James Townsend
Posted on 26 Sep 2017

Funding arrangements in Employment Tribunal cases

Experiencing conflicts within the workplace is not uncommon and managing them can be tricky. Employers will, naturally, want to deal with any conflict at an early stage in order to save time and costs and to also minimise any stress. However, if an employee's conflict remains unresolved internally after having exhausted informal and formal processes, then the employee may be able to make a claim to an Employment Tribunal.

If an employer is faced with Employment Tribunal proceedings by a current or former employee, it is important to appreciate the various funding arrangements that might be available to that employee in order for them to bring their claim.

Traditional private paying arrangement

If the employee is funding their claim on a privately paying basis, then they may be paying their representative for the work they carry out on either an agreed hourly rate or fixed fee basis. The amount of the charge will depend upon the level and experience of the representative and the nature of the case.

This arrangement can bring the employee an element of certainty in relation to budgeting for legal costs in bringing a claim, particularly where a fixed fee is provided. Representatives engaged on an hourly rate would also typically provide a fee estimate at the outset.

By using this method, the employee pays for their legal costs irrespective of the outcome.

'No Win No Fee' arrangement

An employee may alternatively fund their claim via one of two contingency fee arrangements.

Under a Damage-Based Agreement, the employee agrees that the representative will deduct an agreed percentage of the compensation recovered by the employee in the event that their claim is successful. Alternatively, under a Conditional Fee Agreement the representative can charge up to double their normal hourly rate upon the employee's claim succeeding.

In either type of arrangement, if the claim is unsuccessful then the representative generally receives no fee.

By using one of these arrangements, there is a large degree of unpredictability from the outset. The reality is that these types of arrangements are not always the most attractive funding option for employees that are bringing a claim, particularly as legal costs can easily consume the entire amount of compensation that they might be awarded.

Legal Expenses Insurance

Another funding option which may be open to an employee bringing a claim is through Legal Expenses Insurance (LEI), which might be included under their home contents, motor or bank account insurance.

Although insurance companies tend to attempt to pass claims made through LEI to one of their panel representative firms, an employee does have a legal right to be the sole determinant of their own representation (under Regulation 6 of the Insurance Companies (Legal Expenses Insurance) Regulations 1990) and can therefore insist that a firm of their choice is appointed under the LEI cover, as opposed to an insurers' preferred panel firm.

Subject to cover being granted, which usually involves an assessment as to whether there are good prospects of success in the case (i.e. it is more likely than not to succeed), the employees' insurance company will pay their legal costs in bringing a claim. This is likely to be subject to a specified monetary limit, for instance on the non-panel representatives' hourly rates and/or the overall cost in bringing the claim.

This type of funding arrangement poses the benefit of covering the employees' legal costs without the need for them to pay any premium if the claim is successful.

Settlement Agreements

The reality is that irrespective of how an employee may choose to fund their claim, legal costs will inevitably accumulate for both an employer and employee significantly if Employment Tribunal or High Court proceedings continue to a final hearing.

It is therefore crucial for both parties to remain receptive to the possibility of settlement throughout any point during ongoing Employment Tribunal proceedings, especially so at an early stage. A settlement resolves the dispute and generally involves a one-off payment of a monetary sum by the employer to the employee.

Accepting a reasonable settlement at an early stage is usually an effective option for both parties to consider: not only does it save each from the expense of further legal costs, but it also brings finality to what is often an onerous and stressful process. However, settlement can often be a particularly challenging balancing act for employers given the risk of opening the floodgates to invite further (and possibly weak) claims from other discontented employees.

Any settlement must be recorded in the form of a Settlement Agreement, which is a legally binding contract. It can be used not only to resolve an ongoing dispute, but also to end an employment relationship on agreed terms. One of the statutory requirements for a Settlement Agreement is that the employee obtains independent advice from a relevant independent advisor, such as a solicitor.

As there is an expense associated with this obtaining this advice, it is commonplace (but not a requirement) for the employer to make a contribution to the employee's legal fees for advice relating to a Settlement Agreement. Rates of contribution might vary according to locality and complexity, but generally range from between £250 to £1,000 plus VAT.

Advice for employers

Appreciating the various potential funding arrangements that an employee might utilise can be useful when considering what the most suitable approach to a potential settlement might be.

In particular, employers should be mindful of the potential difficulty that they may face when attempting to negotiate a settlement where an employee has the benefit of LEI which will indemnify them against legal costs (sometimes up to £100,000), whether or not their claim is successful.

It is also worth noting that employees being represented under a "No Win No Fee" arrangement may actually be more likely to adopt a reasonable approach to settlement, given the potential outcome of their representatives' not receiving any of their legal costs at all if the claim is not successful.

Employers should also bear in mind the fact that Employment Tribunals do have powers to potentially award costs against either party, so they might not necessarily only have their own legal costs to pay. This is another factor which should be taken into account when considering whether to proceed in defending an Employment Tribunal claim or to instead attempt to settle the matter.

You can find out more about employment law by visiting Michelmores' specialist website, or by contacting James Townsend, Head of the Michelmores London Employment team.

This note is for general information only and does not, and is not intended to, amount to legal advice and is not intended to be relied upon as such. If you have any questions relating to your particular circumstances, you should seek independent legal advice.