Pay back time

The tide is turning in favour of employers, who may soon be able to recover
some costs from employment tribunal cases. Paul allegari reports

The cost of defending employment tribunal claims is a common source of
complaint among employers, as is the fact that in most cases, employers cannot
recover any of those costs even if they win. The tribunal can only order a
party to pay some or all of the other party’s costs (up to a maximum of
£10,000) if it believes that that party has acted "vexatiously, abusively,
disruptively or otherwise unreasonably in bringing or in conducting the
proceedings" (Rule 14 of the Employment Tribunal Rules of Procedure).
Clearly, quite a tough test.

With careful handling of settlement negotiations, however, employers may now
be able to recover some costs, as shown by the recent Employment Appeal
Tribunal decision of Kopel v Safeway Stores plc.

Kopel was employed by Safeway on the delicatessen counter. She resigned
after several months of complaints, grievances, counter-grievances,
investigations and hearings involving her immediate line manager and other
staff, then brought claims against Safeway for constructive dismissal and sex
discrimination.

Both claims were rejected by the tribunal. She also claimed that Safeway had
infringed Articles 3 and 4 of the European Convention on Human Rights (which
prohibit torture and slavery respectively). The tribunal described these claims
as "frankly ludicrous", no doubt fearing a flood of claims if it was
ever found that working in a supermarket could constitute either torture or
slavery.

Once the tribunal had given its decision, Safeway applied for an order that
Kopel pay some of its costs. Safeway’s representatives referred to a letter
that they had written earlier in proceedings offering £5,700 in full and final
settlement and which was headed "without prejudice save as to costs".
Kopel (who was represented by her sister, a pupil barrister) opposed the
application on the basis that, in contrast to High Court proceedings, there is
no rule in the tribunal that says that a party to litigation should be punished
with a costs order where they recover less at the hearing than is offered to
them as part of settlement negotiations (known as the Calderbank rule, after
the first case in which such an award was made).

Not for the first time, the tribunal disagreed with Kopel. It found that she
had not entered into any meaningful settlement negotiations with Safeway or
through Advisory, Conciliation and Arbitration Service (Acas) and decided that
an employer should be able to protect its position by making a Calderbank offer
where, as here, the employee refuses to enter into negotiations. The tribunal
ordered Kopel to pay £5,000 towards Safeway’s total costs incurred of £18,000.

Kopel appealed to the EAT on the ground that the tribunal had got the law
wrong in relation to Calderbank offers. The EAT agreed that the tribunal was
wrong but Kopel still failed in her appeal. The EAT said that a failure to beat
a Calderbank offer should not, by itself, mean that that party has an order of
costs made against it.

That refusal, however, is a factor that the tribunal can take into account
when deciding to award costs if the party’s conduct in rejecting the offer is
‘unreasonable’. The EAT agreed with the tribunal’s finding that she had
unreasonably rejected a generous offer while pursuing substantial damages for
claims that the EAT considered to be ‘manifestly misconceived’. The order for
costs was upheld.

The EAT’s decision in this case follows hard on the heels of McPherson v BNP
Paribas, in which the EAT also decided firmly in favour of the employer.
McPherson withdrew his tribunal claim two weeks before the hearing, ostensibly
on the grounds of ill health. The hearing had already been adjourned once
before for the same reason. BNP Paribas applied for an order that McPherson pay
all of the costs that it had incurred in defending the claim and a hearing was
held to decide this issue.

The tribunal was not satisfied that the medical evidence produced by
McPherson demonstrated that he was unable to attend the hearing on medical
grounds. Further, McPherson did not attend the costs hearing and so could not
be cross-examined on his reasons for withdrawing the claim. The tribunal
ordered that McPherson should pay all of the costs (subject to assessment) that
BNP Paribas had incurred in defending the claim, from start to finish. The EAT
upheld this decision.

A further sign that the tide may be turning comes in the form of DTI
proposals to amend the tribunal rules so that tribunals have the power to award
costs against paid representatives (rather than the parties themselves) where
the case has been unreasonably brought or conducted. The DTI also proposes that
costs awards should become the norm, and tribunals should be obliged to give
reasons where a costs award is not made.

So what does this all mean? Most employers will, at some point, encounter an
employee who wants his or her day in court and who refuses to negotiate, or who
will only accept payment of the full amount (which is usually grossly inflated)
for their claims. Faced with such a difficulty, employers must lay the
foundations at an early stage for applying for costs at the hearing.

If the claim is clearly misconceived, then the employer should inform the
individual of the costs risks in pursuing such a claim as early in the
proceedings as possible: tribunals can be reluctant to award costs against
individuals if they have not been put ‘on notice’, all the more so when the
employee is unrepresented.

Normally, the first step in negotiations is to ask the employee to produce a
schedule of loss. Human nature is such that that schedule of loss will often be
an exaggerated estimate of the losses. Employers should analyse, with their
advisers, the schedule of loss and come up with a ball park figure for the
employee’s likely damages at tribunal if successful. This will be easier where
something is known about the employee’s job situation.

When all attempts at settlement have been rejected, now is the time to send
the letter that can be shown to the tribunal at the end of a successful
hearing, as was done by Safeway’s representatives. The letter should set out
the employer’s best offer and why it considers that the employee is acting and
has acted unreasonably in either refusing the offer or refusing to negotiate.
It should also remind the employee of the tribunal’s power to award costs for
unreasonable behaviour.

Finally, the letter should be marked ‘without prejudice save as to costs’,
and can either be sent to the employee, his or her representative, or Acas.

Settlement negotiations are often conducted on the telephone. For obvious
reasons, the content of telephone conversations is harder to prove than the
content of a letter, so committing the final offer to writing is essential.

As the EAT emphasised in Kopel, just because the employee rejects that offer
does not mean that the employee will be on the receiving end of a costs award.
To get costs, an employer still has to show that the employee has acted
unreasonably and even then, the tribunal still retains the ultimate discretion
as to whether or not to award costs. The fact that the tribunal has this
discretion makes it difficult to predict with any certainty the approach that
it will take.

However, it is likely that a tribunal is going to be more prepared to find
that an employee has acted unreasonably where it has had to endure hearing a
claim that has no prospect of success, presented by an employee who is an
unconvincing witness.

The tribunal is unlikely to consider the issue of costs itself (although it
can). So, for a costs award to be made, an employer must be able to base it on
something. The ‘without prejudice save as to costs’ letter is an essential
starting point and may persuade the tribunal to exercise its discretion. If the
tribunal adopts a robust approach to costs as it did in Kopel, any employees
who want their day in court may have to pay for it.

Paul Callegari is head of the Employment Group at City law firm Nicholson
Graham & Jones

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