Mark Littlewood is the Director General of the Institute of Economic Affairs and yesterday he wrote an article in the Times attacking the HR profession for creating a ‘risk-averse, unimaginative and insipid working environment’. I’ll leave it to others to defend the profession as a whole – but one paragraph in particular caught my attention. When it comes to the cost of dealing with ET complaints, Mark says this:

Individual cases may not be conclusive,  but they can be illustrative. In one recent instance, a worker was seeking to secure £15,000 in compensation. Their claim failed, but the successful employer incurred unrecoverable legal fees of £50,000.

Mark uses this not as an example of ridiculous over-billing by a law firm, but as an illustration of how broken our employment law system is. His point, I think, is that even unjustified complaints can force an employer to spend tens of thousands of pounds defending itself. This creates an incentive for employees to bring spurious claims in the expectation that the employer will throw money at them to persuade them to go away.

This is an old debate and we could go round in circles on it. For what it’s worth I think Mark oversimplifies what leads someone to bring a tribunal claim. My experience, such as it is, is that relatively few people bring a claim as a purely cynical exercise in obtaining a settlement. Most feel genuinely aggrieved at how they have been treated.

What I want to focus on, however, is the specifics of the case. A claiming brought a claim seeking £15,000 in damages and the employer spent £50,000 successfully defending the claim. Frankly, that does seem like a lot of money to spend and I was keen to know more. On Twitter, Mark was kind enough to explain that he had received the details of this case directly from the lawyers concerned and could not therefore give any details – although they are likely to be ‘public soon’.

Fair enough. So let’s think about why a claim that was only worth £15,000 could cost £50,000 to defend.

The first, rather obvious point, is that it doesn’t need to. Legal costs are not compulsory in the Tribunal system; an employer is perfectly free to defend the case without hiring lawyers. However, although I think there are cases when an employer should be able to defend the case on its own, I certainly accept that most employers in most cases will need to take professional advice and will be at a serious disadvantage if they don’t.

But £50,000? That seems rather a lot.

Asking how much a lawyer costs is a bit like asking how much a car costs. If I need a car to do the shopping I can easily spend £50,000 on one, but you might think that was a bit extravagant. Some law firms charge more than others and while, to an extent, you get what you pay for, the expensive city firm you use for your corporate work is not always the best firm to use to defend a run of the mill tribunal claim. Hiring a barrister can be extremely expensive, but can also be an absolute bargain. There is no point in hiring a top QC in a straightforward case and there are many talented advocates who can do a great job for a modest fee.

I’m going to assume in this case that the employer took a deliberate decision to spend £50,000 defending the claim. Surely no reputable firm would simply spring a bill like that on a client without discussing how the preparation was going and what the likely costs were going to be? Because in any tribunal claim there is a decision to be made about how much preparation is appropriate – how many witnesses are needed, what documents should be included in the bundle etc. It may also be important to decide who in the firm will be dealing with the case – how much of the work will be done by a partner and how much by an assistant solicitor? Another decision is whether to challenge the claimant’s right to bring a claim. Should you seek a preliminary hearing to determine whether the individual was an employee or a worker? If the Tribunal rules against you, should you appeal, or concentrate on dealing with the merits of the case?

There is a balance to be struck (depending on the importance of the case as well as the risk and likely cost of losing) between ensuring success and spending so much that a victory feels like a defeat. I would generally argue that if a case is only worth £15,000 if it succeeds, then the resources allocated to defending it should be proportionate to that. If the Bill comes to £50,000 then something has gone wrong. Either the employer has not been paying attention to the costs as they build up, or the lawyers have been taking the employer for a ride.

There may be reasons, of course, why an employer would deliberately decide to spend so much. The case might have implications for the business as a whole. Deliveroo and Uber are in the process of spending (i would imagine) quite a lot of money defending a number of modest claims for holiday pay and the minimum wage. Pimlico Plumbers is taking a disability discrimination claim brought by a plumber to the Supreme Court on the issue of whether or not he is ‘in employment’ rather than simply arguing in the Tribunal that they haven’t discriminated against him.  These cases are not about the value of the individual claims but about the legitimacy of the employer’s whole business model. Of course it makes sense to make a serious investment in fighting those claims.

A number of people on Twitter suggested to me that an employer might choose to spend much more than the value of a claim in order to defend its reputation. That’s a fair point, but I think it is sometimes overblown. Most tribunal claims don’t really have as much of an impact on an employer’s reputation as the employer often thinks. Where the case really does carry that risk, then a good media strategy might be a more cost effective way of dealing with it than throwing money at the case itself.

I’d also accept that an employer sometimes needs to show that it is prepared to fight a case, rather than just agree a settlement, to send a clear message that it is not an easy touch. But again, there is no need to spend an exorbitant amount to do that. I’m not arguing that in Mark’s example the employer should have settled the case rather than spend £50,000 defending it, I’m querying whether defending the claim really needed to be so expensive.

I know that lots of practicing lawyers read this blog, so I would love to hear their views on managing Tribunal costs. Perhaps I am wrong and £50,000 is simply the going rate for defending an unfair dismissal claim these days. If you are an employer with experience of balancing legal costs against the value of claim then please share your experience in the comments section. If you are in private practice, please leave a comment and tell me how much it costs to defend an ET claim and what employers can do to keep the costs at a reasonable level. Feel free to plug your firm!

Perhaps we can get a sense of how useful an illustration Mark Littlewood’s story of a £50,000 legal bill is.