A change is afoot in the way claimants fund their employment tribunal claims, writes employment lawyer Paul Housego of Beers LLP who specialise in the outsourced services sector. First some background, as this comes from changes made to litigation some years ago. The Woolf reforms to civil litigation (named after the Judge who organised it all) were sweeping. Litigation was made much less procedural, and was given a greater focus on settlement. Costs used to be a major problem for claimants. If you won, you could get a costs order against the other side – but you had to accept liability for your costs if you didn’t win. If the solicitor acted on the basis that he wouldn’t charge you if you didn’t win, you had no liability to costs, and so would get no costs order. So solicitors couldn’t act on that basis as they would not get paid, win or lose. What Woolf did was bring in conditional fees – solicitors could act for nothing but if their client won they could get the charge they would have made plus an uplift of up to 100% of that amount, subject to the Court agreeing the amount of the uplift as well as the original costs amount. There are strict rules about what must be in a conditional fee agreement, and it is void (that is the losing party will have to pay nothing) if the correct form is not followed.
Contingency fees
remained outlawed. A contingency fee is “I’ll act for you and if we win we’ll
split the winnings and if we don’t win you don’t pay me.” When Employment
Tribunals were started they were to be simple places based on common sense, to
resolve employment matters. They were called Industrial Tribunals then, and they
evolved out of tribunals dealing with redundancy payments and national insurance
issues. So their work was not “contentious business” like suing people. Of
course it is now, but it is still categorised as “non contentious”. So
contingency fees are not prohibited – and provide the means for many claimants
to bring cases.
In the abstract
this is a very good thing. Claimants with good claims who have lost jobs tend to
have no income. The lawyer has to risk getting nothing, so will bring only cases
he or she thinks have a good chance of winning. Such cases ought, if brought, to
have a good chance of settlement if the employer’s lawyer thinks the same. Most
contingency fee agreements are between 33% and 50% of the amount won. Unfair
dismissal claims are capped at about £70k (depending on length of service) but
most awards are far less. Although awards in discrimination cases are uncapped,
most awards are less than £20k. Every employer knows that you can’t defend a
case, even a simple one, for less than about £5k. Complex ones cost a lot more.
So they do for claimants. So for a claimant to lose 50% of a big claim of say
£40k would still not involve the solicitor charging much more (if anything)
above the time cost of running the case.
Claims in
Employment Tribunals have been going up and up. The number of tribunal rooms and
the number of judges have not. Claims are taking more days to hear as they get
more complicated. So the system is gumming up. Cases listed for hearing today
will often not get a hearing date, less than 6 months ahead. Now the Government
has brought in a system that requires employee representatives (but not employer
ones!) to be registered. (Solicitors automatically qualify.) The Government now
suggests that claimants are being abused by representatives and need to be
protected. It proposes to regulate contingency fee agreements. It proposes a cap
of 25% of the award as the maximum.
It does not take
a mathematical genius to work out that this destroys the whole basis of such
agreements. If it is going to cost £10k in time to bring a claim, then the
solicitor will have to expect to get in £40k to make it pay. And that does not
factor in a win bonus – necessary for the economic model to stand up, as no one
wins all the time, and even if you win the amount of the award may be reduced
from the headline amount. Even a simple claim costs £5,000, but simple claims do
not produce awards of £20,000 very often.
The whole point
of this proposal appears to be a cynical attempt to cut down the number of
claims made. From the perspective of the employer this appears unalloyed good
news, even if morally dubious. I fear it will not prove so. The one law which
always holds true in employment law is the law of unintended consequences. There
will be more claimants in person. Claimants in person tend to have a strong
feeling that they have been done wrong. They tend not to understand the law.
While the claimant with a good lawyer is more likely to win, there are benefits
to the respondent in the claimant being well represented. Issues will be
identified, so reducing cost, the chances of success and failure understood and
settlement more likely.
Bad lawyers who
cannot get work will be willing to take cases that otherwise would go to good
lawyers. Worse, even bad lawyers may lose out to unqualified hacks who will view
the returns as acceptable. So, if this goes through, expect fewer claims, but
expect more of the ones you get to be intractable and to be fought to a
conclusion! It is difficult to get costs against litigants in person who lose,
so expect also more cases fought to involve you in more expense. More than ever
it will be important to have advice from a good lawyer, and to make use of the
pre hearing review to try to dispose of hopeless cases at an early stage.
BEERS LLP Website
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