The general principle regarding the allocation of legal costs in an Employment Tribunal (“ET”) is that, in the absence of any vexatious and/or unreasonable conduct from either party during the course of the litigation, each party bears their own costs, regardless of the outcome. This is in contrast to the position in most of the other civil courts in England & Wales, where the loser usually pays a percentage of the winner’s legal costs that it has incurred.
The rules are found in the Employment Tribunals Rules of Procedure 2013 (as subsequently amended up to 8th October 2020). Rule 76 provides that—
(1) A Tribunal may make a costs order or a preparation time order, and shall consider whether to do so, where it considers that—
(a) a party (or that party’s representative) has acted vexatiously, abusively, disruptively or otherwise unreasonably in either the bringing of the proceedings (or part) or the way that the proceedings (or part) have been conducted; or
(b) any claim or response has no reasonable prospect of success.
The prospect of a Claimant (usually the employee) having to pay the legal costs of the employer will usually rest on (a), as the Preliminary Hearing (“PH”) to determine the outstanding pre final-hearing issues will usually be the forum for the Respondent to “strike out” the claim, if it considers that it has no prospects of success. Accordingly, if the Employment Judge in the PH does not strike out the claim, by implication, it will likely be deemed to have sufficient prospects of success to allow it to proceed to a final hearing, and so a costs order under (b) is unlikely.
So, how do the parties use the costs regime in their favour?
There is no simple answer to the question “…how much will it cost for a Claimant to submit and progress a claim through to the final hearing?” It will depend on a number of factors, such as the length of the final hearing, the complexity of the claim, the kind of claim being made (eg “unfair dismissal”, “whistleblowing dismissal or detriment”, “discrimination”) and the methods the Respondent uses to defend the claim which may increase the expected costs to a Claimant. A Respondent is likely to be better-funded than a Claimant, and can use this to its advantage by intentionally running up the Claimant’s legal costs. It can do that, for instance, by submitting applications to the ET during the litigation process, which require a legal response, thus depleting the Claimant’s scarce resources. Such actions can deter the Claimant from pursuing the claim.
However, the Claimant, if legally-advised, will be aware of the costs regime and the likely amount of legal costs that a Respondent will incur in defending a claim against it. The Clamant can, and frequently does, use this information to its advantage. It can use this to “extort” money from a Respondent, if that Respondent has a reputation for settling claims based only on the financial consequences to it and not on the claims’ merits. The Claimant may offer to settle its unmeritorious claim for less than it expects the Respondent will have to pay in defending the claim, which, in purely financial terms, is an attractive outcome for the Respondent.
Equally, the same costs regime applies to the Claimant. If it instructs legal representation, it will need to fund the claim, and if that is unmeritorious and subsequently fails, the Claimant will be out of pocket to the extent of the legal fees it has to pay its solicitor and barrister. One way to mitigate this is to instruct its legal representatives on a “Conditional Fee Agreement” (“CFA”) which, although there are variations of this, is usually a “no win, no fee” arrangement. In that situation, the Claimant will only have to pay legal fees if it succeeds in the claim, so capping its financial liabilities. The practicalities are that, by virtue of the financial arrangement, a solicitor will only accept instructions in such a claim if it considers that the claim will either succeed at the final hearing, or that it will settle before it reaches that. Accordingly, a Claimant is unlikely to “get a free ride” on an unmeritorious claim unless the solicitor considers it likely that the Respondent will settle before the final hearing.
The Respondent can react to a claim made by a current or former employee in a number of ways. It may take a principled view, defending robustly any claim against it which it considers to be unfounded. Alternatively, it may take a commercial view, which, is effectively a cost benefit analysis of the financial implications only, the merits of the claim being an irrelevance. In that circumstance, if a Respondent determines that the value of the claim (ie the amount that the Claimant is claiming) is less than the cost of instructing solicitors and barristers to defend it, in addition to the cost of management time it will have to expend in doing so, it may take the pragmatic commercial view that it is better to dispose of the claim by settling with the Claimant. This will ensure certainty, reduce any negative publicity, and allow its management to concentrate on its core business without being deflected into extraneous areas.
A note of caution, should a Respondent to tempted to do this. Although it may be a rational financial decision in the short term, it may end up increasing the time and money spent on defending such claims in the future. A claim is usually settled under the terms of a Settlement Agreement or an ACAS Form COT3, which will almost certainly contain “confidentiality” provisions which prevent both parties from disclosing either the existence and terms of the settlement, in the case of the Claimant, to anyone other than immediate family, and in the case of the Respondent, its officers who “need to know” of those.
The reality is that although Claimants are bound by these confidentiality provisions, they may breach them by telling current employees of the settlement. If an employer obtains a reputation for willingness to settle any claim against it, based on the financial consequences but regardless of the merit of the claim, in the long term it will almost certainly see a rising incidence of claims made against it, and so will end up with much larger costs than it might have if it defended claims made against it, based on their merit.
Meaby & Co are lawyers experienced in representing clients in the Employment Tribunal. Should you require advice on any aspect of employment law, including the above, please contact Chris Marshall on 0207 703 5034.
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