costs culture now seems to be changing, however, as the Government and
the courts become increasingly concerned to reduce the pressure on the
employment tribunal system. The prospect of having to pay legal costs will
arguably be a more powerful deterrent to pursuing a weak case than any other
for many potential claimants.

Tribunals’ powers to award costs were therefore significantly beefed-up by
new rules of procedure introduced in July 2001. A tribunal now has a duty to
consider awarding costs where it thinks a party or his or her representative
has acted "vexatiously, abusively, disruptively or otherwise
unreasonably" or if the claim was "misconceived". Anecdotal
evidence suggests that tribunals are becoming more sympathetic to costs
applications by employers on the basis that the claim had no reasonable prospect
of succeeding.

Another important change relates to the maximum sum of costs that tribunals
are allowed to award. This has been very considerably increased from £500 to
£10,000 (costs above this level are possible, but the tribunal has to refer the
matter for a detailed assessment by the County Court).

The Employment Bill currently working its way through Parliament will
enhance the tribunal costs regime still further by allowing awards to cover not
just the costs of the hearing but also time wasted spent preparing the case.
The Bill will permit costs awards directly against a party’s representative if
he or she conducted the case badly or unreasonably.

Judicial support for a tougher line on costs was recently provided by the
Court of Appeal. In Kovacs v Queen Mary and Westfield College, 2002, IRLR 414,
the tribunal found the applicant had pursued entirely unmeritorious unfair
dismissal and discrimination complaints against her employer as part of a
vendetta against a particular individual. She was ordered to pay the whole of
the employer’s costs, which were later assessed by the County Court at £62,000.
Upholding the award, the Court of Appeal ruled that the applicant’s limited
means were irrelevant. It said that tribunals should not take into account a
party’s financial situation or ability to pay when deciding whether or not to
award costs.

The Employment Appeal Tribunal was notably less gung-ho in Monaghan v Close
Thornton Solicitors, 20 February 2002, unreported, a case in which a legal
secretary claiming unfair dismissal rejected the employer’s "without
prejudice save as to costs" offer of £1,500 to settle the case. She was
awarded £1,007 by the tribunal, which went on to order £500 in costs against
her for having acted unreasonably in refusing the settlement. Allowing her
appeal and overturning the costs order, the EAT stressed that only
exceptionally should costs be awarded on the basis of a claimant having turned
down an offer of settlement.

While it is important to discourage unmeritorious and time-wasting tribunal
applications, it would be unfortunate if the cost was to scare off genuine

Gareth Brahams is a partner in the employment department at Lewis Silkin

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