“Legal parasites feeding on small businesses” or protectors of rights?

5 January 2011 by

Don't get fired

The future of the employment tribunal system is under review by the coalition government, and the players who are to win and lose from the changes are setting out their positions.

Depending on where you stand, the employment tribunal system is either a refuge for greedy lawyers and scurrilous claimants, or an essential bulwark against workplace abuses. In reality, like the rest of the court system, it can be both but is usually something in between. As such, the coalition should consider its options carefully, and listen to both sides of the debate, before making any decisions on reform.

The employers have been putting their case this week. In a debate on this morning’s BBC Radio 4 Today program (listen here), the Director General of the Confederation of British Industry (CBI) John Cridland said that the current system of employment tribunals is “broken” and that “everybody other than the lawyers lose”.

Meanwhile, in yesterday’s Times, Helen Giles, a human resources advisor to small charities, in an article entitled “Stop legal parasites feeding on small business” wrote that “small businesses and charities are groaning under the burden of complying with employment law that encourages employees to misrepresent themselves as victims of bullying and discrimination”. The system is “heavily loaded” against businesses. She suggests that “The burden of proof in discrimination claims should be placed on the employee and there should be stronger prima facie evidence of discrimination before allowing a claim to progress”.

Considering the statistics, in fact the number of individual claims has remained fairly stable, ranging from around 60,000 to 80,000 per year over the past 10 years. So, the burden on small businesses and charities which Helen Giles refers has probably remained constant. It is larger businesses which tend to be affected by group claims. Professor Richard Moorhead has posted a detailed and myth-busting analysis of the statistics here.

The CBI has ideas for reform too. It is urging the coalition to introduce a fee or deposit for bringing an employment claim, in order to buck a trend which saw employment claims rise by 56% last year to 236,100 (the statistics are here), mostly the result of multiple claims. According to the Financial Times, ministers are sympathetic to a fee ranging from £30 to £500.

The employment tribunal system was created by the Industrial Training Act 1964 as industrial tribunals. They were and remain independent judicial bodies consisting of a lawyer chairperson and two other members. They were intended to act as a simple and informal means of resolving disputes, but some argue that they have become as formalised and lawyer-heavy as ordinary civil courts, but without the stronger judicial control over proceedings which has become the norm since the 1999 Civil Procedure Rules.

It is unsurprising that the number of employment claims has increased in light of the poor economic climate. But a poor economy cuts both ways, affecting employers as well as employees, and the coalition is looking at ways to make the system more employer-friendly.

The coalition’s Programme for Government promised to “review employment and workplace laws, for employers and employees, to ensure they maximise flexibility for both parties while protecting fairness” but did not specifically mention the tribunal system.

One of the aspects of a review of enterprise policy announced in November by the former enterprise “tzar” Lord Young was to extend the period of time an employer must have worked for a small company before they can bring a claim for unfair dismissal from one year to two. “Back in the 1980s when we did that, the result was that employment started shooting up again,” he told BBC Radio 4’s Today. It is not clear what the position is now following Lord Young’s resignation after telling a newspaper that people had “never had it so good”.

From a perspective of employment rights, tinkering with the unfair dismissal qualifying period, or introducing a fee, is likely to have a significant effect on employees with grievances, and may prevent many from bringing claims. However, a more pernicious outcome may be to encourage employees to bring claims under other grounds with no qualifying periods, for example discrimination or whistle-blowing.

Any change will have an effect on employee’s rights. Employment law frequently crosses over with human rights law, and this is particularly true of discrimination law, which has no time limit for bringing a claim and which has mostly arisen as a result of European directives. The formerly disjointed collection of discrimination rules and regulations has recently been consolidated into the Equality Act 2010, most of which is being implemented by the coalition.

Not all legal debates affect such large groups. The ongoing debate over control orders, an anti-terrorism instrument which allows police to impose stringent conditions on terror suspects who have never appeared in court, shows how much time and energy can be spent on issues which, although important in principle, only affect only a handful of people.

On the other hand, any change to the employment law system, however small, could have an enormous effect on a significant proportion of the population, both employees and employers. Any reforms should therefore be considered carefully and all voices should be heard first. This is particularly important given that many of the criticisms made of the system – for example the “huge” increase of no-win-no-fee claims and the wisdom of proposals to make claims pay respondents’ costs – are more myth than reality.

So, although they may sometimes house “parasites”, and may need tweaking to become more effective and less choked with claims, employment tribunals also provide protection for millions of employees and a deterrence against scurrilous employers.

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  1. Martin says:

    As a small business with 20 employees, I have first hand
    experience from the other side. Despite the size of our company we
    have good procedures, staff handbook and company rules. We had an
    employee with a poor disciplinary record, who following an
    unsuccesful grievance and appeal left. Initially supported by the
    CAB, this apparently straightforward case ran for almost 6 years
    before being overturned. We tried to treat all our employees fairly
    and I never ever expected to be spending six years of my life
    fighting a tribunal claim. This was the first time this happened to
    us, so we had little choice but to use an employment lawyer. The
    initial cost estimate was £2000 (a typical quote) to complete the
    ET3 and provide a response with a likely total of between £4000 and
    £6000 and 6-12 months to complete. We faced legal fees in the first
    year of around £8000 with no sign of a resolution. I then
    represented the business myself (with the help of numerous books
    from Amazon) for the next 5 years. In many ways the biggest cost
    for me was the personal loss of time and the impact on the business
    and indeed other employees. I accept however, that our case is
    probably unusual, and indeed our belief in the fairness of the
    court and the principles involved stood the test of time with a
    successful outcome for us. I think there is an imbalance in the
    system; the employee can make a claim with relatively little
    personal cost, win, and be financially compensated, loose and be no
    worse off. The employer chooses to settle or defend, either way
    there is a cost to that business. If the they loose they should
    rightly pay compensation, but if the business wins it has still
    lost. Despite our experience, I do still believe in the tribunal
    system, and would be worried that many of the ‘proposed solutions’
    would lead to less protection for the employee. However I think
    that there should be some aspect of cost to the unsuccessful
    claimant. A deposit sounds good, but if you have just lost your job
    and not been paid this may well be prohibitive. To expect costs to
    be awarded is simply unrealistic, however a scale of costs for an
    unsuccessful claim may be beneficial. It would certainly make me
    feel like I wasn’t the only looser (even though we won)! The main
    problem with our case was that the CAB used the ‘throw lots
    & lots of mud and hope some of it will stick approach’. A
    cost to the claimant of say £100 for each unsuccessful aspect of a
    case (eg constructive dismissal, injury to feelings, breach of
    contract etc etc) would help focus the mind, especially if this
    came out of any potential compensation. Looking back what seems
    crazy is that nobody sat down and looked at the facts. For small
    businesses there is a simple answer – you cannot rely on treating
    people well and following the procedures. You MUST join an
    employer’s organisation like the Federation of Small Businesses;
    follow their legal advice and support. If everything does go wrong
    their legal insurance will support you. This also has a benefit for
    the employee because it forces the employer to review their
    practices and do things properly. My last piece of advice to other
    businesses is to use the ACAS helpline (before you get to
    tribunal), this is free. They also offer mediation in many cases
    now, their advice is independent and is invaluable

  2. And a further point (sorry to ramble on).

    The assumption behind much of the press reporting of the CBI’s position is that employment law is a means for “parasitic” employees to bleed businesses dry. But the debate is all a bit one-sided. There may be some parasites. Every system has them. But I have nowhere seen any real analysis of the scale of this problem. The press and the business lobby seem keen to portray the parasite as in fact the paradigm, rather than a small-scale problem in an otherwise good system.

    There has long been a tendency for business and HR people to stigmatise employees who bring grievances or claims as either mad, spiteful, or just in it for the money. Don’t worry, this is not a tirade against HR – some of my best friends etc etc… – but the point is that these stereotypes are so strongly identified in people’s minds, and most people in business can think of at least one example, that it leads to an overestimation of the problem. This is what psychologists call a heuristic bias. Giving people a plausible example of something makes them think it is more likely than it is. See this enlightening Wikipedia entry, for example.

    On the other hand, no one writes articles in the press about how many good quality claims are dropped because employees just decide it’s not worth suing. Or about how businesses and their lawyers can pressurise meritorious claimants into dropping their claims, either with threatening letters about seeking a costs order for £10,000 (a not uncommon letter I believe), or with a paltry offer that an unemployed claimant with bills to pay will almost certainly accept even though they potentially have a very good claim for much more. I once had a client with what I thought was a very good realistic claim for around £18,000-£20,000 but settled for £2,000 because she couldn’t afford further legal fees and was too scared to run the case herself. The other side was represented by Peninsula and I’ll say nothing more about them or their tactics.

    I haven’t only been a claimant lawyer. I have acted for employers too. And my experience is that they do frankly stupid things that could have been avoided with common sense and a bit of forethought, and perhaps some proper advice at an earlier stage. I haev dealt with this kind of case more often than I have dealt with parasitic claimants. The strategy then is how to limit the damage of the client’s own actions, and if that means taking advantage of the employee’s weaker economic position then that’s what happens. Richard Moorhead points out in his blog (referred to above) that employers spend more on lawyers than employees do, and I support the other points he makes.

    But it’s not fashionable to complain about businesses being the villains and employees the victims. Businesses, especially small businesses, need our support at times like these, they are the backbone of the economic recovery etc etc and can do no wrong.

    There, I’ve said my piece, I’ll stop now.

  3. ObiterJ says:

    There seems to be a serious practical issue in that some – probably most – small/medium business employers would rather “settle” a claim than fight it since the expense of fighting has gone too high. Smaller businesses and charities simply cannot afford to fight claims even if they are scurrilous. This allows an ex-employee to benefit from dishonesty. Furthermore, where the employer is insured against such claims the insurer may seek to settle rather than run a lengthy case.

    A further assertion appeared in The Times article (4th January – Helen Giles) that some small businesses would employ illegal immigrants “cash in hand, because they see the penalty of an unlimited fine and two years in jail as less risky than having workers on the payroll who might exploit their limitless rights.” The author of the article did not provide any evidence for such a claim but it makes one wonder. It’s not a risk I would run personally and I am not too sure that many responsible employers would run that risk either but it would be interesting to know though probably impossible to find out !

    Few tribunals these days seem to have all the supposed advantages claimed for them as long ago as the Franks Report – i.e. cheapness, accessibility, freedom from technicality, expedition and expert knowledge.” They are certainly not cheap and are likely to get more expensive and they are not free from technicality of both subject-matter and law. In fact, with many tribunals, there is little difference from the mainstream courts. Maybe this reflects the English lawyer’s love of formal proceedings and detailed rules?

    It might be possible to (a) charge applicants a reasonably substantial fee to bring a claim which could be returned if the claim is successful; (b) expect the applicant to show a strong case before any burden falls on the employer and (c) be rigorous at striking out weak cases. Helen Giles would place the burden of proof solely on the employee but that might be a step too far. Like Mrs Markleham (above) I think that I would avoid bringing in a costs regime for the reasons she gave.

    It would really be interesting to hear many more expert views on all of this.

  4. A while ago I blogged about the so-called “compensation culture” and the so-called 56% rise in claims, in an attempt to dispel some of the myths about the danger of discrimination law in an employment context. Some of my observations:

    1. Employers are more successful in defending discrimination cases than other types of case – suggesting the reverse burden of proof is actually not doing employers any harm at all.

    4. The press are keen to report high compensation figures but the reality is that half of tribunal awards are around £5,000 or less.

    5. The 56% “rise” in claims is illusory. It is a sudden peak, mainly due to (1) the recession – i.e. more people being sacked; (2) the repeal of the (terrible) statutory dispute resolution procedures in 2009, which has reduced the time limit from 6 months to 3 months in most cases. This had the effect of forcing employees to bring claims quicker, so there was a surge in claims around the middle of 2009, to pick up the slack.

    See my blog here.

    On the other points raised here – tribunals already have the power to strike cases out at an early stage, or make claimant’s pay a deposit if their case lacks merit. Many people think more use should be made of this power, rather than another legislative solution.

    Tinkering with the costs regime would be disastrous. There would be a proliferation of conditional no-win-no-fee agreements, and after-the event insurance, much as the civil litigation world has seen over the last 12 years or so since Woolf. I don’t think it would stop claims, it would just make them more expensive all round. The current regime of each side bearing their own costs encourages parties to keep their own lawyers’ involvement (and costs) in proportion to the likely value of the claim, and encourages settlement. By far the majority of claims are settled or withdrawn.

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