Litigation costs: Waiting for the hammer to fall

With tribunal costs on the increase, it’s imperative that workplace disputes are sorted before they get to court. Ross Bentley reports.

There’s little doubt that many workplace disputes result in costly litigation. And it’s HR’s job to ensure those costs are kept as low as possible. There were more than 189,000 applications for employment tribunals in the year up to April 2008, according to the Tribunals Service, the government body that administers all tribunals. This figure is up by a third on the previous year.

During that time, the average compensation award for cases involving unfair dismissal, race discrimination and sex discrimination was £7,974, £14,049 and £10,052 respectively. Factor in associated expenses – legal costs, lost management time, the expenditure of recruiting new employees – together with such intangibles as the damage to a firm’s reputation and staff morale, and it becomes clear that trying to reduce the cost and impact of workplace disputes is a pressing issue for employers.

At law firm Stevens and Bolton, employment partner Paul Lambdin calculates the overall average cost to an employer of an employment tribunal is £15,000-£20,000.

“A small business only has to face three tribunals in a year and that’s the annual profit margin swallowed up,” he says.

Tribunal costs

The rise in the cost of employment tribunals could be attributed to a number of factors. Employees are more aware of their rights and have become more litigious while the increased technicality of employment law has led to more complex cases, which take longer and are therefore are more expensive to resolve.

“Not too long ago, a tribunal panel would rattle through three to four cases in a day, but today it’s not unusual for one case to be heard over a number of days,” Lambdin says.

Equal pay claims are the most financially crippling, he says. “They can become very technical because often you are comparing apples with pears.” The same is true of disability discrimination cases, where frequently expert advice is sought on whether an employer has made a reasonable adjustment to accommodate an employee, as required by law.

But what can employers do to minimise costs and avoid a dispute going to tribunal in the first place?

Lambdin says employers should start by revisiting their contracts and workplace policies to ensure they “embrace the spirit of current workplace legislation”.

He adds: “Policies become procedures and if people feel that they are being treated fairly, they are less likely to pursue a claim. The law has moved in favour of employees, and employers can’t afford to stick their head in the sand.”

Good communication with employees is also vital, says Ranjit Dhindsa, employment lawyer at law firm Reed Smith. She believes that many disputes are caused by employers not keeping their staff fully up to date with important decisions being made at a senior level.

Organisational change

In an age of continual organisational change, where redundancies and buy-outs are a fact of corporate life, there’s a danger that employees who haven’t been kept abreast of the situation will feel disgruntled if they suddenly find out they are affected by any reorganisation.

Dhindsa says: “There are still a lot of employers out there who don’t like to give bad news. This results in a lack of quality communication to employees, and HR and line managers getting involved too late. Employers must play these situations with a straight bat or they will find their employees aren’t with them.”

She recommends that employers demonstrate their commitment to creating a fair workplace by carrying out equal pay audits. They should fully engage with unions and work councils, so they can detect and deal with any underlying issues at an early stage.

Timely intervention is also crucial, according to Dhindsa, who says many grievances escalate simply because managers, busy with all their other commitments, don’t deal with them immediately. The frustrated employee has plenty of time to stew, and by the time the manager gets round to dealing with the issue “all trust and confidence has gone”.

She advocates that organisations appoint people who are dedicated to dealing with a grievance at the earliest possible stage and that they are given adequate and relevant dispute resolution training.

“In my experience, it is rare for a dispute to come out of one big bust-up. Most are the result of an accumulation of things. The situation is allowed to fester until there is little chance of reconciliation,” Dhindsa adds.

The Centre for Effective Dispute Resolution (CEDR) is just one organisation to offer training in managing conflict, a problem that’s “systemic” in UK businesses, according to Graham Messie, director of consultancy. He says tackling conflict at work will not only help employers avoid potentially costly litigation but also enable teams to work more closely and efficiently.

Positive conflict

CEDR’s courses cover the “whole lifecycle of a dispute”, including how to form project teams, have difficult conversations and get better negotiation skills.

Messie says: “Often disputes arise out of people getting off on the wrong foot – perhaps when a new member of team comes in or after a reorganisation. There is a positive aspect to conflict – innovation can come out of creative differences – but it depends how these different points of view are handled.

“Managers have to try to keep these differences within the work project. It’s when they become personal that the problems start.”

CEDR also promotes mediation as an effective way of resolving workplace disputes, a process that looks set to be used more widely following recommendations made in last year’s Gibbons report, which set out to assess current employment dispute resolution practices.

The report criticised the three-step statutory dispute resolution procedures introduced in 2004 for formalising a dispute too early on and escalating grievances. The author recommended mediation and other alternative dispute resolution techniques as “effective means of achieving early resolution”.

It’s a point that Justin Patten, professional mediator at Human Law Mediation, has much sympathy with.

“People at work have become increasingly process-driven and have lost the confidence to deal with things on their own,” he says.

Mediation is becoming increasingly popular because, unlike arbitration where an expert third party makes a judgement on a situation, the process is about two parties coming to an agreement with the help of a trained facilitator, he adds. And at a cost of around £750-£850 a day to hire an external mediator, it offers employers much better value for money than going all the way to tribunal.

Workable solution

Employers can either hire external mediators or train them in-house, and, according to Patten, the process can be used not just to get back to a viable working relationship but also, if required, to negotiate an employee’s exit strategy.

He says one reason why mediation is not used more widely in employment disputes is because there is no compulsion for companies to try it.

“But in civil disputes, such as divorces, and commercial grievances, the law compels the parties to try mediation unless there is good reason why they can’t,” Patten adds. “It involves bravery and for the two sides to be open and frank and to want to come to a workable solutions.”

However, with the government pledging an additional £37m to Acas for additional mediation and related services over the next three years, it look as if more employers will be encouraged to give mediation a go.

Case study

Bio-pharmaceutical company Novozymes prides itself on taking a proactive approach to conflict management and being a progressive employer. Its senior managers identified a number of areas where they thought conflict could arise, including managing expectations of suppliers, purchasers and distributors, personality differences in work teams and potential issues when terminating contracts.

With this in mind, they worked with CEDR to develop a two-day bespoke programme aimed at providing employees with a combination of practical exercises and knowledge in negotiation strategies, mediation, conflict management, team-building and communication styles.

Managers from the Continent came to London where, in conjunction with CEDR co-ordinators, other Novozymes managers delivered the training to develop their own negotiation and conflict management skills.

According to Andreas Dietrich, a director at Novozymes, the course resulted in some long-term sustainable effects on the management team. He says the team now “works like clockwork,” and has finally “gelled”.

“This mind-stretching thinking is for anybody who interacts with people or customers in a professional relationship,” Dietrich adds.

Step to avoiding costly workplace disputes

  • Revisit your contracts and workplace policies to ensure they embrace the spirit of workplace legislation.
  • Ensure there is good communication with employees, so any bad news doesn’t come as a shock.
  • Engage fully with unions and work councils to identify any problems.
  • Don’t let grievances fester until there is little chance of reconciliation.
  • Appoint dedicated managers who can deal with grievances early and in the right way.
  • Ensure differences of opinions in a team don’t escalate into full-blown conflicts.
  • Consider training managers in dispute resolution and conflict management.
  • Take into account alternative dispute resolution approaches, such as mediation.

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