Guidance for employers on the claims process, tribunal hearing and settlement of claims
On 26 July 2017, the Supreme Court ruled that the regulations introducing tribunal fees in July 2013 were unlawful. Employment tribunals stopped accepting fees with immediate effect. This may lead to an increase in claims, and it is not yet clear whether the government will choose to introduce a new form of fees system at a later date. (For more on this issue, go to What issues arise from the abolition of employment tribunal fees?)
Tribunal claims are inextricably linked with the procedures employers and employees should follow before disputes reach the tribunal (see our Discipline and grievance procedures Q&As).
Compromise and settlement
The important rules currently governing settlement agreements are generally contained in the Employment Rights Act 1996, especially section 203. However, other legislation is also relevant. For example, numerous pieces of legislation all mention the inability to contract out of the relevant employment rights unless by way of a formal agreement.
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Q: What fees and costs are payable in an employment tribunal?
Fees for bringing a claim to an employment tribunal are no longer payable since the Supreme Court ruled that their introduction in 2013 was unlawful (see R(Unison) v Lord Chancellor). However, this position could change and employers should keep the situation under review.
Three other types of costs may occur in tribunal claims:
- Compensation payable to the employee if a claim is successful (see 'How is discrimination compensation calculated?' and the Unfair dismissal Q&As).
- Legal costs payable to solicitors or barristers involved in the case. Usually each party bears its own legal costs (see Q What are the ways of funding legal costs?)
- Possible fines or penalties payable to the government (see Q What are the fines and penalties which can be payable in the employment tribunal?)
In addition, tribunal claims can absorb significant amounts of management time.
Q: What issues arise from the abolition of employment tribunal fees?
Since employment tribunal fees have been abolished by a decision from the Supreme Court (see below), employees can now pursue tribunal proceedings and appeal to the Employment Appeal Tribunal without incurring fees for bringing the claim or having it heard. From 28 July 2017 claims can be submitted without a fee, either by post, or in person to tribunal offices. This is a return to the position that existed prior to July 2013.
The Government has had to repay employees (and also employers) any tribunal fees paid between 2013 and 2017. The refund scheme opened on 15 November 2017. Claims for refunds can now be submitted by employees and employers who paid Employment Tribunal or Appeal Tribunal fees.
Online, post and email refunds are available. Although most refund claims will be from employees, employers who had a tribunal claim brought against them may claim refunds too. Employers can also seek refunds for fees paid for judicial mediations and particularly in connection with EAT appeals.
If an employer was ordered by the tribunal to reimburse tribunal fees paid by a claimant employee, then the employer, rather than the employee, can reclaim the fee.
As well as being refunded the original fee, employers and employees obtaining refunds are entitled to interest of 0.5% from the date the fees were paid.
Where tribunal cases have been settled, sometimes employees have had the claim fee reimbursed by employers as part of the settlement money. If the employer reimbursed the fee under a settlement agreement, the employee will be eligible for the refund, unless the wording of the settlement agreement allows the employer to be reimbursed.
The fee system may have deterred some potential claimants from bringing claims and those claims will now be out of time. It is possible that tribunals will use the rules governing the extension of time limits to allow the late submission of claims (for example, outside the normal three-month time frame). Employers that know about such claims should ensure they preserve any information that they need to defend the claim.
Alternatively, some employees may try to claim compensation directly from the Government on the basis they were prevented from pursuing a valid claim. Employees may also seek to revive claims that were started but dismissed for non-payment of fees.
Supreme Court case
Trade union Unison legally challenged the controversial 2013 tribunal fee system, resulting in the Supreme Court decision in July 2017 that the fees regime was unlawful. In the case, R (Unison) v Lord Chancellor , the court’s judges unanimously ruled that tribunal fees prevented access to justice and were indirect discrimination.
Until this case, employees paid an issue fee to present a claim, and a further fee before a hearing could take place. The size of the fee depended on the type of claim involved. The fees triggered a dramatic reduction of between 66-70% in tribunal claims.
Fees in future?
The Supreme Court ruled that the fees regime established in 2013 was unlawful, but it did not decide that any employment tribunal fees system will be unlawful. The government could decide to introduce a new system of fees which are more proportionate and affordable, and which do not have such a deterrent effect on those seeking to enforce their legal rights. However, this seems unlikely for the time being, with the government busy with the exit from the EU, and the risk of further judicial review proceedings challenging any new regulations.
Q: What are the fines and penalties?
Employers who lose tribunal claims may be ordered to pay a financial penalty on top of any award made to an employee. The penalty is payable to the Secretary of State, not to the employee.
The penalties only apply if the employment tribunal decides that the employer’s breach has 'one or more aggravating features'.
It appears 'aggravating features' may arise where an employer has overtly discriminated, ignored an employee’s grievance or dismissed the employee with transparent unfairness. It is not clear how these penalties will correlate with cases where the compensation can be increased by 25 per cent anyway for failure to follow the Acas Code of practice on disciplinary and grievance procedures.
The financial penalties are:
- discretionary, so the employment tribunal can choose to impose a financial penalty or not
- based on the total amount of the award made by the employment tribunal
- calculated as half the amount of the total award so that the level of the penalty is proportionate to the award
- subject to a minimum of £100 and a maximum of £5,000
- reduced by 50% if paid within 21 days, and
- affected by the employer’s ability to pay (in deciding whether to order the employer to pay a penalty the employers’ financial circumstances are taken into account).
Therefore if an employment tribunal makes a financial award to a successful claimant, the financial penalty imposed will be 50% of that award, up to a maximum of £5,000.
If a non-financial award is made such as for reinstatement, the employment tribunal can ascribe a monetary value to the award so that an appropriate financial penalty can be made.
One of the practical effects of these penalties is that employers may have to factor in an additional amount when negotiating an appropriate settlement amount with an employee in an attempt to enter a settlement agreement and avoid an employment tribunal hearing. Although the penalties are not paid to the employee, but to the government, the employee can effectively negotiate with the employer on the basis that it would cost an extra £X if the case reaches the employment tribunal so that sum should be added to the settlement amount.
Failure to pay tribunal awards
There is a special form for claiming penalties from employers who fail to pay employment tribunal awards, or agreed sums due under certain settlement agreements.
A claimant who has not been paid a settlement sum or tribunal award can ask BIS to issue a penalty of 50% of the outstanding amount, subject to a minimum of £100 and a maximum of £5,000.
The penalties will be paid to the government and not the employee. The following procedure will apply:
- A warning notice must be issued by an enforcement officer giving the employer at least 28 days to pay the sums due.
- If payment is still not made, a penalty can be imposed of up to 50% of the unpaid amount, subject to an overall maximum of £5,000.
(Section 150 of the Small Business, Enterprise and Employment Act 2015 and sections 37A to 37Q of the Employment Tribunals Act 1996 provide for these further financial penalties on employers.)
Q: What should an employer do when it receives a claim form (ET1)?
The employer’s own disciplinary, grievance and dismissal procedures and the Acas Code of practice on disciplinary and grievance procedures should have been followed before the employee files a claim. (If a tribunal finds that there has been an unreasonable failure to follow the Acas code, it may adjust any award payable.) Most parties will make efforts to resolve matters either:
- between themselves directly
- by using a private mediator or arbitrator
- by using Acas early conciliation, or
- by using a mediator supplied by Acas (this is different from early conciliation).
Before an employment claim by an employee reaches the tribunal stage, the employee is required to contact Acas with a view to using the early conciliation service before issuing proceedings (see What is Acas early conciliation?).
Acas also provides a mediation service for employers and employees (which is charged for) for parties who have issues to resolve, but which have not yet reached the stage of imminent proceedings.
If the parties cannot find a resolution using such methods, then the employee may present a claim form. The employee will usually only be able to do this if Acas has issued a certificate confirming that the claimant has complied with the early conciliation requirements.
Once a claim form is presented, the Tribunals Office will notify the employee promptly if the claim is accepted. Until July 2017, employees were also required to pay a fee for issuing a tribunal claim or to have completed an application form seeking remission from fees, but the fee system has now been quashed by the Supreme Court in the case R(Unison) v the Lord Chancellor . For more information on this, see 'What fees and costs are payable in an employment tribunal?' below.
For the claim to be accepted, it must be on an approved form provided by the employment tribunals. The form must detail the name and address of the complaining party, the name and address of the respondent employer, and the details of the complaint. If the claim is accepted, a copy will be sent to the respondent employer.
The employer must send the completed response form (ET3) to the tribunal within 28 days, otherwise a ‘judgment in default’ can be entered against the employer.
Although employers can ask for an extension to the time limit, it is always safer to respond within 28 days. (An example of the serious consequences for an employer who misses the deadline is provided by NSM Music Ltd v Leefe (2006). The employer was ordered to pay almost £49,000 after missing the 28-day deadline for responding to a claim of unfair dismissal from a former employee.)
There are two ways for employers to return a completed response form:
- by fax, hand or post to the originating tribunal office.
- by completing the form online. An acknowledgment of receipt will be generated and sent – employers should call the tribunal office if they don’t receive this within two working days.
The time for presenting a response begins to run when a copy of the claim is sent to the respondent by the tribunal, not from its receipt (Bone v Fabcon Projects Ltd (2006)).
Q: What is Acas early conciliation?
Acas provides a free early conciliation service for those workplace disputes that cannot be resolved internally and are likely to become tribunal claims. The aim is to resolve potential claims at an early stage, before either party incurs the costs associated with issuing proceedings in the tribunal.
One month is allowed for the process, plus a further 14 days in some situations. The conciliation period stops the clock for lodging a tribunal claim, so the normal time limits do not expire during the conciliation period.
If an early conciliation certificate is issued the employee will have at least four weeks from the date of the certificate to lodge a claim, even if the normal time limit would have expired before then. This means that in many cases the ‘new’ time limit for lodging claims will be one month after the date of the certificate.
Acas must issue an early conciliation certificate if:
- the Acas conciliation officer concludes that it is not possible to achieve a settlement, or
- the conciliation period ends without agreement.
The early conciliation certificate confirms to the tribunal that a claimant has complied with the early claim requirements.
Q: What is the initial sift stage, and what does an employer need to do between this stage and the hearing?
Every case is reviewed on paper initially by an Employment Judge to confirm whether there is an arguable case and defence.
Once an employer’s response to a claim has been presented, the case file is referred to a judge for consideration. During this initial ‘sift‘, the judge checks that the case falls within the tribunal’s jurisdiction and gives case management orders. The judge will identifying claims which, for example, are:
- out of time, and
- weak claims or responses with no reasonable prospect of success.
If such claims are identified, the judge will write to the employer or employee to reply by a fixed date setting out the reasons why their claim should not be dismissed. If that party does not respond the claim (or response) will be struck out automatically. If the party does reply then the Judge will decide whether to hold a preliminary hearing to look into the matter further.
Q: What happens after the response form (ET3) has been filed, or if it is late?
Once the response form (ET3) has been filed by the employer, the tribunal sends a copy of it to the employee (the claimant).
If an employer is late returning the response form to the employment tribunal, or if the response is not on the approved form, this may result in the tribunal making an order by default (a default judgment). If an extension of time is needed the employer should try to either:
- complete the form as fully as possible and submit it within the time limit, but mention that further information is required, or
- obtain an extension of time well in advance.
If the employer does not enter a response in time it may not be allowed to resist the employee’s claim. If the employer is late it should explain why in writing. The tribunal will decide whether to allow the employer to enter a late response form and whether any costs are involved. Employers can ask for an extension to the 28-day time limit for responding to a claim, and seek an extension after the time limit has expired. However, it is safer to simply comply with the time limit in the first place.
For further examples, see ‘In what circumstances do employees have extra time to present claims in the employment tribunal? below.’
Copies of the claim and response forms are available from HM Courts and Tribunals Service.
Q: What should the employer put in the response form (ET3) before submitting it?
It is best to take advice from a solicitor before completing the response form (ET3). Employment claims can now result in significant awards of compensation.
The response form must be completed in a measured, concise and accurate way.
Copies of the claim and response forms are available from HM Courts and Tribunals Service.
Q: Can claim or response forms be amended after submission?
Whether the claim or response forms can be amended after submission is at the discretion of the employment tribunal.
It is best to complete the form as fully and accurately as possible from the outset, but if one of the parties has omitted something important an application to amend the form may be made to the Employment Judge sitting alone before the main hearing. Whether the judge uses their discretion to allow the amendments depends upon a number of factors, including:
- whether there has been any delay in making the application
- why the application was not made earlier
- whether the claim was wrongly formulated
- whether or not there is a new cause of action which is now out of time and, if so, whether the time limit should be extended under the usual rules
- the relative injustice and hardship involved to both parties in refusing or granting an amendment.
(See Selkent Bus Co Ltd v Moore (1996) for a summary of the general principles involved in considering amendments to claim and response forms.)
Once a hearing has started, the tribunal will usually refuse permission to raise a completely new claim. A tribunal should not allow a new claim to be added out of time by amending a current claim, unless the criteria for allowing extensions is met.
In Barwick v Avon & Somerset Constabulary (2009) a police constable was dismissed and brought a claim for race discrimination. Police cannot bring unfair dismissal claims, but can bring discrimination ones. The constable did not know this and incorrectly suggested that he was claiming unfair dismissal on an ET1 claim form. The Employment Appeal Tribunal ruled that he should be allowed to make the amendments because, although it was a different type of claim, it was justified by the facts as originally set out.
Q: How does the employer check if the employee’s claim is in time?
Note that all the main time limits listed below (apart from wrongful dismissal claims) may attract extensions. For further information, see ‘In what circumstances do employees have extra time to present claims in the employment tribunal?’ below.
- Main time limit for application to tribunal: Three months from effective date of termination.
- Is an extension possible? Yes, to enable early conciliation or if the employment tribunal is satisfied the not reasonable practicable test applies.
- Statutory reference: Employment Rights Act 1996, section 94.
- Main time limit for application to tribunal: Six months from the relevant date.
- Is an extension possible? Yes, to enable early conciliation or if the employment tribunal is satisfied the just and equitable test applies.
- Statutory reference: Employment Rights Act 1996, section 135.
Age, race, sex, disability, religious and sexual orientation discrimination
- Main time limit for application to tribunal: Three months from the last act complained of.
- Is an extension possible? Yes, to enable early conciliation or if the employment tribunal is satisfied the just and equitable test applies.
- Main time limit for application to tribunal: Six months after termination.
- Is an extension possible? Yes, to enable early conciliation or if the claimant was under a disability and/or if the employment tribunal is satisfied the just and equitable test applies and/or the employer concealed some crucial fact.
- Statutory reference: Equal Pay Act 1970.
- Main time limit for application to tribunal: Three months from effective date of termination (in the civil courts, the time limit for this claim is six years).
- Is an extension possible? Yes, to enable early conciliation or if the employment tribunal is satisfied the not reasonably practicable test applies.
- Statutory reference: Employment Tribunals Act 1996, section 3.
Discrimination – continuing acts
Many potentially discriminatory events can be linked to establish an ‘act extending over a period’ (that is, a ‘continuing act’). The claim must be brought within three months of the last discriminatory act complained of.
If such a pattern is not established, each incident is treated as an isolated act carrying its own three-month time limit. If they’re isolated acts carrying their own three-month time limits, a claimant may be out of time for the earlier incidents.
A ‘continuing act’ does have to be a linked series of discriminatory actions, but it does not have to be a policy, practice or regime.
For example, in Hendricks v Commissioner of Police of the Metropolis (2003), Ms Hendricks, a black female police officer, alleged that she had suffered sex and race discrimination during her 11 years in the Metropolitan Police. She made nearly 100 allegations of discrimination involving 50 or more other police officers. The Commissioner argued that Ms Hendricks was out of time to bring a complaint.
The Court of Appeal held that the harassment and bullying was a ‘continuing act of discrimination,’ which was still going on at the date of the hearing, and that her claim could proceed to a full merits hearing. The Court held that the focus should be on the substance of the complaint and on whether the acts complained of were linked – and not on whether there was an explicit ‘policy’, ‘practice’ or ‘rule’ of discrimination in existence. The same approach was applied in Lyfar v Brighton and Sussex University Hospitals Trust 
Q: In what circumstances do employees have extra time?
The starting point is that all tribunal claims must be made within the normal time limits (see ‘How does the employer check if the employee’s claim is in time?’ above). If an employee does not comply with the time limits the employer may succeed in preventing the employee from pursuing the claim.
Time limits for presenting tribunal claims are very strictly enforced but there may be extensions:
- to enable Acas early conciliation to take place (see 'What is Acas early conciliation?' above), and/or
- to carry out what are known as the ‘not reasonably practicable’ or ‘just and equitable’ tests.
‘Not reasonably practicable’ test
In cases such as unfair dismissal, the tribunal may allow the claim to be presented after the usual time limit has expired if it is satisfied that it was ‘not reasonably practicable’ for the employee’s complaint to be presented before the end of the three-month period. The employee has to show that:
- it was not reasonably practicable to have presented the claim in time, and
- the claim was eventually presented within a reasonable period.
The tribunal has a wide discretion to decide whether to grant an extension, but examples of cases where time has been extended include where significant postal delays beyond the claimant’s control prevented the claim being presented in time, and where the employee has been seriously ill.
The employer can try persuading the tribunal that it should not extend the time limit.
‘Just and equitable’ test
Late applications are subject to a different test in discrimination cases. The ‘just and equitable’ test provides the tribunal with even greater discretion than the ‘not reasonably practicable’ test.
In some serious discrimination cases, claims have been permitted as long as five and nine years after the events giving rise to them.
For example, a local government officer brought a race discrimination claim nine years after the discriminatory act complained of. He had been given a lower grade than the job he had applied for, but discovered this only when he inspected his personnel file many years later (London Borough of Southwark v Afolabi (2003)).
Applications for extensions of time are matters of fact and judgment which are decided by tribunals on a case-by-case basis. Some of the decisions are therefore contradictory.
- Time limits can be strictly enforced. In Fishley v Working Men’s College (2004) an application was out-of-time because it was received at 11 minutes after midnight on the day after the expiry of the permitted three-month period. A broken fax machine was not enough to satisfy the ‘not reasonably practicable’ test.
- In Lezo v OCS Group UK Ltd (2010), a claim filed 11 days after the deadline was too late. It was beyond a further reasonable period for presenting the claim, particularly as no real reason was given for the delay.
- By contrast, in Marks & Spencer plc v Williams-Ryan (2005) an extension was granted when an application was 15 days late because the employee was still going through an internal appeal process.
- In Mehta v The Mayor and Burgesses of London Borough of Haringey (2010) an employee who’d been made redundant was not allowed to bring claims of unfair dismissal and sex and race discrimination eight days later than the time limits under both the not ‘reasonably practicable’ and ‘just and equitable’ tests. There is no mandatory checklist for tribunals dealing with time-limit cases.
- An extension of time will usually not be allowed by a tribunal where a solicitor representing one of the parties in a tribunal claim is at fault. In Agrico UK Ltd v Ireland (2005), the solicitor went on holiday leaving instructions for his secretary to file a claim form. She was on sick leave and did not file it. Extensions won’t often be granted in such a situation – the remedy is usually to sue the solicitor, who is covered by insurance.
- If employers mention the time limit for bringing a claim they should tell the employee the correct time limits or suggest they take advice from a solicitor. The employer misinformed the employee as to the time limit for presenting an unfair dismissal claim in Northamptonshire County Council v Entwhistle (2010). The solicitor negligently failed to correct the error, but the employee was not allowed an extension of time.
Q: What are the ways of funding legal costs?
In the vast majority of cases, parties to a claim in an employment tribunal will have to pay their own legal costs, whether they win or lose. The loser will often pay a significant proportion of the winner’s costs and fees in the Employment Appeal Tribunal, Court of Appeal and Supreme Court. However, in most employment tribunal cases the employer cannot claim their legal costs in the same way (see also ‘Can an employer claim back its legal costs?’).
It is therefore extremely important to arrange for funding of legal expenses in the most cost-effective way possible. Overall legal costs will depend on the charge-out rate and expertise of your solicitor and the complexity and length of the case.
Employers and employees can represent themselves in an employment tribunal. It is far more common for employees to do this. However, in smaller companies the employer may ask HR (or a member of management) to conduct the hearing to save on legal costs (see ‘Can an employer conduct tribunal proceedings without a lawyer?’).
The most common way for most employers to conduct claims in an employment tribunal is to pay a firm of solicitors with experience in employment law to deal with matters for them. In complex matters (and for advocacy during the hearing) many solicitors will instruct a barrister. The solicitor’s costs will include time charged for each hour spent on the case. In addition, disbursements will be payable, usually for expenses and the barrister’s fees (if applicable).
The type of funding arrangement will vary between solicitors and from case-to-case. The solicitors may require payment based on an hourly charge-out rate, or offer a form of fee agreement.
Contingency fees vs conditional fees
A ‘contingency fee agreement’ is a generic term describing arrangements between solicitors and clients, where payment is linked to the result of the litigation or arbitration. This arrangement would not be allowed in the civil or appeal courts.
Contingency fees are not the same as conditional fee agreements (more commonly known as 'no win, no fee'), where the solicitor charges a base fee plus a ‘success fee’ unrelated to the damages recovered.
A ‘conditional fee agreement’ is permitted only in certain limited circumstances. To enter into a valid conditional fee agreement, strict requirements about notification to the other parties must be complied with.
Contingency fees and/or damages-based agreements
Steps have been taken to protect employees and employers from unfair fee arrangements.
The Damages Based Agreements Regulations 2010 restrict solicitors’ ability to enter into contingency fee agreements (that is, a percentage of the award) in employment claims. Specifically, the regulations:
- make any damages-based or contingency fee agreement unenforceable, unless it complies with certain specific requirements
- control the costs and expenses payable and set requirements concerning the reasons for setting the fee at the agreed level
- ensure the client is well-informed before the agreement is signed
- make the agreement unenforceable if the formalities are not met, and the solicitor will be unable to recover their percentage
- require the client to be informed about other methods of available funding
- require the client to be informed about reviews of the costs and expenses incurred
- impose a maximum costs percentage (35% of damages, including VAT)
- allow a claimant to terminate the damages-based agreement at any time, and limits their costs liability to the reasonable costs actually incurred (at an hourly rate) for work undertaken.
Legal expenses insurance
Some employers and some individuals may have legal expenses insurance. Some of these policies do cover employment claims and great care should be taken to ensure the extent of any such policies.
Public funding, trade unions and free representation
Employers faced with employment tribunal claims have no access to legal aid or public funding in England and Wales.
A very small number of employees (who must qualify on low income grounds) may have limited public funding for an initial legal consultation. For employment cases in the civil or appeal courts there may again be limited public funding for qualifying individuals. There is also limited legal aid in Scotland.
If employees are a member of a trade union at the time their employment ceased, the trade union may pay for a solicitor. Other organisations, like the Free Representation Unit or the Equality and Human Rights Commission, may help to fund or prepare appropriate cases.
Q: Can an employer claim back its legal costs?
The employer will not be able to claim its legal costs in most cases. Each side usually bears its own costs. In unusual cases the tribunal can make:
- costs orders in favour of legally represented parties
- preparation time orders in favour of represented parties, and
- wasted costs orders against either the employer's or employee’s representatives.
Costs may be claimed if, for example, the tribunal considers a claim to be so weak it should not have been brought or – at the extreme end – if an employee is found to have lied on their claim form.
- Usually, a costs order is made only if the receiving party is legally represented.
- Costs may be awarded if a party or his representative acted vexatiously, abusively, disruptively or otherwise unreasonably, in bringing or conducting of proceedings or that the proceedings were misconceived.
- Costs may also be awarded if a party has not complied with an order or practice direction or is responsible for postponing a hearing.
- When considering whether to make a costs order the ability of the paying party to pay must be taken into account (including the backing of a trade union).
- If proceedings were misconceived or conducted unreasonably the tribunal has a wide discretion as to the amount of costs to be awarded.
- The tribunal can require a detailed costs assessment in a County Court under the Civil Procedure Rules (CPR).
- The power to award costs includes power to award costs against a party whose conduct has resulted in an unnecessary hearing.
Deposit orders may be available to identify claims at an early stage with little prospect of success. Deposit orders can discourage the pursuit of the claim by requiring a deposit to be paid, and by creating a risk of costs if the claim fails (Hemdan v Ishmail (2016)).
Payments for preparation time are for the amount of time spent working on the case by a non-represented party, including its employees or advisers, but not the time spent at the final hearing. An employment tribunal will assess whether the claim is reasonable and proportionate, and multiply the time spent by the current hourly rate.
Although costs orders are still very rare, employers should not be held to ransom by employees with vexatious or unfounded claims. In extreme cases the tribunal may make a significant costs order in the employer’s favour. One example is Khan v Kirklees Metropolitan Borough Council (2007). The tribunal emphasised that it is not consistent with the proper administration of the law that a party escape financial liability for causing their opponents to incur very substantial and unnecessary legal costs in defending wholly unmeritorious proceedings – especially when the proceedings had been unreasonably prolonged by the way the employee conducted their case. The employee had wilfully resisted and disregarded all attempts by the tribunal to assist in putting his case in a proportionate and realistic manner, and provoked the striking out of his claim by a conscious decision not to attend any further hearings of the tribunal.
In a cost decision, the employment tribunal had referred to the employee as “the most obdurate, recalcitrant and openly contemptuous party that any of [the panel has] had to deal with” before ordering him to pay around £80,000 legal costs and additional wasted costs.
If a tribunal finds that a central allegation in a claim is a lie then the tribunal should conclude that the claimant has acted unreasonably and make an order for costs (Daleside Nursing Home Ltd v Mathew (2009)).
Lying does not automatically justify a costs award, however, especially if the lies are not central to the case. In Yerrakalva v Barnsley Metropolitan Borough Council (2010). The tribunal found that she had lied twice in the proceedings for race and disability discrimination. The Employment Appeal Tribunal held that the costs order against her should be revoked. Although she had lied and such behaviour was unreasonable conduct, this was different to Daleside. No loss had been caused by the lies, and they were not central to the claim. The tribunal should to take into account the nature, gravity and effect of the dishonest conduct in deciding whether to award costs.
Costs can even be awarded against a solicitor or other representative personally. For example, in Jackson v Cambridgeshire County Council (2011) an initial order for wasted costs of £16,037.04 against the representative was later overturned. The representative was a solicitor specialising in banking law and a cousin of one of the employees.
The solicitor had complained that the Employment Judge hearing the case was biased and had unlawfully recorded the hearing, and then denied having done so. He also engaged in correspondence described as “arrogant and bullying” and posted material attacking the employer on Facebook. His conduct had been unreasonable, but wasted costs orders will not usually be made against a representative who is acting on a not-for-profit basis such as a relative, trade union representative, Citizens Advice Bureau adviser or representative from voluntary bodies (also see Wilsons Solicitors v Johnson (2011)).
An employer can recover costs in respect of time spent by an in-house solicitor (see Wiggins Alloys Ltd v Jenkins (1981) and Ladak v DRC Locums Ltd (2014)).
Q: What remedies are available?
Depending on the type of claim, successful employees can expect the employment tribunal to order some or all of the following:
- Compensation (may include an amount for injury to feelings and aggravated damages depending on the claim)
- Reinstatement (restoring a person to the same job they were in before dismissal)
- Re-engagement (being offered a different job or the same job, but without continuity of service)
- An additional compensation award for failure to consider reinstatement/re-engagement
- Equal pay audits
- A declaration as to the rights of the parties
- Financial penalties.
Compensation is the most commonly sought remedy. Lost earnings and fringe benefits, past and future, are calculated. Employment tribunals may increase or decrease compensation awards by up to 25% for an unreasonable failure to comply with the Acas Code of practice on disciplinary and grievance procedures.
In discrimination cases, compensation can include injury to feelings and aggravated or exemplary damages. Unlike unfair dismissal, there is no legal limit on the amount of compensation that can be awarded.
See also ‘What does compensation for unfair dismissal consist of?’ in our Unfair dismissal Q&As.
The power to recommend actions an employer should take to remedy acts of discrimination or harassment is rarely used.
The employment tribunal can only make a recommendation which directly benefits an individual claimant. In practice, as the claimant has often resigned or been dismissed, no recommendation can be made because future improvements by the employer would not benefit the claimant.
Reinstatement is also rarely ordered. It puts the employee back in the same job they were dismissed from, and revives the original contract as if the dismissal had never happened.
Re-engagement means taking the employee back, but not necessarily in the same job. This remedy is like a new start, as it breaks continuity of service. The employment tribunal has to consider the employee’s wishes, as well as whether it is practical for the employer to comply with the order. Employers can’t be forced to comply with re-employment orders, so instead additional compensation of between 26 and 52 weeks’ pay can be ordered.
Unsurprisingly, therefore, claimants who know their former employers won’t want them back often threaten to apply for re-employment so as to negotiate larger settlement offers.
Compensation in equal pay cases can differ from that in other discrimination cases. For example, where an employment tribunal finds that there has been an equal pay breach it will usually order the employer to carry out an equal pay audit (see ‘What are equal pay audits and what guidance is available?’ in our Equal pay Q&As.).
Where a breach of workers’ rights with “aggravating features” is found, employment tribunals have the power to order employers to pay a financial penalty of between £100 and £5,000.
Q: How is discrimination compensation calculated?
Once a discrimination claim has been established, the tribunal will consider compensation based on what is ‘just and equitable.’ Only losses that could be predicted to follow from the discriminatory treatment can be recovered by claimants but there is no cap on the award (unlike in unfair dismissal claims).
Lost wages and benefits
Compensation will be for financial incurred between the date of the discriminatory act and the remedies hearing, and includes estimates of losses after the hearing. If the discriminatory act was a dismissal, foreseeable ‘losses’ include net wages, overtime, pension contributions, and all contractual benefits. The employee must mitigate their losses by trying to obtain alternative employment.
Injury to feelings
As well as lost wages, most discrimination claims will also include an award for injury to feelings. The effects of the discriminatory treatment on the complainant is used to assess the extent to which the person’s feelings were hurt. The tribunals use guidelines originally set out in Vento v Chief Constable of West Yorkshire Police (2003) and Da’Bell v National Society for the Prevention of Cruelty to Children (2009) containing suggested bands for injury to feelings. New bands for injured feelings in discrimination claims from 11 September 2017 onwards are as follows:
- Exceptional cases - in excess of £42,000
- Top band – £25,200-£42,000 (most serious, for example, where there has been a lengthy campaign against the employee)
- Middle band – £8,400-£25,200 (serious, but not qualifying for an award in the top band)
- Lower band – £800-£8,400 (less serious, for example, an isolated incident).
Henceforth, this guidance will be reviewed and amended in March 2018, and annually thereafter.
Complications can arise with injury to feelings compensation if there are two or more forms of discrimination. In Jumard v Clwyd Leisure Ltd (2008) the claimant established both race and disability discrimination. The Employment Appeal Tribunal held that if different forms of discrimination arise from the same acts, the injury to feelings may be assessed together. If there were different discriminatory acts, the injury to feelings must be assessed separately. The total figure must be proportionate and not involve double recovery.
Extra compensation and interest
In particularly serious cases, compensation for injury to feelings may also include an added element of extra compensation known as aggravated damages.
Tribunals must consider interest on an award. The Employment Tribunals (Interest on Awards in Discrimination Cases) Regulations 1996 (SI 1996/2803) sets out how such interest will be calculated.
Awards of compensation in discrimination cases can be increased or decreased by up to 25% for non-compliance with the Acas Code on disciplinary and grievance procedures (see the Discipline and grievance procedures Q&As).
For injury to feelings awards in cases in the civil courts in England and Wales (rather than tribunal cases) there will normally be a 10% general damages increase. This uplift also applies to injury to feelings awards in the employment tribunal which started before the Vento bands increased. See De Souza v Vinci Construction (2017) and Simmons v Castle (2013).
Other remedies and penalties
Employment tribunals have the power to order an employer that has breached a worker’s rights to pay a financial penalty of between £100 and £5,000 where the breach has one or more ‘aggravating features’. This is in addition to any award for compensation which the employer is ordered to pay to a claimant. Money from the financial penalty goes into the government. The penalty is reduced by 50% if it is paid within 21 days. There is also a penalty regime for unpaid employment tribunal awards applicable from April 2016.As well as compensation employment, tribunals have the power to make declarations. These are relatively rare.
Q: What is the role of an Acas representative?
The current role of Acas in tribunal proceedings can be summarised as:
- early conciliation (see ‘What is Acas early conciliation?’)
- post-claim conciliation
- binding written settlement agreements (see ‘What is a settlement agreement?’)
- issuing codes of practice and providing a helpline service.
One of the main roles of Acas is to try and seek conciliated settlements both before and after a tribunal claim has been presented. If the early conciliation service does not avert a claim, then once it has been commenced, Acas officers automatically receive copies of the completed claim (ET1) and response (ET3) forms to enable them to contact both parties again with a view to trying to achieve a negotiated settlement (ending the need for a tribunal hearing).
A conciliation officer will try to promote a settlement between the parties, if the claimant (usually the employee) and respondent (usually the employer) both ask for this assistance.
If there is no such request, the conciliation officer will still try to promote settlement if they consider that there is a reasonable prospect of successfully negotiating one.
Once a claim is submitted, post-claim conciliation through Acas is still available even if early conciliation has failed.
Acas can play an important role in promoting a settlement, especially when dealing with unrepresented claimants.
Anything an employer says to an Acas officer is likely to be repeated to the other side, but it will not be admissible in any tribunal proceedings unless the employer consents to it being admitted.
It is worth noting that in unfair dismissal claims that the conciliation officer may seek to promote the reinstatement or re-engagement of the employee, or an associated employer on terms the conciliation officer considers equitable. If the employee does not wish to be reinstated, or this is not practicable, a financial settlement can be promoted. The same options for reinstatement or re-engagement apply in early conciliation cases of unfair dismissal as well.
Binding written agreement
Most Acas settlements are concluded by way of a binding written agreement known as a COT3.
If an Acas officer has not been involved in the settlement discussions they will not simply 'rubber stamp' an agreement which the parties have concluded. Therefore to protect their position the employer should enter into a compromise agreement (renamed settlement agreement from summer 2013) with the employee (see What is a compromise or settlement agreement?).
Employers should be careful when discussing settlement terms with an Acas officer if there are any doubts about whether to accept the settlement terms. This is because a settlement is binding once terms have been agreed with the Acas officer, even if only agreed orally. In the case Allma Construction v Bonner  a binding compromise was concluded through Acas, although nothing had been produced in writing and all matters usually dealt with in Acas settlements had not been expressly agreed.
An automatic dismissal of proceedings should occur where the parties to an Acas settlement have confirmed in writing their understanding that the proceedings covered by the settlement will be dismissed and the claimant has withdrawn the claim.
If the parties reach a settlement via Acas shortly before the hearing, the Acas officer will normally contact the tribunal to advise it that a settlement has been reached and that it can vacate the hearing. It is sensible, however, to check with the Acas officer that they will do this, especially if the hearing is fast approaching.
Codes of practice and helpline service
In addition to its conciliatory role, Acas also has a preventative role as a result of the power to issue guidance codes and operate a helpline.
Acas has provides a helpline service with opening hours from 8.00 am to 8.00 pm Monday to Friday and 9.00 am to 1.00 pm on Saturday.
The Acas Code of practice on disciplinary and grievance procedures has an important role. A failure to follow the Code will not, in itself, make an employer liable. However, tribunals will take the revised code into account and adjust any awards made in relevant cases by up to 25 per cent for the employer’s unreasonable failure to comply with any provision of the code. If it is the employee who has failed to comply, then their award may be reduced by 25 per cent.
As a complete alternative to the tribunal process, Acas runs a voluntary arbitration scheme. This provides an alternative, less formal venue for unfair dismissal disputes. It also covers flexible working claims (see Requesting flexible working Q&As).
See also the Discipline and grievance procedures Q&As.
Q: Can an employer conduct tribunal proceedings without a lawyer?
The whole tribunal procedure, including the hearing, is designed to be used by those representing themselves. However, some cases involve such complex issues of employment law that it is prudent to obtain specialist legal advice.
Q: Can an employer stop an employee proceeding with a weak or vexatious claim?
Within the employment tribunal rules there is a mechanism for weeding out weak claims, or claims by those known as ‘vexatious litigants.’ The following options are considered:
- Mediation or other forms of dispute resolution (see What is Acas early conciliation? and 'What forms of mediation and conciliation are available to employers to help prevent tribunal proceedings?').
- A preliminary hearing may be requested by either party (usually the employer) or the tribunal may decide to hold one, which may result in a hopeless case being thrown out.
- A tribunal can make a deposit order as a condition of pursuing a particular allegation or argument. A deposit order may be granted where the employee’s claim or the employer’s defence, or an aspect of it, is relatively weak.
Q: What forms of mediation and conciliation are available?
(See also ‘What is the role of an Acas representative?’ and ‘What is Acas early conciliation?’)
Over recent years, various forms of alternative dispute resolution (ADR) have become widely available in employment and other civil disputes. Wherever possible, tribunals are required to encourage and facilitate the use by the parties of the services of Acas, judicial or other mediation, or other means to resolve their disputes by agreement.
The advantages of ADR include:
- Minimising or avoiding the stress and expense of tribunal proceedings – some forms of ADR are free.
- Speedier solutions, as tribunal cases can take many months and some forms of ADR can be concluded in under a month.
- Lengthy tribunal proceedings can distract senior employees from the workplace.
- A better understanding of the issues can be reached.
- Finding solutions on the parties’ own terms.
- Covering matters that may not be covered in a tribunal judgment, such as references, moves to other departments etc.
- ADR can happen early, before a permanent breakdown of the employment relationship.
- May provide confidentiality (most tribunal hearings are public).
- Voluntary solutions whereby both parties agree to participate in ADR and can change their mind at any time.
The main forms of ADR available for employment disputes include:
- internal workplace mediation
- private mediation or conciliation services
- free Acas pre-claim conciliation
Internal workplace mediation is more commonly used by larger employers for less serious matters where the employment is continuing. It can involve the employer’s own trained in-house mediators, HR department, an unbiased manager from a different department, or an external specialist mediator.
A number of firms offer commercial private mediation services. In the vast majority of cases the employer pays for it, although the cost can be split between the parties.
The key points to understand about mediation are that:
- the mediator does not impose their own solution, but is trained to assist both parties to reach a mutually acceptable solution
- it’s voluntary, so both the employee and employer must agree to become involved
- it can take place at any stage in a dispute.
Conciliation is similar to mediation. The primary difference between mediation and conciliation is that in some conciliation cases, the conciliator plays a more active role in resolving the dispute. The conciliator may put forward solutions. In mediation, if no agreement can be reached the process fails.
Arbitration also involves an independent third party, but is different because the arbitrator’s resolution is a legally binding decision. There are very limited grounds for challenging the decision. Usually, appeals can be made only if the arbitrator erred or behaved unreasonably. More information is available from the Chartered Institute of Arbitrators.
Q: Can secretly recorded evidence be used?
Whether an employer or an employee can use evidence obtained by a secret recording device in employment tribunal proceedings is a complex question governed by many areas of law including the Regulation of Investigatory Powers Act 2000, The Employment Tribunals (Constitution & Rules of Procedure) Regulations 2004 and Article 8 of the European Convention on Human Rights.
Good practice would be to always obtain the consent of both parties to the recording and to sign an agreed transcript.
It is possible for a covert recording to be used as evidence in an employment tribunal hearing, provided it is relevant to the issues, but you should think carefully about the associated risks to privacy, reputation, and wider employee relations.
Q: What should an employer do if it does not wish to answer an employee’s questions in a discrimination and/or equal pay claim?
An employer should try to answer an employee’s questions. From 6 April 2014 onwards the statutory discrimination and equal pay questionnaire procedure was abolished and replaced with informal guidance from Acas. (See the Enterprise and Regulatory Reform Act 2013 which repeals Section 138 of the Equality Act 2010).
Employers need to understand how to respond to employees’ questions relating to an actual or prospective claim. Although the former statutory questionnaire procedure has been replaced with Acas ’informal’ guidance, the employment tribunal can still draw adverse inferences from an employer’s refusal to respond or evasive answers.
Under the informal Acas guidance, there is a six step question process to help employees establish the facts about conduct which they believe to be discriminatory and a template designed to help employees frame questions.
Step 1 - the questioner sets out his or her name and address and that of the person or organisation and others whom he/she thinks may have discriminated against them.
Step 2 - the questioner has to identify which protected characteristics may have been the subject of the unfairness he/she has experienced.
Step 3 - the questioner describes the treatment to which the complaint relates and the circumstances leading up to that treatment, including the date, time, place and number of instances of the treatment.
Step 4 - the questioner needs to specify the type of discrimination that might have occurred.
Step 5 - the questioner sets out why the treatment might be unlawful.
Step 6 - the questioner can ask other appropriate questions about treatment, including statistical information to show how people with this protected characteristic are treated by the employer.
Although the old statutory form of questionnaire has been abolished there is nothing preventing employees from using it when formulating informal questions.
Responding to questions
The Acas guidance contains a three step process for the responder (usually the employer) to consider:
Step 1 - the responder considers if it agrees, agrees in part or disagrees with the description of the treatment the questioner alleges he/she received. The responder should investigate and then set out its version of the events.
Step 2 - the responder can then explain if it consider the treatment was justified. The Acas guidance sets out some situations which may be objective justification. (Employers should be careful when setting out potential justification as only indirect discrimination and age discrimination claims can use the justification arguments).
Step 3 - the responder then needs to consider and answer each question. If a responder thinks some questions are irrelevant or unclear, it can check the purpose of the question.
Importantly if the responder decides not to answer a question, it should explain why.
A timeframe is not given within which employers have to respond. However they should not delay unreasonably in answering. In practice the old eight week time limit is likely to be a helpful indication of an appropriate period.
Acas emphasise that questions about potential discrimination at work should be dealt with seriously and promptly by the employer.
The employer should consider carefully the most appropriate way to respond given the possible implications of any response.
The employer is not under a legal obligation to answer questions. However an employer who refuses to provide appropriate replies may find that the tribunal takes this failure into account when deciding a case. Tribunals can still draw adverse inferences from an employer's refusal to respond or provision of evasive answers.
As employers are not legally required to provide a response unless the tribunal orders them to, some employers may decide to wait to see if the employee pays the non-refundable tribunal fee to commence the claim before responding to the questions. Under the normal tribunal rules of procedure, employees and employers can both raise further and better particulars and ask additional questions and to seek specific disclosure of electronic and paper documents.
The Acas guidance is not as yet a Code of practice. If it becomes a Code rather than guidance, then employers failing to follow it will risk adverse inferences from the employment tribunal. It is likely that larger employers who have greater administrative resources to respond to informal questions will not be looked upon unfavourably if they refuse to respond.
Employees will always need to ask some questions, especially in indirect discrimination cases as they need to show that the employer's provision, criterion or practice (PCP) has a disproportionately adverse impact on them because of their protected characteristic. Statistical information will be needed to establish this, for example, a breakdown of an employer's distribution of employees of a certain age, or race.
Guidance is available on the Acas website.
Q: Can an employee sue both an employer and a manager together in an employment tribunal?
Yes. This often happens in discrimination claims where the employee can bring the claim against both the employer and another employee who committed the act of discrimination. In addition to naming the employer in any application to employment tribunal, it is common to name the individual perpetrator and join them as parties to proceedings.
An employment tribunal can order that the employer and the employee who committed the act(s) of discrimination are both liable for compensation, so the employee who committed the discriminatory act can be held personally liable. The whole amount of compensation awarded can be recovered from either the employer or the employee who committed the discriminatory act. This is what is meant by ‘joint and several liability.’
This legal term covers a number of situations where one person is held responsible for the actions of another person. Employers are often liable for the acts of their employees, provided it can be shown that the acts occurred in the course of employment.Employers can only avoid vicarious liability for the acts of their employees if they have taken all reasonable steps to prevent such acts from occurring. Maintaining an anti-discrimination and equal opportunities policy will reduce the risk of being held vicariously liable for any discriminatory acts committed by its employees.
Q: What is a compromise or settlement agreement?
Settlement agreements (previously known as compromise agreements) are legally binding contracts which are used to end employment on terms agreed with the employee. These agreements enable the employee to make a binding promise not to sue the employer, in return for a payment.
Most employment disputes and tribunal cases settle before a claim is even started or before the hearing stage. There only two enforceable ways employers can obtain a binding promise that an employee will not bring a tribunal claim:
- a settlement agreement which complies with all the legal requirements; or
- an agreement on Acas form COT3.
Employers can conclude binding settlements agreements of an unfair dismissal, discrimination or other statutory claim. The employee will need legal advice to make this type of agreement binding. If the only claim is a contractual one, for example for breach of contract with no unfair dismissal element, then a contractual settlement agreement may be binding.
Acas has issued a Code of practice plus non-statutory guidance about settlement agreements. Failure to follow the Acas code does not, in itself, make an employer liable to proceedings. It does not automatically lead to an increase in any compensation award made by an employment tribunal although there is a risk of this as employment tribunals will take the code into account when considering any cases.
The Code suggests employers provide a minimum period of 10 days for employees to consider a proposed settlement agreement and to receive independent advice. Although the parties can agree a longer period.
Binding settlements can also be concluded by negotiating using an Acas representative (leading to a COT3 agreement). If the parties use early conciliation and successfully reach an agreement, the conciliator will record the agreement in this way - see the Q&A What is the role of an Acas representative in employment tribunal proceedings?
See also ‘What are the requirements for a valid settlement agreement?’
Q: What are the requirements for a valid settlement agreement?
Some employers pay external legal advisors to prepare settlement agreements for them, other employers will produce draft agreements themselves especially for less senior employees. Whatever the employer decides to do, the employee must have had advice from a relevant independent adviser on the agreement and how it affects his or her ability to bring a tribunal claim.
The precise details of each settlement agreement will vary, but some terms are essential legal requirements.
For a settlement agreement to be effective over any statutory claims such as unfair dismissal or discrimination, the following conditions must be met:
- The agreement must be in writing.
- It must relate to the particular claim that has been, or might be, brought by the employee, for example, unfair dismissal. (The agreement will usually include a factual and legal description of the claim being settled.)
- The employee must have had advice and the employee’s adviser must be named in the agreement and must also be insured.
(See section 203 of the Employment Rights Act 1996.)
If the above conditions are not met, the agreement will not be valid to end statutory claims. This means the employee would still be theoretically free to make some claims against the employer despite the employer having made a settlement payment.
The agreement may still be valid to settle contractual claims (like breach of contract or wrongful dismissal).
Although it is standard practice to put wording in agreements which in “full and final settlement of all claims”. This is not enough for potential employment claims. To be legally binding a settlement agreement has to specifically state the claims that it is intended to cover.
There are usually many other clauses in settlement agreements. For example, measures that deal with the timing and amount of the actual termination payment from the employer to the employee, payments for any notice period and the relevant tax treatment of monies paid.
Outstanding untaken holiday will need to be paid and included in the agreement and this will be subject to tax.
There may also be a confidentiality clause preventing the employer and employee from bad mouthing each other plus any agreed reference which is usually attached to the agreement.
Other provisions may include:
- A confidentiality clause to prevent the employee disclosing to colleagues how much settlement they obtained.
- The employee agreeing not to pursue any personal injury claims which arose before the agreement.
- A warranty that the employee has not been offered a new job yet.
- New restrictive covenants to restrict where the employee can work for a limited period after they leave.
- A clause about returning company property within a set time period.
Any contribution by the employer to the employee’s legal fees will also be set out. See also Q & A Why do employers offer to pay for employee’s legal advice over settlement agreements?
Q: Why do employers offer to pay for an employee’s legal advice about settlement?
For settlement agreements to be effective, the law states that the employee must have advice from a relevant independent adviser.
Because an employer wants a cast iron agreement, it will often pay for an employee to get advice on the agreement. Settlement agreements signed without the employee getting independent legal advice first, will not be binding. The employee can still go to an employment tribunal even though they signed a settlement agreement if they have not been given independent advice.
The employee must be able to make an informed decision, so the advice should cover what the settlement agreement is, what the terms mean, which claims are being compromised and taxation advice.
The adviser does not have to advise on whether the agreement is a 'good deal' although a solicitor advising employees may be negligent if they do not consider this issue at all. See the Scottish case McWilliam and Others v Glasgow City Council (2007).
Q: Can the employer’s advisor give an employee advice about the settlement agreement?
The employee’s adviser must be 'independent', and therefore must not act on behalf of the employer.
The independent adviser must have a current contract of insurance or covering the risk of a claim for any loss arising from the advice and the agreement must name the adviser.
The adviser can be a qualified lawyer (solicitor, barrister or legal executive); a certified and authorised official, employee or member of an independent trade union; or a certified and authorised advice centre worker.
To be 'independent', the adviser must not act on behalf of the employer.
The payment of the adviser’s legal costs in connection with the settlement of legal disputes are not liable to income tax.
Q: Can an employee refer to pre-termination ‘off the record’ negotiations?
An employee may be able to refer to an ‘off the record’ conversation later on. This is a fairly common expression used by employers and employees to describe discussions which took place especially where the employment relationship is coming to an end. However, the expression is technically inaccurate.
During negotiations, proposals and counter proposals are often made before an agreement is reached, it is essential to be able to discuss matters without fear of jeopardising the employer’s legal position. The correct terminology for the conversations prior to a settlement agreement are either 'without prejudice' or ‘protected’ conversations. These are covered by two completely separate sets of rules, so depending on the situation surrounding negotiations two different sets of rules may apply.
If the ‘off the record’ conversation meets the rules covering protected or without prejudice conversations, then the employee will not be able to refer to it in any later claim. Protected conversations are more limited and where possible employers should try and ensure negotiations fall within both sets of rules. It is helpful to understand the differences between the two concepts otherwise employers may be exposed as a result of what they have said.
To further understand the protections (and limitations) of these conversations see Q & A ‘Do ‘protected conversations’ apply to protect employers in all settlement negotiations?’ and Q & A ‘Is it safe to start discussing terms of settlement on a ‘without prejudice’ basis?’
Q: Do ‘protected conversations’ apply to all settlement negotiations?
Since July 2013, employers can have special types of ‘protected’ conversations with employees regarding the termination of employment. However, they do not protect employers in all situations.
In limited circumstances employers can initiate, offer and discuss settlement agreements in the knowledge that they are protected from having the conversations held against them in any subsequent unfair dismissal claim.
Claims not covered
The concept of protected conversations only applies to standard unfair dismissal claims. Conversations that relate to complaints of discrimination, automatically unfair dismissal, wrongful dismissal, breach of contract, whistleblowing, union membership, health and safety for example are not protected.
If there is any possibility of another type of claims then the employer should try and ensure that the ‘without prejudice’ rule applies. This will require a dispute between employer and employee to have already arisen. Anything said during ‘without prejudice’ conversations will be protected in all types of legal claim not just unfair dismissal. For further information see the Q & A Is it safe to start discussing terms of settlement on a ‘without prejudice’ basis?
Protected conversations were introduced to enable parties to have frank discussions, even where a dispute has not actually arisen yet. Even the fact that a conversation took place should not be disclosed in any later claim (Faithorn Farrell Timms LLP v Bailey -2016). Any 'improper behaviour' from the employer will lead to this protection being lost. The Acas Code of Practice on Settlement Agreements provides examples of improper conduct, which includes behaviour such as harassment, violence, bullying, intimidation, offensive words, aggressive behaviour and putting undue pressure on the employee.
For example if an employer says to an employee “If you don’t accept the proposal today then you will be dismissed anyway…” this will count as improper behaviour. Anything said in the pre-termination negotiations can then be used by the employee in any subsequent tribunal claim.
Other key points
- Employers will often need to have two types of correspondence and meetings in parallel. So, conversations about day to day management matters will be discussed openly whereas the protected conversations will happen separately.
- Employers who are running settlement discussions must have a Plan B, because consensus on settlement may not happen. For example, a fair disciplinary procedure must be followed before a dismissal decision is taken.
- A tribunal may be able to consider evidence of protected conversations to establish the effective date of dismissal or termination if this is in dispute ( see- Basra v BJSS Limited (2017)) [Link to Basra v BJSS Limited (2017) UKEAT 0090171912]
Q: Is it safe to start discussing terms of settlement on a ‘without prejudice’ basis?
It is never completely ‘safe’ to start discussing terms of settlement. Employers do need to initiate conversations about terms of settlement where continuing to employ an individual is no longer justified. The safest way to have these talks is to comply with all of the possible rules, so those governing ‘without prejudice’ conversations, and the following provisions as well:
- The rules covering protected conversations; and
- the Acas Code of practice on settlement agreements.
If discussions between employers and employees to promote the settlement of a dispute are properly 'without prejudice' then they cannot be referred to in any subsequent hearings. However, managers in charge of settlement negotiations need to fully understand when the rule applies.
Existence of a dispute
The first issue to remember is that there must be an existing dispute - so a manager springing a surprise conversation on an underperforming employee would not be covered by the ‘without prejudice’ protection.
There is no need for litigation to have actually been threatened, but there must be a dispute before any ‘without prejudice’ protection can arise.
For example, in Framlington Group v Barnetson (2007)- the employer and employee had different recollections concerning contractual terms. The employee said he could mention the discussions about the terms, as when they occurred there was no dispute, and therefore no ‘without prejudice’ privilege. The Court of Appeal said that if the parties were wrangling over the recollection of the terms of the employee’s contract, then that was a dispute. The discussions were genuinely ‘without prejudice’ and must not be referred to in the employee’s witness statement prepared for the tribunal hearing.
Disciplinary and grievance hearings
It is always better to agree the status of a ‘without prejudice’ discussion in advance of the meeting. Problems often arise if employers start settlement discussions in the middle of a grievance (or disciplinary) hearing. If this happens there is a risk of having the discussions referred to in front of a subsequent court or tribunal -see BNP Paribas v Mezzotero (2004).
‘Without prejudice’ conversations must be in good faith and may take place in parallel to disciplinary and grievance hearings, but ideally separately from the hearing. Referring to, or merging, settlement negotiation with disciplinary or grievance hearings is highly risky.
Brunel University v Webster (2007)- the Court of Appeal confirmed that evidence of previous negotiations settling another dispute could be admitted in a subsequent tribunal hearing. There was no protection because the settlement negotiations had been referred to during the grievance hearing and the privilege had therefore been waived or abandoned. The University had also included documents attached to its tribunal forms which referred to the settlement discussions. This also meant the ‘without prejudice’ protection did not apply.
Other key points
- Just because a document or discussion is labelled ‘without prejudice’ this is not conclusive, the content of such discussions is crucial ,there must be an attempt to resolve a genuine dispute.
- If the employer attempts blackmail or some other serious impropriety, then there will be an exception to the ‘without prejudice’ rule.
- Ideally the employee should be given the opportunity to take legal advice before a ‘without prejudice’ discussion.
Q: Are termination payments taxable?
Whether termination payments are taxable depends upon the circumstances surrounding the payment. The general rule is that employers can pay the first £30,000 of any genuine compensation for loss of employment under the settlement agreement tax free, but this will not apply to all types of payment.
The rules for taxation of termination payments are complex, and employers who are in the process of negotiating exit packages should take account of tax changes in April 2018. The changes were made because of concerns that employers and employees were structuring settlement arrangements to include payments that would normally be taxable, to try and minimise the Income Tax and National Insurance due.
Employers should split a termination award into:
- amounts treated as taxable earnings; and
- amounts benefitting from the £30,000 income tax exemption.
Whether a termination payment is taxable or not depends on precisely what the payment is for. Usually every payment should be broken down into its constituent parts, not treated as a single lump sum.
Termination payments which are genuine compensation for termination of the employment are currently free from National Insurance (NI). New rules making employer’s NI payable on termination payments above £30,000 will take effect from 6 April 2019 (rather than the original 6 April 2018 date). When this comes into force it will be collected as part of the employer’s standard weekly or monthly payroll returns and remittances to HMRC.
Payments made for work undertaken before the employee’s departure are likely to be fully taxable, because these would normally be chargeable to income tax. All payments made for the period up to the point that the contract of employment ends (such as unpaid salary, wages and benefits accrued to date of termination) are contractual in nature and are generally also taxable together with:
- Payment in lieu of holiday outstanding
- Payments made if an employee works their notice or is placed on garden leave for the notice period are subject to tax.
- Payment for new restrictive covenants-these may be needed to prevent an employee from acting in competition or approaching customers or employees once they have left the employer. These may be entered into on termination because the original contract did not contain these provisions, or they were unenforceable. To make these new promises binding there must be a ‘consideration’ paid, usually a small sum of under £500. This payment is fully taxable and liable to NI contributions.
- Any payments associated with a confidentiality clause.
- Payments made to compensate for injury to feelings caused by the termination. Such payments are taxable unless the award is in relation to a psychiatric condition or other medically recognised condition.
Payments for injury to feelings
Tax treatment for injury to feelings was has been a controversial issue for a long time. The legislation was amended from April 2018 to ensure that the payments for injury to feelings are subject to income tax and national insurance. This was a result of several decided cases, in particular Moorthy v. HRMC (CA 2018). HMRC require a review of the relevant medical records if the employee claims the injured feelings amount to a psychiatric injury or other recognised medical condition and the compensation therefore remains exempt from tax.
Payments in lieu of notice
All payments in lieu of an employee’s notice entitlement (PILONs) have also given rise to problems over the years. For terminations taking place after 6 April 2018 all such payments are now taxable and subject to NI. It does not matter whether there was a written PILON clause in the employment contract or not. The PILON will be treated as earnings rather than a 'termination payment' and will be fully taxed. The employer must work out the amount of basic pay that the employee would have received if they had worked their notice period, even if the employee leaves part way through their notice period. The PILON payment will be treated as earnings and is not subject to the £30,000 income tax exemption.
Potentially exempt payments
The following sums which may form part of a termination payment are generally non-contractual and not taxable:
- Compensatory and ex-gratia, non-contractual payments made for loss of office or up to the first £30,000.
- Payment on account of a disability or injury.
- Genuine statutory and contractual redundancy payments up to the £30,000 exemption, although some contractually based redundancy payments might be subject to income tax and NI.
- Payments made direct into a registered pension scheme are not subject to tax up to the annual and lifetime allowances set for contributions to such pension schemes.
- Contributions to the cost of special outplacement counselling are not taxable and are often paid directly by the employer and therefore do not count towards the £30,000 exemption.
Following the conclusion of a compromise or settlement agreement the employer often pays a contribution towards the employee’s legal costs direct to the employee’s solicitor under the terms of the agreement. Such costs will not be subject to income tax. The employer’s payment of the employee’s legal costs direct does not count towards the £30,000 exemption either, as long as it is only for advice in connection with termination of employment and there is a specific clause in the settlement agreement covering it. Employers uncertain on the tax position can get advance clearance on the payment from HMRC.
The area of employment tribunals, settlement and compromise has undergone significant changes over recent years. The previous changes are dealt with in the relevant related Q&As, and include the introduction of fees to lodge and pursue employment tribunal claims, Acas early conciliation and fines for employers. (see 'What is Acas early conciliation? and What are the fines and penalties?').
The mostly likely on-going area of change relates to tribunal fees. Following Unison's challenge in the case R (Unison) v Lord Chancellor , the Supreme Court decided in July 2017 that the tribunal fee regime was unlawful and the fees were abolished. The Supreme Court's ruling only related to the fee regime established in 2013 and does not mean that any employment tribunal fees are unlawful.
A revised fees regime is, therefore, likely to be implemented at some stage but this will presumably take some time. There would have to be a consultation to ensure that the fees are not discriminatory and are set at an appropriate level to maintain employees’ access to justice.
Some clues as to what a new fee system could look like can be found in previous 2015 and 2016 reviews which considered the impact of tribunal fees. House of Commons committees previously proposed reductions in tribunal fees, and made a number of wider recommendations, including:
- removing the distinction between Type A and Type B claims
- increasing the financial thresholds for fee remission
- giving special consideration to maternity or pregnancy discrimination claims
- reviewing the three-month time limit for bringing most claims.
The Government did not act on these recommendations in its previous review but may do so in the future. Any new tribunal fees legislation would be politically contentious, and may not happen until after Brexit.
Civil courts structure review
A longer term review of the entire civil courts structure in England and Wales, undertaken by Lord Justice Briggs, was published in July 2016.
The recommendations which may affect employment law included integrating the tribunal system into the structure of the civil courts. The President of the Employment Tribunal has previously been in favour of a new specialist Employment and Equality Court to sit within the existing court system.
The legislation and case law on tribunals and settlements is mostly not derived from the EU. Therefore, these procedures are unlikely to be directly affected by Brexit. However, a small minority of employees involved in employment law cases have subsequently raised arguments that the proceedings have been a breach of Article 6 of the European Convention on Human Rights (ECHR), which includes the right to a fair trial. During the Conservative leadership campaign, Theresa May said she would not take the UK out of the ECHR, which suggests the Article 6 right may remain.
For information on the implications of Brexit for employment law and more generally, see the range of relevant resources in our dedicated Brexit hub.
- Employment Tribunals Act 1996
- Employment Rights (Dispute Resolution) Act 1998
- The Employment Tribunals (Constitution and Rules of Procedure) Regulations 2001 (SI 2001/1171)
- The Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004 (SI 2004/1861)
- The Tribunals, Courts and Enforcement Act 2007
- The Tribunals, Courts and Enforcement Act 2007 (Commencement No. 1) Order 2007 (SI 2007/2709)
- The Employment Act 2008
- The Employment Tribunals (Constitution and Rules of Procedure) (Amendment) Regulations 2008 (SI 2008/3240)
- The Employment Tribunals Act 1996 (Tribunal Composition) Order 2009 (SI 2009/789)
- The Unfair Dismissal and Statement of Reasons for Dismissal (Variation of Qualifying Period) Order 2012 (SI 2012/989)
- The Employment Tribunals Act 1996 (Tribunal Composition) Order 2012 (SI 2012/988)
- The Employment Tribunals (Constitution and Rules of Procedure) (Amendment) Regulations 2012 (SI 2012/468)
- The Employment Tribunals (Constitution and Rules of Procedure) Regulations 2013 (SI 2013/1237)
- The Employment Appeal Tribunal (Amendment) Rules 2013 (SI 2013/1693)
- The Employment Tribunals and Employment Appeal Tribunal Fees Order 2013 (SI 2013/1893)
- The Employment Tribunals (Early Conciliation: Exemptions and Rules of Procedure) Regulations 2014 (SI 2014/254)
- The Employment Tribunals (Constitution and Rules of Procedure) (Amendment) Regulations 2014 (SI 2014/271)
- The Enterprise and Regulatory Reform Act 2013 (Commencement No. 5 Transitional Provisions and Savings) Order 2014 (SI 2014/253)
- The Employment Tribunals (Early Conciliation: Exemptions and Rules of Procedure) (Amendment) Regulations 2014 (SI 2014/847)
Non-prescriptive guidance from the Presidents of the Employment Tribunals in England and Wales and Scotland is sometimes made available, and sometimes practice directions are issued by the courts and tribunals. These support the relevant rules and set out what the courts and tribunals expect. The guidance is not binding on the parties, but tribunals do have to have regard to it.