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Developments on Costs in the Employment Tribunal

31st July 2010
It is a very rare event when a party in a case in the Employment Tribunal recovers any of their legal costs in either bringing or defending a claim. In all the cases brought in 2006/07 there were just 503 occasions when legal costs were ordered. That figure fell in 2008/09 to 367. Even when the Tribunals have awarded costs, the amount actually awarded rarely covers the full legal costs actually incurred.

The subject of the recovery of legal costs is one that we find is particularly vexing for employer, many of whom (mistakenly) still hold the belief that Employment Tribunals are biased in favour of the individual bringing the claim. The history of costs orders however show that the Tribunals make more costs orders against individuals than they do against employers (roughly 2 to 1 in the statistics for 2008/09). 

In 2009 there were a couple of cases heard by the Employment Appeals Tribunal which indicated that if an individual brings a claim based on a clear lie, then the Tribunal may well make a costs order against that individual. Admittedly the cases in question, Daleside Nursing Home v Matthew and Dunedin Canmore Housing Association v Donaldson were unusual. The former involved an unpleasant allegation of racial harassment against the employer, which on hearing the evidence the Tribunal rejected as being untrue. The latter involved an individual who acted in clear breach of a confidentiality clause yet still sought to recover a payment promised by her former employer under a compromise agreement which required her to maintain the confidentiality of certain information. It would be dangerous for employers to always assume that a finding by a Tribunal in their favour over the evidence given by a former employee would result in an order for costs based on these cases. In many situations the Tribunal may take the view that it prefers the evidence of one party over another, but will still accept that the other party genuinely believed his or her perception of the evidence. In the Daleside case this was the view of the Tribunal, but it was the serious nature of the allegation which caused the decision of the Appeals Tribunal to make the corder for costs (the claim centred on the allegation of the use of the words "a black bitch", which were clearly so serious that when the Tribunal ruled that these words had not been used, the Appeals Tribunal felt that they were so extreme as to justify an order for costs agains the individual that brought the claim).

In a recent case the Employment Appeal Tribunal has given a ruling that should further deter an individual from lying in an Employment Tribunal. In the case of Nicolson Highlandwear v Nicholson the ex-employee brought a claim of unfair dismissal against the former employer. The individual had defrauded the employer, but the employer failed to carry out the dismissal procedure properly. This resulted in the claim being brought in the Tribunal. The Tribunal found that the individual had been unfairly dismissed, but gave no compensation, as the individual had defrauded his employer. The Tribunal then rejected the application for costs made by the former employer. The Tribunal refused the application for costs on the basis of a case called Telephone Information Services Ltd v Wilkinson (a case from 1991), in which the Appeals Tribunal refused an application for costs on the basis that the individual was acting reasonably in pursuing the case simply to obtain the ruling that he had been unfairly dismissed (although the former employer had offered th full amount of compensation that the individual could receover through the Tribunal). In the case of Nicolson the Employment Appeals Tribunal stated that it was not always reasonable to pursue a claim when the maximum compensation has been offered by the former employee.

The Wilkinson case  was decided at a time when the maximum compensation available in the Tribunals was MUCH lower than is available now, and also under different procedural rules when you had to show that a party had acted in a way that was "frivolous or vexatious"- a high threshold. Now the rules allow costs to be made if a party acts "unreasonably" in bringing or pursuing the case. This is a lower threshold than under the rules in 1991. This begs the question, whether it is ALWAYS unreasonable to pursue the case when the employer has offered the maximum compensation available. To take that view would be to deny the fact that to many (particularly those that feel that feel they were treated unfairly and unjustly in being dismissed, and want a public forum to express and confirm that) there is an intrinsic value in the finding of unfair dismissal alone (without any financial compensation with it). There is also the fact that real justice is not simply about money, and all wrongdoing should not be simply "bought-off" by offering a maximum compensation settlement. This would be a discredit to the judicial system, and would surely place the Tribunal system at risk of being brought into disreute.It is also fair to argue that it is unreasonable of any former employer to effectively force a former employee to pursue a claim in the Tribunal when they know they acted unfairly and were prepared to make a payment of the maximum available compensation to the individual.

To conclude, the Nicholson case should bring some comfort to employers, but it is not an excuse to dismiss someone unfairly expecting to offer a big pay-off later. There is rarely a case when an employer can justify taking shortcuts in the dismissal process.

If you want any further help or advice on this issue please do not hesitate to contact us.              
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