8th April, 2020
Employment Tribunals – Is it time for your business to think about Legal Expenses Insurance?
One of the great frustrations of those involved in Employment Tribunal litigation is that as a general rule, both parties bear their own legal costs. It is only on rare occasions, usually where one party has behaved particularly unreasonably that costs can be recovered from the losing party. This often results in the negotiations around settlement and the decision whether to go all the way to a final hearing becoming more about the legal cost realities, rather than the merits of the claim.
For employers, many feel that the situation is no win. They either pay the Claimant to settle the claim, or they pay their lawyers to defend it. If the defence succeeds, they will still have incurred a significant amount of money and time in achieving that result. Often it is cheaper to pay even the most undeserving Claimants just to dispose of the claim.
We estimate that the costs of running an ordinary unfair dismissal claim to a one day final hearing to be between £12,000 and £15,000 plus VAT. It is becoming increasingly common though for final hearings to last more than one day and so the costs are increased further. Claims involving discrimination or whistleblowing are likely to well exceed that estimate because usually additional case management hearings and multi day hearings are required. The maximum award for compensation in unfair dismissal cases is a years’ salary, currently capped at £88,514, plus a basic award (calculated in the same way as a statutory redundancy payment). Compensation in discrimination cases is however uncapped and can exceed a years’ losses, in addition to an injury to feelings award which can be anything from £900 in the less serious cases to £45,000 in the most serious of cases.
Legal expenses insurance allows an employer to run their litigation with the reassurance that their insurer is paying the bill. This avoids the need to pay compensation to Claimants who bring spurious claims just to avoid increasing legal costs, allowing employers to defend claims and show that they have faith and trust in their procedures and that they will not just resort to settlement simply because someone has brought a Tribunal claim.
Employers who have legal expenses insurance in place already must remember to ensure they are complying with the terms of their policy, making sure their staff policies are up to date and where necessary they have taken appropriate advice before taking key decisions, for example around dismissal or making adjustments for disabled employees.
Insurers will require the defence to have at least 51% prospects of success in order to confirm cover and the costs incurred must be proportionate to the value of the claim. Unfortunately, it is not usually possible to obtain insurance once you receive a Tribunal claim or early conciliation notification from ACAS. It is also likely that the insurance may not cover cases where employees have already been dismissed and the employer is expecting a claim.
Following the CVD-19 outbreak it is anticipated that there will be a surge in Employment Tribunal claims. Employers who may be considering terminating employment due to the uncertainty of the times, may also want to think about getting insurance in place to protect them in the event they face claims as a result.
We asked Rebecca Jones, a barrister at Oriel Chambers who advises and represents employers at Employment Tribunals, her thoughts on the benefits to Legal Expenses Insurance. She commented: “Often, one of the central parts of my advice to employers about whether to litigate an employment dispute all the way to a final hearing will be about cost. This is the case even when faced with a claim that may not be entirely meritorious. Not only can legal costs mount up when balanced against any potential award for compensation, an employer has to consider the cost of having members of their workforce out of action, sometimes for several days whilst they attend at a Tribunal to give evidence. The commercial reality of employment disputes often leads to employers settling cases even when they feel that they have not acted improperly. Obviously if an employer has Legal Expenses Insurance, the employer has the benefit, in appropriate cases, of being able to run matters without the concern of legal costs. In these very uncertain times, I would urge employers of all sizes to consider obtaining Legal Expenses Insurance.”
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