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.
Tbh the employee may have really annoyed someone. Without knowing the facts it could be as simple as that; a lot of whistleblowers are very irritating people.
The costs will also depend on tactical decisions by the lawyers for the Respondent.
As the Legal Director of a charity providing free casework for discrimination law to people of modest incomes, I am amazed when Respondent lawyers decide they have to draft a lengthy compromise agreements for min wage jobs rather than a short COT3 through ACAS.
Where they insist on completely rewriting statements of issues (where a tweek or two would achieve their objective) or they bombard you with threats about costs applications (which are often in error and almost always counterproductive).If one was cynical it could be they want to bump up their fees but it also might be to be seen to do something or because they use that tactic successfully on many litigants in person to persuade them to withdraw.
Also the psychology of the key person at the Respondent can be key as often they see accusations of discrimination as very personal and so dig their heels in, losing sight of the commercial risks (not just legal fees but loss of productivity).
Sadly it is notable that, even with no fee, we are seeing hardly any recent Respondents engage positively with Early Conciliation or agree to judicial mediation, which could reduce costs significantly for them.We also encourage early discovery (so we can come to a view on the prospects of success at an early stage) but few agree.
Another factor to throw into the mix is the length of the hearing. The cost of defending a one day case is very different to defending a three day case. The sum in issue could be £15,000 in either of these scenarios and produce two very different cost bills.
I agree that the sum of £50,000 would be out of the ordinary and that context is essential. It would be wrong to use this figure as illustrative and I don’t seek to comment on any specific case without that necessary context. Any fees would be deducted from profit for tax purposes and any VAT would be recoverable by a VAT registered business.
There are also regional variations in cost that mean an employer would do well to consider looking to the regions for an estimate of their costs.
I think that you should assume that if a case goes all the way to a hearing and you have obtained competent legal representation then you should assume that you are going to spend between £5000 and £15,000 defending the claim plus VAT depending on the length of the hearing. Any more than that means that specific factors need to be considered as to whether the expenditure is reasonable. Those factors would include a longer hearing, complexity, number of parties, failing to provide information in a timely and logical manner.
It would be possible to defend straightforward wages claims for much less than this.
Great post, Darren.
When weighing up whether to defend a claim or settle early, our employment solicitor generally says we should factor in at least £10k for the cost of drafting ET3, preliminary hearing and witness statement/bundle prep and then a daily rate on top of that for each day of a hearing or other work. If you assumed a day rate of £1k, then you’d be going some to spend an additional £40k.
Let me start by saying costs of £50k seem excessive for anything other than an extraordinary case.
v11, using Darren’s analogy, it’s easy for someone to say what a car will cost but when push comes to shove, it may not be one you want, are happy with or is fit for purpose. You may also not appreciate the salesman’s manner or approach to after sales. There are firms that will defend claims at the level you suggest and I suspect even cheaper but I doubt they’ll properly ‘get under the skin’ of the case, or even close, reducing the prospects of successfully defending the claim at ET. As others have commented, there are unknown variables in cases. In one case I successfully defended last year, I would guestimate the unnecessarily aggressive approach of the claimant’s lawyer led to an increase in my client’s costs of around 30%.
Interesting post. I’m a partner in the employment team at Lewis Silkin. We provide several options for clients defending tribunal claims in order to give them as much flexibility and control over their costs. For business critical claims, e.g those involving very senior employees, issues that could impact on the reputation of the business or affect the company’s operating model, we offer partner-led litigation teams and spend time and resources adopting and implementing the best litigation strategy to help clients achieve their aims. For those claims fees can be several thousands of pounds. However, for more straightforward claims we offer fixed fee tribunal defence through our low cost HR support service called rockhopper. Our fees start at just £2,000 plus VAT for a simple claim, which covers all stages of the tribunal process, from receipt of the claim to the full merits hearing. The fee is incurred in 3 equal instalments at certain stages in the process, so if a claim is settled, struck out or withdrawn at an early stage only a proportion of the fee is payable. The only additional fee is the cost of a barrister for representation at the hearing, but we have agreed special rates for rockhopper clients with many of the leading chambers. The lawyers providing rockhopper services are senior, experienced employment lawyers. They work on different terms from the rest of our lawyers and we pass on the cost saving to our clients, making it excellent value and very good quality.
Pingback: ET fees: the backlash starts | Labour Pains