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Employment tribunal fees: counting the cost

Our employment law experts report on the dramatic fall in claims following introduction of employment tribunal fees in July 2013.

The introduction of employment tribunal fees has well and truly put the cat amongst the pigeons in the employment sector – creating a political storm to boot – as the various parties debate whether claimants have been priced out of the tribunal system.

The stated aims of the coalition government in introducing the fees regime included:

  • Transferring around one-third of the annual cost of running the tribunals to those users who benefit from it;
  • Removing unmeritorious claims; and
  • Encouraging alternative methods of dispute resolution.

The last objective went hand in hand with the introduction of Early Conciliation, which became mandatory for all claimants from 6 May 2014, as a prerequisite to launching a tribunal claim.

Eighteen months on, what does the evidence tell us about whether the regime is achieving its objectives and if so, at what cost? Moreover, what impact, if any, has the new landscape had on claims that at first glance seem as though they would be largely unaffected by the introduction of fees, namely those cases funded by legal expenses insurance?

Judicial review

Official statistics reveal that £76.4 million was spent on employment tribunals in 2013/14. Of this, £4.5 million was recouped from fees over the first eight months, suggesting an annual contribution of around 8 per cent. This appears to suggest that a much smaller contribution is being achieved than was anticipated. But the real headline is that, in the period October 2013 to September 2014, tribunals received over 32,000 fewer cases than in the previous year, a decrease of 64%. This has caused consternation among the trades unions, who have seen two judicial review challenges fail, most recently in December 2014. Unison’s case was that the fees regime made it excessively difficult to exercise employment rights and was indirectly discriminatory. The High Court rejected the application, mainly on the basis that no concrete evidence had been provided that any particular claimants had been unable to bring claims as a result of the fees (while accepting that the reduction in the number of cases brought was ‘striking’).

Unfair dismissal

While some have argued that the statistics speak for themselves, the picture is somewhat muddied by the fact that the government introduced another major change in April 2012 that would have a significant impact on claim numbers: increasing the qualifying period for protection from unfair dismissal from one to two years. The effects of this change really only began to bite from mid-2013 onwards because of the transitional provisions of that legislation. Added to this, the introduction of Acas Early Conciliation seems to have had its own impact on claim numbers, with Acas claiming to settle 16.5 per cent of cases and a further 19 per cent of employees apparently telling Acas that they were not proposing to take the matter further. A steadily recovering economy is another factor that cannot be ignored in the overall analysis.

Although the precise extent of the fees’ impact on claim numbers is open to debate, it is clear that there has been a significant effect. Perhaps more surprisingly, the evidence also suggests that legal expenses insurance claims have fallen, albeit far less dramatically. Logically, those with LEI should not be affected by the introduction of fees, since they would normally be covered by the policy. Yet the initial indications suggest that there has been as much as a 20 per cent reduction in insured claims since the introduction of fees. It is perhaps in this area where the above muddying factors might more obviously be responsible for the downturn. One suspects that it will take at least another year before there is sufficient statistical evidence from which to draw any reliable conclusions.

What is clear at this stage is that the cost per claim to insurers has significantly increased as a result of the introduction of fees, certainly to those insuring claimants. While the rules allow for fees to be recouped as part of a judgment in a successful case, the reality is that the majority of cases settle before trial without any admission of liability by the employer and there is often little incentive for employers to pay the fees, especially if there is any hint that the claimant might be insured.

As for the future, the government has committed to carry out a comprehensive review of the employment tribunal fees system, although it has yet to say when that review will take place. With Labour pledging in its recent pre-manifesto report to “abolish the current system, reform the employment tribunals and put in place a new system which ensures all workers have proper access to justice,” it seems that the forthcoming general election will be viewed with great interest by employment lawyers, unions and insurers alike.

For more information on any of the issues raised in this article or on employment matters in general contact our Employment Law team.

Posted on Feb 3rd, 2015 by Lyons Davidson