Every year employers and agencies face claims that have no real merit, yet employers choose to pay out rather than incur the cost of defending the action. The reason for this acquiescence was the subject of a recent networking meeting held by the Association of Recruitment Consultancies, which was attended by agencies and end users.
Adrian Marlowe, chairman of the ARC, reminded the attendees how, earlier this year, there was much comment regarding the case of a serial litigant who was issuing Employment Tribunal claims, usually based on age discrimination allegations, following false CVs sent to agencies (and possibly directly to employers), advertising job vacancies.
A neat way to make money, commented Marlowe, but how could this happen? He explained that practicality rather than justice was normally the driving factor, given the cost and aggravation that respondents faced whenever a claim was made. “Is this fair, and if not what can be done about it?” he asked the audience. “In particular, in the current economic climate, should the government not be looking at taking steps to reduce these payouts by business and at the same time cut the cost of the Employment Tribunal service?”
He said that in his experience, and that of his recruitment and employment law consultancy, Lawspeed, it was nearly impossible to get a case struck out early on in an action. The ET’s own statistics showed that last year, Tribunals stuck out a claim at a preliminary hearing in only 4% of some 190,000 claims. Furthermore, in only 0.9% of all claims, was the claimant ordered to pay the costs of the employer, amounting on average to some £2,400 – significantly less than the normal cost of fighting a case.
Marlowe continued that this resulted in pragmatic advice being given, regarding the need to balance the costs of fighting a case, against making a payout. Inevitably, therefore, many opted to pay out, however unfair this turned out to be.
He stressed that in cases involving agency workers, there were additional factors to consider, such as the effect on other agency workers and business relationships. These factors placed particular commercial pressures on agencies to help their end user clients, often by making a payment or meeting their client’s legal costs, even though the agency has no control over the behaviour of the worker.
Adrian Marlowe’s comments were supported by Daniel Barnett, the employment law barrister, who said that Employment Tribunals often saw claims in the context of ‘the little man versus the big boys’. There was, however, a slightly increased trend to award costs against claimants who lied, but claimants who had low incomes were unlikely to have costs orders made against them, despite their inappropriate actions. Applications for early strike out of the claim, thus avoiding the majority of costs, were simply not a realistic option, he explained.
One attendee speculated whether it was, in reality, impossible to be a good employer, and thus avoid any prospect of a claim, given the range of employment regulations that applied, however hard you tried to behave correctly. Another related how a discrimination claim had cost his firm £20,000 in legal costs, despite the claim being dismissed at the final hearing, as the Tribunal had made no costs order. Adrian Marlowe confirmed a similar story from a client who had incurred £50,000 with the same result.
What has become clear is that, while some claims can be headed off early through conciliation, nearly all claims result in some kind of payout. At the meeting Keith Mizon, a Director of the conciliation service ACAS, explained its role, and in particular emphasised that applications for ET claims should always be routed initially through ACAS, to see if it was possible to reach some settlement. Mizon said that ACAS had an impartial role and never gave advice or took sides, as to do so would undermine the confidence of the parties to talk to them.
However he explained that conciliation could only work where both parties agreed to talk, and that ACAS has no teeth as such. If claimants did not wish ACAS to be involved because they just wanted their day in Court, the claim had to run through the ET process.
Although there were now fewer claims month on month, according to ACAS internal statistics, a significant number (45-50%) of conciliated claims did result in a payout by the employer, regardless of the merits of the action. Published statistics from the ACAS pre claim conciliation, showed that only some 10% of claims did not involve a payment of some sort to the claimant.
So what is the solution? After much debate, all attendees agreed that something should be done, and that the current system was unfairly biased against employers. Adrian Marlowe suggested that there should be some pre claim review, which was capable of stopping a vexatious claim from being made, or that an early and fairer review of a claim should be made immediately after it was issued, in order to cut costs and remove the potential ‘blackmail effect’ on the employer respondent. Daniel Barnett said that an early review by the Tribunal would be preferable. Keith Mizon pointed to the system in New Zealand, where there were few rules and a tribunal could effectively require the claimant to conciliate. This approach appeared to have some merit.
The idea of compulsory employment insurance for employers, as has been proposed in recent studies on this issue, had significant downsides, explained Marlowe. Apart from the premium cost, which might escalate if numbers of claims increased, it would not stop spurious claims and the insurer would simply be in the same costs dilemma as the employer/agency but without having to consider other factors such as the impact on other employees or agency workers. This could lead to more payouts than now, would not remove the aggravation and hassle which came with claims, and would thus potentially leave the employer potentially even more exposed than at present..
Finally, the idea of the claimant having to pay a charge to issue a claim was thought to be likely to weed out some spurious claims. However Adrian Marlowe pointed out that this would have to be a low charge if the claimant, who may have few funds, was not to have his or her right to make a claim prejudiced by having to pay a charge. All panellists agreed that in these circumstances, the simple requirement to pay a charge would help to some extent, but would be unlikely to stop the determined claimant or serial litigant who was set upon make a spurious or vexatious claim.
The ARC has recognised that the problem of vexatious claims should be addressed as soon as possible, not least because there is a likelihood of an increase of claims once the Agency Workers Regulations apply in October 2011.
Marlowe wrapped up the meeting by saying: “Where an employer has done things properly and/or there is no proper basis for a claim, it simply should not be entertained by a Tribunal. It should be more straightforward for an employer to prove that he has behaved correctly and carried out proper legal procedures, and he should not be faced with huge and often unfair penalties as at present. In addition to limiting the payouts and operational interference that comes with unjustified claims, it may in turn limit the number of claims made. The ARC has written to the government highlighting our concerns and we will report back to members as soon as we have further news.”
Adrian, a highly experienced lawyer, founded Lawspeed in 1997. He is responsible for developing our extensive portfolio of products and services, including the widely used Lawspeed contract templates. Adrian is an expert on “recruitment law” and specialises in contracts, regulatory compliance, employment status and dispute handling. He is chair of the trade body the Association of Recruitment Consultancies, the only lawyer lead recruitment trade body in the UK. Adrian and his co-director Ravi devised Standards in Recruitment as a vehicle for helping drive up standards and compliance in the industry.
Adrian is our lead in discussions with the government over regulatory evolution. Apart from assisting with client support, Adrian’s primary role is research and development into methods of business delivery, our latest service Proterms being his most recent project. Adrian heads our IR35 lawyers team.