Justice gone mad?

by Real Business - Thursday, 30th August 2007

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Here’s the managing director of a north of England-based haulage business on his first appearance in front of an industrial tribunal: “We were successful – 100 per cent in the right, no question. That cost us £2,500 in fees.”

Fast forward to his second appearance, a few months later: “This man had been with us for three weeks. Then one morning he refused to drive his truck – in a haulage business!” The driver received £100 as an incentive to go away, but the episode still rankles. “Why can anyone take me to a tribunal in these circumstances? There was obviously no case, but it would have cost thousands to prove it.”

The industrial tribunal system has become a real pain many growing businesses. As every employer taken to a tribunal will confirm, sacked employees have nothing to lose. They can either leave quietly and seek further employment, or they can return home in a rage, kick the dog and file for unfair dismissal. More and more are opting for the latter.

Perhaps it’s not surprising. A greater awareness of employment rights, a willingness to exercise them, and the ease with which you can lodge a complaint, are just some of the motivating factors. The opportunity for cost-free revenge and the very real possibility of a fat cheque at the end of it are nice inducements, too.

Ask an employer about the tribunals process and the answer is usually the same. “It’s a mess and it’s getting out of proportion,” groans Kerry Minns, managing director of the Norwich-based cleaning service business, Anglia Contract Services. “Don’t get me wrong, the tribunal system is there to protect the employee and see justice is done. But there are people in the workforce who believe the system is a vehicle they can use to bleed money from their employers.”

Our industrial tribunal system is the culmination of a 30-year process. “Until the mid-sixties there were few employment rights and one could argue it was a ‘master and servant’ relationship,” says Anthony Sutcliffe who sits on an industrial tribunal users committee in Newcastle and is director of consultancy at Peninsula Business Services (the Manchester-based business attends more than 1,500 tribunals every year for its clients). “Since then a considerable number of rights have been given to employees and, in all but the rare cases, they apply irrespective of the size of the business. Some argue that not only has it evened up, but it’s gone too far – especially in respect of small and medium-sized companies where it has made the employment of staff too burdensome.”

The statistics point to a problem. In the last seven years, applications to industrial tribunals have risen by 281 per cent – there were 73,472 applications to the Employment Tribunals Service in 1995/96, against 26,127 in 1988/89. Yet applicants’ success rates and the size of payouts have plummeted – in 1995/96 a mere 13.9 per cent of all tribunal applications were successful at hearing, against 17.3 per cent in 1993/94.

What’s emerging is a scattergun approach to the industrial tribunal process. “Very often tribunal hearings are used by employees not simply to remedy a complaint but to have their day in court,” says Peter Bell, partner in the law firm Irwin Mitchell. “It enables them to put their former employers in a position of embarrassment, to incur costs and suffer inconvenience.”

It’s a worrying echo of the American experience. According to the US Society for Human Resource Management, the majority of US companies have been sued by former employees. And 75 per cent of those employers believe that the cases had little to do with justice and were mainly initiated by employees wishing to “have a go” for compensation.

Observers reckon the trend is crossing the Atlantic. “We act predominantly for employers and we do get cases where employees are going to tribunal just for the sake of it,” says Nick Simpson, an employment lawyer in the Leeds office of Pinsent Curtis. “It’s often out of bad advice from a solicitor – they are misguided and have unrealistic expectations of what they stand to recover.”

“You see some outrageous claims at tribunals,” agrees David Bradley, head of the national employment team for Dibb Lupton Alsop. “It’s a classic debate on the legal system – do you allow free access? You are going to continue to see this ‘claims culture’ if you do.”

Add the new breed of “no win, no fee” lawyers into the equation and you get a very heady brew. More and more law firms are appearing that do not appear to discriminate between good and bad cases. “Some of the representation is poor quality which can often prejudice their client and increase employer costs,” says Bradley.

The stories of abuse are legion. In a recent incident, a solicitor contrived a tribunal by convincing an employee that he had a case for being awarded costs for constructive dismissal. The tribunal panel rejected the application. In another case, Ingrid Lowe made a series of salacious allegations about her former employers, the North Yorkshire police. When the time came to substantiate her claims, she refused to give evidence and the case was withdrawn.

The tales are often comic, but the costs are deadly serious. In this culture of “I’ll try it on, why not?” dispute costs keep on rising. Look, for example, at unfair dismissal cases. Although 60 per cent of cases brought before industrial tribunals are won by the company accused of unfair dismissal, it cost them an average of £3,000 each to win this “victory.” And these figures do not include the time spent away at the hearing and preparing for the case.

Many employers are forced to adopt a policy of paying off employees, whether they have a claim or not. Such a policy may slash costs, but it sends out an unmistakeable message to other employees. Although his business has very few disputes, Alan Summarsell’s Yorkshire Care Group always settles before tribunal. “At the end of the day it’s nuisance money, but it’s my only option,” he laments. “I couldn’t afford to go to tribunal, it would cost too much.”

Some businesspeople refuse to be cowed. Take Brian Shaw, managing director of Bradford-based textile engineering company Pinco. Here’s his tribunal policy: “Effectively, if you start paying people off, the actions of some employees become tantamount to blackmail – ‘I’ll settle for £500 or I’ll take it to tribunal’. We were recently successful in a race discrimination case and received a legal bill for £4,700. Looking at the economics it’s cheaper for an employer to settle out of tribunal. Yet if I took that line I’d get more and more claims. So our company policy is to fight every single case,” he explains.

Even the government appears to think that industrial tribunals need a shake-up. DTI minister and chief Labour employment spokesperson Ian McCartney would not comment on whether the current system is handicapping business. But there are plans afoot to modify the rules. “New proposals, in the Employment Rights/Dispute Resolution Bill currently before Parliament, aim to improve resolution of individual employment rights disputes by streamlining industrial tribunal procedures and promoting the use of alternative dispute resolution (ADR),” he says. “A key proposal is the introduction of an ACAS arbitration scheme which will give those involved in unfair dismissal disputes the option of a new, more informal, and we hope, less expensive way of resolving their differences.”

That’s as maybe. The one thing that would focus minds is a system in which there is the potential to pay costs. “The problem is that the powers of the tribunal to award costs against an unsuccessful former employee are very limited,” says Irwin Mitchell’s Peter Bell. “There is no equivalent procedure for a payment into court as there is in the Civil Court. Currently when an employer makes a reasonable offer of settlement, it is often rejected out of hand by the former employee who is determined to have his say.”“If the employer could recover costs it would cut frivolous claims at a stroke,” says one businessman. “But I suspect it’s too controversial. It would be seen as battering the applicant – the little man.”

Richard Saundry is a former industrial relations officer for one of the UK’s largest trade unions. After years of treading the tribunal circuit, he argues for a simplified system. “The tribunal should not be the place for court-style cross-examination and complex legal argument,” he argues. “It makes the system more complicated, time-consuming and, therefore, more costly.”

In the US, companies are concentrating on internal systems. One in five American employers today has an ADR scheme. The aim is to nip disputes in the bud by first introducing in-house mediators, then impartial third-party intermediaries and finally, if all else fails, binding arbitration with a non-negotiable decision. Employers have saved up to 60 per cent in legal costs. Some companies are even making ADR a condition of employment – thus preventing employees from going to court – but it isn’t yet clear whether this is legal.

But do internal schemes really deter tribunal applications? Not really, says Jill Earnshaw, a lecturer in employment law at Manchester’s UMIST and part-time tribunal chair. She has been investigating (on behalf of the DTI) the relationship between companies being taken to tribunals and their internal disciplinary and grievance procedures. Her report, which is due in April, “shows there is no clear link between disciplinary and grievance procedures and applications to tribunals. The fact you have formal procedures is not a barrier to your being taken to tribunal, although if you don’t have them and do end up in tribunal you are more likely to lose.”

So if internal disciplinary procedures aren’t the answer, what about insuring against employee action? Sure, there are plenty of schemes through which growing businesses can obtain advice and indemnity. But these will not dig you out of all holes. “I don’t think there is any way round the problem,” says one gnarled employer, “it’s going to cost you in the end.”

Employment spats will continue to multiply as legislation hands more rights to employees already well-versed in exercising them. The financial pressures, especially for the smaller business, will become more intense and widespread. No matter how well-intentioned, ADR and similar preventative dispute strategies will probably not save you in times of dire need. Businesses wishing to steer clear of the expense and inconvenience of today’s industrial tribunal would do well to heed one of the conclusions from Jill Earnshaw’s DTI report: “Dispute problems are more likely to come from poor recruitment than poor disciplinary procedures.”

Or, of course, you could try the amateur route. Why employ a fancy lawyer in a case that, at worst, will only yield a small pay-out? “You would do better representing yourself rather than lining solicitors’ pockets,” says Richard Saundry. Bonne chance.

Case study: “It’s ruined the business”

The story of Barry Evans demonstrates how the industrial tribunal system can nail small businesses. Having short-listed 22-year-old Victoria Hill for part-time work at his Supercare health shop, a telephone interview revealed that she was six months pregnant. As the work involved heavy lifting - which would have contravened the Health and Safety at Work Act - Evans was unable to take the application further. Evans thought no more of it until he received notice from an East London industrial tribunal informing him that Hill had filed for sexual discrimination. "Running a small business I couldn’t afford the legal advice," he complains, "a solicitor would cost me £1,000 a day plus preparation costs. In any case, there was no case to answer."

Unbelievably, the tribunal awarded Hill almost £2,000 - £661 for loss of earnings and £1,250 for trauma. Justice, it appears, gone mad. Evans took advice from local Labour MP Alan Hirst. Options were limited to paying the £2,000 in £10 monthly instalments or appealing and being forced to cough up the full £10,000 Hill was claiming if he lost. Not surprisingly, the shop-owner balked at the latter. "After cashing my first two cheques," he recollects, "she said she’d be sending in the bailiffs for the full amount. Just three days before they were due to come and repossess my goods, the County Court decided I could pay £100 monthly instalments. Now I can’t afford any staff so I’ve had to stop my wholesaling business across Essex because I can’t leave the shop. It’s ruined the business and I had to sell my house. I’ve lost all enthusiasm and I can’t wait to close and get out."

Lord Vinson of Roddam Dene, a Life Peer, heard about the case and raised the issue in the House of Lords. It was rebuffed by Baroness Blackstone who, responding for the Department for Education and Employment, acceded that Evans did act unlawfully. "It’s monstrous," says Lord Vinson. "The current industrial tribunal system hugely disadvantages the small business. This [case] is another example of appalling EU legislation interpreted too harshly. We have to get this crazy law changed, but it’s like punching a jelly."

The office of horrors
It’s becoming ever more difficult to run an office. Each year, many companies face unnecessary litigation simply because they haven’t kept abreast of the law. It’s not only expensive; you could also end up in jail. David McIntosh, senior partner of Davies Arnold Cooper, guides you through some of the things you could be doing wrong - and how much it could cost you.