Times have undeniably been tough for businesses over the past few years. Official statistics show that UK unemployment currently stands at 2.48 million, a rise of approximately 900,000 from mid-2008.
Of course, news of wage cuts or job losses often results in a disgruntled workforce, so it is perhaps inevitable that the number of claims made in the Employment Tribunal has also risen along with the level of job losses, as employees seek redress for the loss of their livelihoods.
While some claims are justified, others are speculative and/or have no legal foundation. However, once a claim has been accepted by the Tribunal, if an employer does not defend it, the Tribunal will find against the employer, whether or not it has any basis. The cost of defending even a straightforward claim can run into tens of thousands of pounds, but add into the mix an angry employee blindly making claims for every type of discrimination and the cost to the business is even more significant - both in financial terms and in terms of management time spent dealing with the situation.
Unfortunately, some employees appear to be wise to this and use Tribunal proceedings as a tactic to extort settlement from their employers, whom they believe will want to avoid the commitment of resources to dealing with their claim. So, when faced with a nuisance claim, what steps can an employer take?
Strike out
Many employers' first reaction on being served with a meritless tribunal claim is to question whether it is possible to strike out the claim.
Although the Tribunal does have the power to strike-out claims, it cannot do so unless the application is made at a pre-hearing review (PHR). A PHR can only take place if either party applies for it or if it is ordered by the Tribunal - it is not possible to have a claim struck out in advance of submitting a defence.
In circumstances where there is a clear and discrete dispute over a preliminary legal or technical issue that could affect the claimant's entitlement to bring their claim (such as whether the claim was brought in time), a strike-out application is normally a sensible and cost-effective way of disposing of the claim at an early stage.
However, aside from any such jurisdictional issues, there are only two grounds on which a claim can be struck out on its merits, contained in Rule 18(7)(b) of the Employment Tribunal Rules 2004 (the ET Rules):
- if the claim is 'scandalous or vexatious' (which essentially involves the employer proving that the proceedings are an attempt by the claimant to abuse the court process); or
- if the claim has 'no reasonable prospect of success'.
Even where these grounds appear to have been met, the Tribunal will often be reluctant to strike out a claim without hearing evidence first. This is because PHRs are primarily designed to deal with issues arising out of the pleadings in the case, as opposed to evidential issues. As the Court of Appeal noted in North Glamorgan NHS Trust v Eszias [2007], the only circumstances in which a claim can be struck out if the central facts are in dispute is when the claimant's account of events is 'totally and inexplicably inconsistent with the undisputed contemporaneous documentation'. Therefore, if a Tribunal feels that it needs to hear evidence before striking out, it will generally wait for the final Tribunal hearing, and it is unlikely a PHR will be granted even to consider the issue.
In view of the threshold for a strike out in these cases being so high, as a matter of principle, claims are struck out on these grounds in only a handful of cases and even more rarely in discrimination or whistleblowing claims (Anyanwu & anor v South Bank Student Union & anor & Commission For Racial Equality [2001]; Eszias).
Furthermore, it remains uncertain whether the Tribunal will strike out an unfair dismissal claim, even in cases where the employer has offered to pay the maximum possible compensation to a claimant or it is clear that there is no prospect of compensation. In Telephone Information Services Ltd v Wilkinson [1991], the Employment Appeal Tribunal (EAT) found that a claimant is entitled to pursue a claim merely for a judgment that they have been unfairly dismissed and not for compensation. However, this principle was recently challenged, again by the EAT, in Nicolson Highlandwear Ltd v Nicolson [2010], in which it was held that it was unreasonable for a claimant to pursue a claim solely to achieve a declaration of unfair dismissal.
Given the difficulty of obtaining a strike out of a claim on its merits, employers are well advised to consider alternative options.
Alternatives to strike out
Requests for further information
Where a claimant makes unspecified or unsubstantiated statements in their claim form, employers should be wary of guessing what allegations are being made. Instead, the response to the claim can make it clear that the claimant has not provided sufficient information and can put the claimant on notice that the employer will be making a request for further information in due course. The employer then has the option to make such a request at any time.
Any further information will clearly assist with the employer's preparation to defend the case against it. It will force the claimant to commit, in writing, to their position and may even identify witnesses in support of the employer's position. Providing a response to a request for further information will also put the claimant under additional pressure and may make them more aware of the weaknesses of their own position, all of which could help to undermine the claimant's resolve.
Deposit orders
In circumstances where a claimant has brought a claim without foundation, but the employer is not confident of achieving a strike out, a useful tactic is to apply for an order that the claimant pay a deposit to continue with their claim (Rule 20 ET Rules). The Tribunal appears to be increasingly open to such an approach.
An application for a deposit order must, similarly to a strike-out application, be made at a PHR and therefore may not be made before the defence is filed. However, the principal advantage of an application for a deposit order as opposed to a strike-out application is that, to be successful, an employer need only show that the claimant's claim has 'little reasonable prospect of success' (Rule 20(1), ET Rules). Although this is still a significant threshold, it is certainly easier to achieve.
If the Tribunal grants a deposit order, the technical effect is that the claimant must deposit a sum with the Tribunal of up to £500 to continue with their claim. In addition, if the claimant insists on proceeding and ultimately loses, they are at a greater risk of costs being awarded against them.
Finding the £500 for a deposit may not be sufficient to deter all claimants. However, it is not uncommon for judges to make very direct comments about their opinion of the merits (or otherwise) of a claimant's claim when passing judgment on a deposit order application. These comments can be invaluable, since in the case of an unrepresented claimant, it may be the first time that they have heard this advice and, in most cases, it will be their first encounter with a judge. The fear of a more brutal judgment to come, in conjunction with the reality of immediately having to fork out some of their own money and a costs warning, often convinces claimants that it is not worth continuing.
Settlement
It is obviously important that employers take a commercial view when deciding which claims to settle. While settlement may be superficially attractive - it may be cheaper in terms of legal fees and management time than fighting the claim and winning it - employers should consider whether the long-term effects of settlement may, in fact, prove more costly. Could it open the floodgates for similar nuisance claims in the future and, as such, might it be better to fight the claim to set an example to other employees who may consider bringing claims? If misjudged, employers may find that settlement causes more long-term problems than it solves.
If an employer is faced with a 'difficult' employee, and has the appetite to settle any claims that may be brought, they should consider starting the settlement discussion before they dismiss the employee. This needs to be carefully judged, but it is worth noting that a settlement package that only provides the employee with a small benefit over and above their legal entitlements - for example, providing a payment in lieu of notice as a lump sum, rather than asking them to work out their notice - may in fact be enough to convince the employee that they are better off taking the money. Once a properly drafted compromise agreement is signed, an employer can be safe in the knowledge that the employee will not be able to pursue them for anything further.
Once proceedings have been issued, it is still open to employers to minimise the cost of dealing with a claim by settling at an early stage. Of course, the earlier that settlement can be achieved, and the lower the settlement sum, the greater the benefit to employers. To determine whether settlement is a realistic prospect, it is useful to ask the claimant to set out early on what they are seeking in terms of compensation, either by an indirect approach through the Advisory, Conciliation and Arbitration Service (who are automatically notified of all employment claims and can be particularly useful where claimants are unrepresented), or by asking for an early schedule of loss.
Tactically, it is advisable for an employer to submit its defence to a claim before any settlement discussions. Having considered the legal arguments on both sides (and particularly its own), the employer can then take an objective view of its position and decide what settlement is worth. Further, a litigant in person may be more conscious of the weaknesses of their own position (and therefore more open to a reasonable settlement discussion) when faced with a strong defence in response to their claims.
Costs
In some cases, when faced with a nuisance claim, an employer will try all of the above steps without success. In others, these steps will not be appropriate. In both scenarios, an employer may feel compelled to defend a claim that it considered from the outset was simply an attempt to extort an overly generous settlement and had no legal basis. In these circumstances, once the Tribunal finds for the employer, is it possible to apply for costs from the employee?
The answer, which may surprise some employers, is that it may be. Although the general rule in the Tribunal is that each party bears their own costs, in cases where a claimant has acted 'vexatiously or unreasonably' in bringing proceedings, or where the bringing of proceedings was 'misconceived' (which includes where the claim had no reasonable prospect of success), Rule 40 of the ET Rules provides the Tribunal with a discretion to award costs in favour of the employer.
There has recently been a shift in attitude of Tribunals, who seem to be more willing to consider costs awards than they were a few years ago. To maximise the chances of achieving an award, it would be sensible to provide the claimant with costs warnings and give as much notice of a costs application as possible. However, an application can be made even in circumstances where this has not been done.
That said, employers should not get too excited about the potential for claiming costs from the claimant for three reasons. First, unless the employer wishes to refer the matter to the County Court for detailed assessment, a Tribunal is only able to award up to £10,000, which may be insufficient to cover the full costs. Secondly, the Tribunal is able to consider the claimant's means when deciding the amount of a costs order and, when faced with an unemployed litigant in person, is often satisfied that no order or only a token order is appropriate. Finally, a costs order is only valuable if the subject of the order can or will satisfy it. If the claimant cannot afford to pay, or if they refuse to pay, the employer will then have to decide whether to incur further costs trying to enforce the order. In many cases, given the likely amounts at stake, it will not be worth it.
Conclusion
Although there are certain methods for dealing with nuisance claims, ultimately the Tribunal's power to dispose of such claims is fairly limited. Employers therefore have no choice but to settle at a premium or take costly steps to defend such claims in the full knowledge that it is a waste of time and money.
Fortunately, just as the sympathies of the Tribunal appear to be shifting towards the employer in this type of situation, so are the sympathies of the government. The potentially crippling cost to businesses of nuisance Tribunal claims seems to have been recognised, and reform of the Tribunal system is promised. At the time of writing, the consultation period on various proposals designed to dissuade employees from making nuisance claims, and to make the Tribunal more efficient and cost effective, has just closed. It remains to be seen what action will be taken as a result, but in the meantime see IHL188 (p14) for an overview of the proposals.
Clearly, there is a delicate balance to be struck between ensuring that employees with genuine claims can have their cases heard and discouraging those seeking to extort settlement from their employer from issuing nuisance claims. However, any step taken to limit the abuse of an already overstretched Tribunal will be a step in the right direction.
Steps to consider
- Strike out
- Requests for further information
- Deposit orders
- Settlement
- Costs applications
By Mark Levine, partner, and Laura Garner, solicitor, Mishcon de Reya.
E-mail: mark.levine@mishcon.com; laura.garner@mishcon.com.
Anyanwu & anor v South Bank Student Union & anor & Commission For Racial Equality [2001] UKHL 14
Nicolson Highlandwear Ltd v Nicolson [2010] UKEAT 0058/09/2306
North Glamorgan NHS Trust v Eszias [2007] EWCA Civ 320
Telephone Information Services Ltd v Wilkinson [1991] IRLR 148
