The rising cost of claims: five reasons why your Employment Tribunal spend might increase this year

The employment law landscape is changing, and the costs of claims to employers may be going up.

1. Employment Tribunal fees have been abolished

You cannot have escaped the news that, on 26 July 2017, the Supreme Court held that the Employment Tribunals and Employment Appeal Tribunal Fees Order (which introduced the charging of fees into the Employment Tribunal system in July 2013) was unlawful and discriminatory. Access to the Employment Tribunals is now free of charge. For many of you some increase in claims traffic will be inevitable, and we know that some of you have already experienced an immediate upturn. Some of our clients have told us that they are starting to see a renewed flow of the types of claim that had largely fallen away under the fee regime, such as unpaid wages and ‘ordinary’ unfair dismissal. We know that many of you are also concerned about a possible influx of historical claims, where the claimant argues that they would have brought a claim some time ago, but for the prohibitive fee regime. While we have not yet seen much evidence that this surge in applications has materialised, you may wish to factor this increased exposure into your budget over the coming months.

2. Unfair dismissal compensation has increased (especially for some employers)

The maximum amount of a compensatory award for unfair dismissal is currently capped at one year’s pay (or £80,541 whichever is lower). In an important recent decision the Employment Appeal Tribunal held in University of Sunderland v Drossou that, when a year’s pay is calculated for these purposes, employer pension contributions must be taken into account as well as the payments made directly to the employee. This may significantly increase the maximum award for many employees, especially those with generous pension provision or defined benefit schemes. For example, for almost all public sector employees their potential award is likely to increase by at least 14% (and in some cases more). Read a fuller analysis

3. Discrimination compensation has increased

Following the case of De Souza v Vinci Construction, which recommended an increase in levels of compensation for workplace discrimination, the Presidents of the Employment Tribunals in England and Wales, and Scotland, carried out a consultation on this issue. The outcome has now been published. From 4 September 2017, the guidelines used by the Employment Tribunals to value injury to feelings awards in claims of discrimination (originally set out in the case of Vento v Chief Constable of West Yorkshire Police and known as the Vento bands) should be substantially increased as follows:

  • Lower band: £1,000 to £8,000
  • Middle band: £8,000 to £25,000
  • Higher band: £25,000 to £42,000
  • Exceptional cases: Over £42,000

The bands were last formally updated eight years ago and, while the increase will inevitably mean increased cost for employers, it is arguably overdue. The introduction of the exceptional cases possibility is perhaps unfortunate in managing expectations. If you need guidance on what band may genuinely apply to any issues you face, please speak to us.

4. Stigma damages: another increase to discrimination and whistleblowing awards?

Another recent Court of Appeal Judgment also points to an increase in discrimination and whistleblowing compensation. In Small v Shrewsbury and Telford Hospitals NHS Trust the Court held that Mr. Small could have recovered an additional award for stigma damages. In this case it was effectively an award for lost earnings accruing after he would have left that organisation’s employment (as he was engaged for a fixed term), because his future prospects of securing new employment outside that organisation had been damaged by his dismissal for whistleblowing. Even though the claimant did not expressly ask for these additional damages, the Court has said the Tribunal was required to consider such an award, where it had acknowledged that the consequences of the dismissal were career-ending.  While such awards have in the past been relatively rare, this case may put this additional compensation back on the judicial radar, when an Employment Tribunal decides that a claimant is unlikely to find new work.

5. Pension Loss: new principles published

As well as factoring in employer pension contributions when calculating an employee’s lost pay, in most unfair dismissal cases an Employment Tribunal will also make an attempt to calculate the employee’s lost pension rights. This can be incredibly complex and the Employment Tribunals have often taken a fairly rough and ready approach to quantifying this element of a claimant’s loss. Often, even represented claimants have had little idea of how to calculate pension loss, as guidance available from the Employment Tribunals was out of date and difficult to navigate. However, this summer, this guidance has been revised for the first time in ten years.

While the principles set out for calculating pension loss are not new, the guide is more user-friendly and promotes a more structured approach. It states that complex cases should be identified by the Employment Tribunals at a very early stage and pension loss dealt with at a separate remedies hearing. In an ordinary unfair dismissal claim, pension loss will fall within the maximum compensatory award of one year’s pay (or £80,541 whichever is lower). However, the rigorous and focussed approach to pension loss now advocated by the Employment Tribunals may result in increased awards being made and will certainly increase employee expectations.

Louise Singh (louise.singh@weightmans.com) is a Professional Support Lawyer supporting the national Employment Pensions and Immigration team at Weightmans LLP and is based in Liverpool.  If you have any questions about any of these issues please speak to your usual Weightmans contact or Louise.

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