A change is afoot in the way claimants fund their employment tribunal claims, writes employment lawyer Paul Housego of Beers LLP who specialise in the outsourced services sector. First some background, as this comes from changes made to litigation some years ago. The Woolf reforms to civil litigation (named after the Judge who organised it all) were sweeping. Litigation was made much less procedural, and was given a greater focus on settlement. Costs used to be a major problem for claimants. If you won, you could get a costs order against the other side – but you had to accept liability for your costs if you didn’t win. If the solicitor acted on the basis that he wouldn’t charge you if you didn’t win, you had no liability to costs, and so would get no costs order. So solicitors couldn’t act on that basis as they would not get paid, win or lose. What Woolf did was bring in conditional fees – solicitors could act for nothing but if their client won they could get the charge they would have made plus an uplift of up to 100% of that amount, subject to the Court agreeing the amount of the uplift as well as the original costs amount. There are strict rules about what must be in a conditional fee agreement, and it is void (that is the losing party will have to pay nothing) if the correct form is not followed.

Contingency fees remained outlawed. A contingency fee is “I’ll act for you and if we win we’ll split the winnings and if we don’t win you don’t pay me.” When Employment Tribunals were started they were to be simple places based on common sense, to resolve employment matters. They were called Industrial Tribunals then, and they evolved out of tribunals dealing with redundancy payments and national insurance issues. So their work was not “contentious business” like suing people. Of course it is now, but it is still categorised as “non contentious”. So contingency fees are not prohibited – and provide the means for many claimants to bring cases.

In the abstract this is a very good thing. Claimants with good claims who have lost jobs tend to have no income. The lawyer has to risk getting nothing, so will bring only cases he or she thinks have a good chance of winning. Such cases ought, if brought, to have a good chance of settlement if the employer’s lawyer thinks the same. Most contingency fee agreements are between 33% and 50% of the amount won. Unfair dismissal claims are capped at about £70k (depending on length of service) but most awards are far less. Although awards in discrimination cases are uncapped, most awards are less than £20k. Every employer knows that you can’t defend a case, even a simple one, for less than about £5k. Complex ones cost a lot more. So they do for claimants. So for a claimant to lose 50% of a big claim of say £40k would still not involve the solicitor charging much more (if anything) above the time cost of running the case.

Claims in Employment Tribunals have been going up and up. The number of tribunal rooms and the number of judges have not. Claims are taking more days to hear as they get more complicated. So the system is gumming up. Cases listed for hearing today will often not get a hearing date, less than 6 months ahead. Now the Government has brought in a system that requires employee representatives (but not employer ones!) to be registered. (Solicitors automatically qualify.)  The Government now suggests that claimants are being abused by representatives and need to be protected. It proposes to regulate contingency fee agreements. It proposes a cap of 25% of the award as the maximum.

It does not take a mathematical genius to work out that this destroys the whole basis of such agreements. If it is going to cost £10k in time to bring a claim, then the solicitor will have to expect to get in £40k to make it pay. And that does not factor in a win bonus – necessary for the economic model to stand up, as no one wins all the time, and even if you win the amount of the award may be reduced from the headline amount. Even a simple claim costs £5,000, but simple claims do not produce awards of £20,000 very often.

The whole point of this proposal appears to be a cynical attempt to cut down the number of claims made. From the perspective of the employer this appears unalloyed good news, even if morally dubious. I fear it will not prove so. The one law which always holds true in employment law is the law of unintended consequences. There will be more claimants in person. Claimants in person tend to have a strong feeling that they have been done wrong. They tend not to understand the law. While the claimant with a good lawyer is more likely to win, there are benefits to the respondent in the claimant being well represented. Issues will be identified, so reducing cost, the chances of success and failure understood and settlement more likely.

Bad lawyers who cannot get work will be willing to take cases that otherwise would go to good lawyers. Worse, even bad lawyers may lose out to unqualified hacks who will view the returns as acceptable. So, if this goes through, expect fewer claims, but expect more of the ones you get to be intractable and to be fought to a conclusion! It is difficult to get costs against litigants in person who lose, so expect also more cases fought to involve you in more expense. More than ever it will be important to have advice from a good lawyer, and to make use of the pre hearing review to try to dispose of hopeless cases at an early stage.