Mills & Reeve: HR Law Live

Rejecting generous settlement offer not necessarily unreasonable conduct

The Employment Appeal Tribunal has overturned an employment tribunal costs order, made mainly because the claimant had turned down two offers of settlement. It has also said that an offer to pay £500 for legal advice on the first of these offers was “wholly unrealistic”.

We will come back to the £500 later, but it is worth explaining the background first. As is widely known, costs do not “follow the event” in the employment tribunal (unlike in the ordinary civil courts). Apart from in certain specific circumstances, there is no power to make a costs order unless the paying party has either acted “vexatiously, abusively, disruptively or otherwise unreasonably”, or the case (or defence) they are pursuing had “no reasonable prospect of success”. It is therefore not surprising that costs orders are rare. In the year 2018/19 the official figures show that over 120,000 claims were presented to the employment tribunal, but only 209 cost awards were made (roughly 75% of them in favour of respondents).

In this case the employment tribunal had made a costs order of £20,000 against an unrepresented claimant who had pursued a long and complex discrimination and unfair dismissal claim. Before the liability hearing, she had been offered £50,000 to settle all her claims, and £500 plus VAT to pay for legal advice to assess the offer. She rejected the offer. At the hearing all her discrimination claims were dismissed, though her unfair dismissal claim was upheld because there had been some procedural unfairness in the disciplinary process.

After the liability hearing, she received another offer. This time she was offered £1900 (equivalent to her basic award for unfair dismissal) in full and final settlement of the proceedings. That would have precluded her appealing and any application for costs from the respondents. She rejected that offer too. The remedies hearing went ahead and she was awarded precisely the sum she had previously been offered.

There was no suggestion that her claim had no reasonable prospects of success, although the ET said that she should have been aware that there were “significant difficulties” with her case. So the key question was whether refusing these offers amounted to unreasonable conduct. The ET thought it did. The EAT overturned the decision, saying that this issue had not been addressed in the right way.

The EAT said that in many cases there will be more than one reasonable course of conduct. It thought that in this case the tribunal had substituted its own view of the matter, rather than putting itself in the shoes of the claimant, as it was required to do. It is at this point that the £500 comes in. The offer to contribute this amount towards her legal costs was made so that the claimant (who had no legal representation) could get an informed view of her prospects of success and the value of the settlement offer. However, in such a complex case, the EAT thought that, while this would have been enough to get advice on the terms and effect of the proposed settlement agreement, it was unrealistic to expect she could also have obtained legal advice on the merits of her claim for that sum. The respondent’s costs application will now have to be reconsidered by the employment tribunal.

It follows that his case does not set a new benchmark for what employers should offer towards an employee’s legal costs so that they can obtain independent advice on a proposed settlement agreement. However, once litigation has started, it does illustrate how an offer to contribute to legal costs on top of a settlement sum can be seen as inadequate, if a respondent later wants to use the rejection of the settlement offer as an example of unreasonable conduct.

In addition, while we don’t know the final outcome of the costs application, this case illustrates that a party making such an application is in a relatively weak position if it wishes to rely on a rejection of a settlement offer as the main basis for an costs application. Given that employment tribunals are essentially a costs-free jurisdiction, there is no equivalent to the Part 36 Offer regime that applies in the ordinary civil courts. In the employment tribunal, the party seeking costs is on much stronger ground if they can show that the claim had no reasonable prospects of success. A few weeks before this decision was published, the EAT upheld an order for the claimant to pay the entire costs of the proceedings (estimated at some £170,000 before detailed assessment) because the tribunal was of the view that the claim should never have been brought. However the typical costs order is more modest. Last year the median award was £2,400 and the average (distorted by one very high award of over £300,000) was £6,729.

Making covert recording is normally misconduct, but severity will vary

Last week’s decision from the Employment Appeal Tribunal gives some useful guidance about the rights and wrongs of recording workplace meetings.

The EAT said that it was good practice to say if there is any intention to record a meeting “save in the most pressing of circumstances”. An employee’s failure to do this would generally amount to misconduct, but not necessarily gross misconduct.

When assessing the impact of a covert recording on the employment relationship, the EAT has explained that an employment tribunal is entitled to make an assessment of the circumstances, including the following:

• The purpose of the recording: the purpose may vary widely from the “highly manipulative employee seeking to entrap the employer” to the “confused and vulnerable employee seeking to keep a record or guard against misrepresentation”
• The employee’s blameworthiness: has the employee been told that a recording must not be kept, or lied about making a recording?
• What is recorded: is it a meeting of which a record would be kept in any event, or a meeting where highly confidential material is discussed?
• Employer’s attitude: for example, is making a covert recording included as an example of gross misconduct in the disciplinary procedure?

In this case there was no evidence that the claimant had sought to obtain an unfair advantage from making the recording. She was flustered at the time and was not even sure that her device would record. She made no use of the recording in the course of the employer’s internal procedures. In fact, when the recording was eventually disclosed in the course of the tribunal proceedings, the contents were damaging rather than helpful to her case. 

In the light of all these circumstances the EAT did not interfere with the ET’s decision to make a relatively modest reduction in the claimant’s basic and compensatory award. It had already decided to make a 20% deduction for other reasons which were not the subject of the appeal. It decided to increase this deduction by 10% to 30% because, had the employer known about the covert recording at the time of her dismissal, it might “fairly have considered this to be a misconduct matter which then fairly led to dismissal”.

In this appeal there was no discussion about whether a transcript of the recording should have been admitted in evidence at the ET. In most routine cases an employment tribunal will be prepared to allow the content to be given in evidence, normally by means of a verbatim transcript, even it has been made secretly. But in some cases an employer may wish to challenge its admissibility, either because the information recorded is not relevant to the issues in the case, or because it contains confidential material which it would be damaging to reveal in a public hearing. The mere fact that the recording has been made secretly is not normally a reason for refusing to admit it in evidence, though there may well be other adverse consequences for the claimant, as we have seen in this case.

Law Commission consultation foreshadows further changes to ET procedures

The Law Commission’s recent consultation paper on employment law "hearing structures" takes a fresh look at the way employment disputes should be handled. Given the constraints imposed by current Government policy, it stops short of advocating radical reform. However, there are still some suggestions which, if adopted, could significantly re-balance the current employment tribunal system in favour of claimants.

The more eye-catching ideas include:

• Extending limitation periods: The Commission has suggested extending the standard time limit for bringing claims in the employment tribunal from three to six months. It is also consulting about whether the more claimant-friendly “just and equitable” test for extending the standard time limit should be applied across the board, rather than (as currently) being largely confined to discrimination claims.
• Widening breach of contract jurisdiction: Currently, breach of contract claims (up to a value of £25,000 ) can be brought in the employment tribunal only if the claim arises from the termination of employment or is outstanding at that point. The Commission proposes extending the jurisdiction to workers and is seeking views on removing the time-related restrictions (though not the other exclusions). It is also canvassing views about significantly increasing the financial limit, or even removing it altogether.
• Improving rules for co-respondents: There are a number of anomalous gaps in ETs’ powers to deal with multiple respondents on which the Commission is seeking views. These include whether tribunals should be able to apportion liability between co-respondents and allow one respondent to obtain a contribution order against another.

The Consultation remains open until January next year, after which the Commission will publish a final report. It will therefore be some time before any of these proposals see the light of day. They do however provide a good indication of the kind of changes to the employment tribunal system that are currently being considered in Government circles.

One possibility is that some at least of these changes will be used as a counterweight to the reintroduction of fees, a move that, according to a recent statement from the Ministry of Justice, has still not been ruled out.

Disability: how much can an employer be expected to know?

The Court of Appeal has ruled on the extent of an employer’s obligation to find out whether a worker is a disabled person. This is an important issue, because an employer can be liable for failure to make reasonable adjustments (despite not knowing about a claimant’s disability) if it could “reasonably be expected to know” that he or she was a disabled person at the relevant time.

In this latest decision the Court of Appeal has endorsed the employment tribunal’s assessment that the claimant’s employer did not know the claimant was disabled and “did all they could reasonably be expected to have done to find out about the nature of the health problem” she was experiencing. That meant that the employer could not be made liable for failure to make adjustments, even though it emerged at the employment tribunal that the claimant had in fact been disabled in the lead up to her dismissal for poor attendance.

The Court of Appeal agreed that the employer had gone to considerable lengths to establish the medical position. Following correspondence with the claimant’s GP it had made a referral to occupational health consultants. On receipt of the initial report it went back with further questions, which resulted in a second report. After another period of absence there were further communications with the OH consultants as well as correspondence with the GP before the final disciplinary hearing took place.

The Court of Appeal supported the ET’s assessment that the employers had been entitled to conclude that it was not likely that the health problems the claimant was experiencing would last as long as 12 months. In addition, many of the absences were due to bouts of flu, or “very generalised references” to stress and anxiety, which “would not ordinarily lead an employee to think an employee is disabled”.

Although there was some criticism levelled at the OH consultants by the ET, the Court of Appeal agreed it had been reasonable to rely on their advice. It was not a case like Gallop v Newport City Council a few years ago, where the Court of Appeal had said that it was not necessarily reasonable to take an OH report at face value.  While an employer should not follow any expert evidence blindly, it is entitled to attach “great weight to the informed and reasoned opinion of an occupational health consultant”.

This decision is therefore reassuring to employers, who had been concerned about the impact of Gallop on their ability to rely on expert advice. However, it is worth emphasising that it is up to the tribunal to assess what an employer can reasonably be expected to know, and such a decision is not easy to overturn on appeal. In this case one reason why the employer failed to uncover the claimant’s disability was because she refused to allow the OH consultant access to her GP records. That may have contributed to the tribunal's assessment that there was a limit to the enquiries the employer could reasonably be expected to have made.

Our top 10 employment law issues for 2018

To mark the start of 2018, we have put together our review of the past year. We have selected the topics that we think have most engaged employment practitioners over the past 12 months and which are likely to continue to be significant in the year ahead.

Predictably enough Brexit tops the bill, as it did last year.  Other topics include the General Data Protection Regulation, corporate governance and the gig economy

ET and EAT fees refund scheme launched

Following completion of a pilot, the full refund scheme was launched yesterday. It enables litigants in the employment tribunal and Employment Appeal Tribunal to reclaim fees paid since their introduction in July 2013.

It allows for applications to be made online or by post, and reflects the details announced in the House of Commons last month.  In summary, those eligible for a refund under the scheme are:

• Litigants who paid a fee directly to the employment tribunal or the EAT and have not been reimbursed by their opponent pursuant to an order of the tribunal.
• Litigants who were ordered by the tribunal to reimburse their opponent their fee and who can show that they have paid it.
• Representatives who paid a fee on behalf of another person and have not been reimbursed by that person.
• The lead claimant (or representative) in a multiple claim who paid a fee on behalf of the other claimants.

However it appears that only individual claimants can apply online. Respondents will need to apply by e-mail or post using form 2R. It is not possible for respondents’ representatives to apply for a refund on their behalf, unless they have paid the fee and not been reimbursed by their client.

Employers should note that the description of form 2R online doesn’t cover all the possible permutations. For example it is clear from the form itself that it is possible for respondents to use the form to reclaim EAT fees and interlocutory fees incurred in the employment tribunal, including judicial mediation fees. Claims do not need to be confined to claimants’ fees that respondents were ordered to pay, as it suggests on the Government website.

Outline of employment tribunal fees refund scheme announced

Last week’s written statement to Parliament by Justice Department Minister Dominic Raab outlines the Government’s plans for refunding employment tribunal fees. This is the first concrete information to emerge since the fees order was quashed by the Supreme Court last July.

The process will start with a short pilot involving 1000 or so people who have already made contact with the Ministry of Justice, before being opened up to the following groups of applicants:

• People who paid a fee directly to the employment tribunal or Employment Appeal Tribunal, and have not been reimbursed by their opponent pursuant to an order of the Tribunal.
• People who were ordered by the tribunal to reimburse their opponent their fee and who can show that they have paid it.
• Representatives (such as a Trade Union) who paid a fee on behalf of another person and have not been reimbursed by that person.
• The lead claimant (or representative) in a multiple claim who paid a fee on behalf of the other claimants.

Our understanding is that those who have paid judicial mediation fees since 29 July 2013 will also be eligible for a refund, since these fees will also have been set under the 2013 Fees Order which was quashed by the Supreme Court.

Details of the full refund scheme will be announced “early in November”. In the meantime, those who are not in the pilot group and are entitled to claim back fees can register an interest by email to: ethelpwithfees@hmcts.gsi.gov.uk.

Reflections on the Taylor Review: stronger enforcement

In this third blog in our Taylor Review series, we assess what it has to say about improving the ability of workers to enforce their rights. Previous postings can be accessed here and here.

Tribunal fees

Few could have predicted that just two weeks after the publication of the final report, the Supreme Court would strike down the employment tribunal fees regime.

We don’t know whether the Government will put in a replacement scheme at some point, but for the time being the fact that access to tribunals is now free removes one of the major obstacles to effective enforcement identified in the Review.

Shifting the burden of proof

One well-publicised suggestion in the Review is to reverse the burden of proof in cases which involve a dispute over the employment status of the claimant.

Instead of individuals being required to establish that they have the appropriate employment status to benefit from the rights they are claiming, it is proposed that the employer should instead be required to prove that they do not have that status.

A greater role for HMRC

As things stand, the Inland Revenue is able to take enforcement action to recover and penalise underpayment of the National Minimum Wage, though it remains possible for workers to enforce their rights on an individual basis.

The Review suggests giving HMRC a similar role in relation to other core pay rights such as holiday pay and sick pay, though this would be confined to lower paid workers.

More effective enforcement of awards

A system of fining employers for non-payment of awards was introduced last year. However it does not give the Government power to secure payment of the award itself.

Taylor suggests strengthening this regime to make it more effective, including giving Central Government the power to enforce not only the fine but also the underlying award. He also suggests more “robust” penalties, plus a naming and shaming regime modelled on the one that already applies for the National Minimum Wage.

 

Conclusions

It is possible that the prospect of shrinking employment taxation revenue and an increased political determination to crack down on unscrupulous employers may encourage the Government to put more resources into policing the labour market. Certainly the recent appointment of a Director of Labour Market Enforcement represents a step in that direction.

However it may be that the Supreme Court, by taking the bold step of striking down the employment fees regime, has taken the most significant step in recent years towards strengthening enforcement of employment rights.

Supreme Court strikes down ET fees regime

The Supreme Court has ruled that the order introducing fees for claimants in employment tribunal proceedings was unlawful. The Government will now be obliged to refund all fees paid since the order came into effect in July 2013.

This week’s decision has surprised many, since the claimant union Unison was unsuccessful in both the High Court and the Court of Appeal. But it is this latest decision that matters.

Lord Reed, delivering the leading judgment, said:

“In order for the fees to be lawful, they have to be set at a level that everyone can afford, taking into account the availability of full or partial remission. The evidence now before the court, considered realistically and as a whole, leads to the conclusion that that requirement is not met.”

Earlier in the decision, he made it clear that the lawfulness of the fees had to be judged against the constitutional right of access to the courts which is inherent in the rule of law. This is part of the UK’s common law, though the ruling also establishes that the fees regime also infringed the principle of effectiveness under EU law.

It would be possible for the Government to come up with a replacement fees regime that would not be unlawful, but this robust decision will make that difficult. It follows that for the foreseeable future fees cannot be charged in our employment tribunals. The Government has now amended its ET claims portal to make this clear. In due course revisions to the ET forms and rules of procedure will need to be made to reflect the ruling.

It seems certain that the volume of employment tribunal claims will now rise, though unclear whether they will ever return to pre-2013 levels. It is also likely that claimants who can show that they were deterred by the level of fees may submit late claims, combined with an application to extend the normal time limit.

How confidential are pre-termination discussions?

The first ever EAT decision about the new statutory provisions concerning confidentiality of unsuccessful settlement discussions has just been published. It demonstrates how different these new provisions are from the more familiar without prejudice rule, which allows the parties to a dispute to prevent the content of settlement negotiations from being revealed in court.

The new legislation, which came into effect in July 2013, was designed to make it easier for employers to have discussions with their employees about ending the employment relationship. The key provision is that evidence of “pre-termination negotiations” is inadmissible if the employee subsequently brings an unfair dismissal claim.

There are however two important qualifications:

• The inadmissibility rule does not apply to claims for automatically unfair dismissal, or to any other type of claim brought before the employment tribunal (for example discrimination) even if it arises out of the same facts.
• There is also a provision which gives a tribunal discretion to modify the rule in relation to “anything said or done which in the tribunal’s opinion was improper”.

There are two key differences between this new statutory regime and the familiar without prejudice rule. Firstly, and most obviously, it applies only to “ordinary” unfair dismissal claims.  But there is also a second point of difference, since unlike the without prejudice rule, there is no need for there to be an existing dispute which the discussions are trying to settle.  In theory that gives both employers and employees more flexibility about the timing of these discussions.

This latest case has however highlighted two other differences:

• Unlike without prejudice discussions, the parties cannot waive the confidentiality of pre-termination discussions.
• The statutory regime – in the limited circumstances in which it applies - is also stricter in another respect. The inadmissibility rule does not just apply to the content of the discussions, but also to their very existence.

Employers should not be too put off by all these complications. The without prejudice rule is here to stay and in most cases will be adequate to protect the confidentiality of pre-termination discussions if they are properly handled.  Where these go wrong, the new statutory rules can provide some additional protection, but there is no need to take additional steps to invoke them.  As to the finer points about the differences between the two regimes, that can probably be left to the lawyers to argue about!