Settling the score: how to manage the consequences of a tribunal claim

With rising employment tribunal claims, it seems increasingly likely employers could end up in the dock. The latest statistics from the arbitration service Acas in its annual report, published last month, show that the number of applications received by the tribunal office reached more than 27,000 over the past year, an increase of 25%.

Coping with an employment tribunal claim can be stressful for both the employer and individual employees, as there may be some uncertainty as to what will happen if found ‘guilty’.

Here we consider how to manage the possible outcomes of a tribunal claim.

Tribunal results

Generally, there are five potential ways in which a claim in the employment tribunal may be concluded. It may be:

  • settled through Acas conciliation

  • settled by way of a ‘compromise agreement’

  • withdrawn

  • dismissed

  • successful.

Acas conciliation

It is standard procedure for the employment tribunal to forward details of new claims to Acas and for an Acas conciliator to contact both parties to see whether a settlement can be reached before the case comes to a hearing.

Since 1 October 2004, conciliation through Acas has, in most cases, only been possible for a limited fixed period. In claims about wages, redundancy payments and similar contractual matters, the period is seven weeks. In more complex cases, such as claims of unfair dismissal, it is 13 weeks. However, there is no limit in cases where some form of discrimination has been alleged, or in public interest disclosure claims.

Claim settlements

Settlements reached through Acas conciliation are legally binding. The employer and employee sign an agreement called a COT 3. Once the terms of the COT 3 are agreed, the claim can no longer proceed.

The terms of the agreement usually record that the employee accepts a certain sum of money in full and final settlement of all claims. The employment tribunal is advised and the claim is filed as settled.

Settling a claim through a ‘compromise agreement’ is similar to settling through Acas conciliation. However, for a compromise agreement to be valid, it must meet six statutory requirements:

  • The agreement must be in writing

  • It must relate to the particular proceedings or complaint

  • The employee must have received advice from a relevant independent adviser (usually a solicitor) as to the terms and effects of the agreement

  • The adviser must be covered by insurance against the risk of loss from the advice

  • The agreement must identify the adviser

  • It must state: “the conditions regulating compromise agreements are satisfied”.

Under the terms of the agreement, the employee will usually agree to withdraw the claims in return for a sum of money. There may also be other conditions, typically that the employee will not disclose the amount that has been paid and shall not make disparaging remarks concerning the employer.

However, care should be taken, as highlighted in the recent case of CMC Group plc v Zhang. The Court of Appeal held that the clause in the settlement agreement signed by Zhang, which stated that the full US$40,000 settlement amount would be repayable if he broke any terms in the agreement, was actually a penalty clause, and so was void and unenforceable. A specific claim that is the subject of a compromise agreement cannot form the basis of any future claim against the employer.

Withdrawing claims

The employee may elect to withdraw the claim rather than proceed to the hearing. In these circumstances, the employer’s legal representatives should apply for the employment tribunal to formally dismiss the claim.

The Court of Appeal recently confirmed in the case of Khan v Heywood & Middle­ton Primary Care Trust that this will prevent the claim being re-litigated in any other civil court for example, by bringing a personal injury claim in respect of an act of discrimination.

An employee won’t receive any money if a claim is withdrawn, and will in certain circumstances be at risk of the employer seeking a costs award against them. However, costs awards are still the exception rather than the rule in employment tribunal proceedings. The employer would have to show that the employee had been unreasonable in bringing the claim, or that it had never had any reasonable prospect of success. The proximity to the hearing date will be important the closer to the hearing that the claim is withdrawn, the more likely that a costs award will be made.

Claim dismissals

If a tribunal dismisses a claim, it generally means the evidence has been considered and a decision taken that the employee failed to establish the allegations made. Again, in some circumstances, the employee may be at risk of the employer making an application for their costs.

The tribunal decision may be given on the day of the hearing or it may be ‘reserved’ and the parties will receive written notification of the decision some time later.

The employee may wish to apply for a review of the decision or appeal. However, the latter can only be done on a point of law or on the basis that the decision of the employment tribunal is perverse, which means that no other reasonable tribunal could have reached the decision on the evidence before them.

Successful claims

Finally, the claim may be successful. In terms of costs and the potential for appealing, the same rules apply as for a dismissed case. In relation to the penalty, in the vast majority of cases, there will be a monetary award. Usually this will reflect the employee’s losses. However, injury to feelings and damage to health can be considered in discrimination claims.

In unfair dismissal claims a cap will apply, but there is no such limitation in discrimination claims.

Where the employee has received Jobseekers’ Allowance or income support for any part of the period covered by a monetary award, ‘recoupment’ provisions will apply. The tribunal decision specifies the period it relates to. The employee should not be sent compensation in respect of this period until the recoupment notice is received from the Jobcentre Plus local office, advising of the amount of benefit paid to the employee.

If payment is made to the individual before notification is received, the employer will still be liable to pay any amount specified on the recoupment notice to Jobcentre Plus, and then try to recover this from the employee. Interest will be payable on awards if not paid and, ultimately, the award may be enforced through the civil courts in the same way as any other court judgment.

How to approach tribunal claims

  • Focus on early settlement if a COT 3 agreement is desired.

  • Specifically identify the claims being settled in a compromise agreement.

  • Consider whether repayment provisions reflect a genuinepre-estimate of loss.

  • Always apply to dismiss proceedings upon withdrawal.

  • Consider whether training could reduce the likelihood of anyfurther claims.

Types of claim

Employment tribunals have powers to determine more than 70 different types of complaint, including unfair dismissal, race, sex and disability discrimination, unauthorised deduction of wages, breach of contract and redundancy pay.

In 2005-06, 115,039 claims to employment tribunals were registered compared to 86,181 in 2004-05. The increase is mainly accounted for by a large increase in multiple cases which rose from 31,126 in 2004-05 to 63,543 in 2005-06. This year has also seen an increase in the volume of equal pay cases.

In 2005-06, 60% of all jurisdiction cases disposed of were withdrawn or settled before a hearing.

The number of current ‘live’ cases was 112,657 at 31 March 2006.

Source: Employment Tribunals Service Annual Report 2005-2006

By Guy Guinan, employment partner at law firm Halliwells LLP

For more on how to respond to employment tribunal claims, see the June issue of Employers’ Law

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