Stamping out nuisance claims

Citation

Ball, M. (2006), "Stamping out nuisance claims", Strategic Direction, Vol. 22 No. 2. https://doi.org/10.1108/sd.2006.05622bab.002

Stamping out nuisance claims

Stamping out nuisance claims

There have been a number of recent reports relating to problems with the current employment tribunal system and CBI demands for changes to be made to make it simpler and fairer. There have been a number of reasons behind this but most notable were the results from a CBI sponsored survey published on 28 September looking at how companies dealt with tribunal claims. A startling statistic from this was that every business with fewer than 50 employees settled employment related claims despite advice that they would win almost half the cases. From the findings this was not a problem confined to small businesses as overall just over a quarter of all employers paid out compensation even if they felt the claims lacked merit.

Why would an employer want to settle an employment claim in circumstances where there is a good defense? The answer is simple. It is down to cost. An employer facing a claim in the employment tribunal will have to take into account the cost of legal representation. In some circumstances this adds up to more than the full value of the claim. The problem is that some employees knowing that the employer is bound to incur costs in defending the claim will make an application to the employment tribunal on some frivolous issue that has no merit in it. It costs the employee nothing to make the claim and there is every chance that the employer will make an offer of some money in order to avoid a tribunal hearing. This is known as the nuisance value of the claim.

This is not a new practice. In 2000-2001 the number of employment tribunal applications in England and Wales had reached 130,000, with three out of four settled out of court. This led to a government consultation paper “Routes to resolution improving dispute resolution in Britain”. This set out plans to introduce fees for employment tribunal applications as part of a package of reforms. It was considered such a move would encourage potential users “to reflect seriously before taking a case to the employment tribunal”. At the time Ministers stated that the fee will be a “modest amount”, designed to speed up the system and fund improvements, but media reports suggested it could be as high as £100. It was eventually dropped following pressure from unions, backbench MPs and voluntary sector organizations.

However it is still worth considering some the findings in the routes to resolution consultation paper relating to the costs of defending an Employment tribunal claim. Using data collected from the Survey of Employment Tribunal Applications (SETA) 1998 it stated that the average cost to the employer of each application was around £2,000. However it recognized that this varied widely depending on the complexity of the case and the amount of advice and representation that was needed. In addition though there were hidden costs that were not usually taken into account. Lost management time, the loss from the investment in training in the employee, the damage to workplace relations, employee morale and the organisation’s reputation. In relation to recruitment costs it was stated that these would typically amount to £3,500. These figures are now five years out of date. What would the average costs be now for an employer to defend a claim? Given that they are likely to have increased considerably in that time it is little wonder that many employers view the cost of defending an unjustified claim as being out of all proportion to the amount that the tribunal may reasonably be likely to award.

Clearly the situation whereby the employee can make a claim without incurring any expenditure and force the blameless employer to pay is unsatisfactory. However what can be done to stop the nuisance claim? The recent CBI call for changes to be made to the employment tribunals service to deter weak and nuisance cases must raise again the issue of the introduction of fees.

The past objections to fees being payable for an employment tribunal claim have centered on the principle that this would prove an obstacle to the average person trying to enforce their rights. In 2001 the successful campaign against the introduction of fees focused on access to industrial justice being “based on need rather than ability to pay”. However what this does not appear to take into account is that there is a general acceptance that fees are payable in relation to claims in the civil courts. That does not appear to deter people from enforcing their non-employment rights and it has not been criticized as rationing justice.

Some would argue that the difference is that in the civil courts legal aid is available and that, at least in England and Wales, such assistance is not available for the employment tribunal. This argument does not take into account the many claims that proceed through the county court under the small claims procedure, following the payment of a fee, in circumstances where there is no legal aid available.

It would not be intended to deprive anyone of their right to have their day in court or to publicly air a grievance, or even to expose an injustice. It is common sense that a person should be able to do that.

The aim of the claim fee would be to discourage nuisance claims and blackmailing claims brought in the hope of a payment, taking into account the nuisance value. These types of claims are not in anybody’s interest. Eliminating them would allow the employment tribunal service to ensure that worthy claims received more attention and faster resolution.

In the meantime as the rules stand employers should beware of giving in too easily to these nuisance claimants. Once it is known that an employer will give in to blackmail then it invites others to make similar claims and that may prove not to be so cost effective.

Michael BallEmployment partner at the law firm Halliwells