Despite the rights or wrongs of a case, the cost of going to an employment tribunal can be high. Employers must consider the financial implications, says Darren Newman.
The cost to employers of defending an employment tribunal claim was highlighted recently when Times Higher Education reported that a university had spent more than £200,000 defending an unfair dismissal claim that could, it said, have been settled for much less. The case in question was Quigley v University of St Andrews – a constructive dismissal claim that went as far as the Employment Appeal Tribunal.
The case raises interesting questions for employers in general. Is it better to settle or to fight? And how much should you be prepared to spend to ensure that you win?
Controlling legal costs
Extensive legal costs are not inevitable. Lawyers’ fees vary enormously and it may not make financial sense to pay for top lawyers if the case itself is mundane and could be handled just as well by a less high-profile legal team. In the St Andrews case the university hired one of Scotland’s top QCs to represent it at the tribunal hearing. That would inevitably involve a considerable cost – akin to buying a Ferrari because you need a car for the morning school run. Another issue is time. The more preparation that is done and the longer the hearing, the more the case will cost. Decisions need to be taken about how much legal and management resource will be made available. “Do whatever it takes to make sure we win” is not a sensible strategy unless you have very deep pockets.
Factors for consideration
An employer’s first instinct may be that a case should be fought rather than settled. Feelings run high and the employer sets a premium on its reputation and the principle that an employee should not be rewarded for an unmeritorious claim.
‘Do whatever it takes to make sure we win’ is not a sensible strategy unless you have very deep pockets”
As the tribunal date approaches, the inconvenience and expense associated with fighting looms larger. The point of principle can give way to straightforward economics. By then, however, the employer has thrown away a considerable amount in legal costs. Better to explore the prospect of settlement from the outset.
Sizing the claim
It is impossible to make sensible decisions about resourcing or settling a claim without having a clear idea of its overall size. Three factors are crucial:
- the chances of success;
- the likely remedy; and
- any wider impact a successful claim would have (in terms of reputation, precedent or employee relations).
The chances of success
Nothing is certain – and this is particularly true of the outcome of employment tribunal claims. However confident you may be that the claim is misplaced, allowance always has to be made for the unexpected. Nevertheless, it is usually possible to make a reasonable prediction of the chances of success. Where the claim is clearly weak then it should be possible to keep legal costs under control. You should not spend too much money in countering allegations that do not actually make out a proper claim or that are demonstrably untrue. If making a settlement offer, the employer should be in a strong position to offer a modest sum that is somewhat better than the claimant can hope to achieve at the tribunal.
It is important not to focus exclusively on whether the claim will be won or lost. What matters just as much is how much will be awarded if the employee wins.
The maximum compensatory award for unfair dismissal is £65,300. Compensation is based on lost earnings and does not include payment for injury to feelings. In discrimination claims there is no cap on compensation and injury to feelings awards are made.
If the employee has found work before the employment tribunal hearing then the compensation payable if the claim is successful will be greatly reduced.”
Whether the claim is for unfair dismissal or discrimination, the largest head of compensation is likely to be lost earnings. If the employee has found work before the employment tribunal hearing then the compensation payable if the claim is successful will be greatly reduced.
Crucially, the more highly paid the employee, the higher the stakes in the employment tribunal. An employee who was earning £20,000 would have to show that the dismissal has caused three years’ unemployment to approach the maximum amount for unfair dismissal, whereas a senior executive would obviously reach that amount much more easily.
It is important not to neglect the scope the tribunal has for reducing compensation – particularly in unfair dismissal claims. A dismissal may clearly be procedurally unfair, but the employer may have cast-iron evidence that the employee was guilty of gross misconduct. If so, the tribunal would inevitably make a substantial reduction in the compensation awarded – possibly by as much as 100%. It is vital that these factors are taken into account in any settlement negotiation.
Wider impact of the claim
A single tribunal case may have wider consequences. Many employers worry about negative publicity and this is certainly a consideration – although the prospects for it are sometimes exaggerated. Do the facts of the case really make a good news story? How badly can they reflect on the reputation of the organisation? Most employers could survive a headline saying “local firm failed to carry out full investigation” whereas the calculus may change if the headline would involve scurrilous behaviour from managers.
It’s the principle of the thing
Parties can start out with unrealistic expectations of what an employment tribunal can actually deliver. Employees may seek a chance to clear their name or force the employer to recognise and regret the error of its ways. Employers may seek vindication or to send a clear message to other employees that it does not pay to take them to the tribunal. Both may be disappointed. Full vindication is rare from the tribunal – and winning a case can be a very expensive way of sending a message. As Wellington said of Waterloo: “nothing except a battle lost can be half so melancholy as a battle won”. Crucially the employer should be in control of the strategy for fighting or settling a case and should be able to test and if necessary challenge the approach taken by the legal team.