When two tribes go to war

Accusations of a growing "compensation culture" are always guaranteed to grab the headlines, and so it was when the Department of Trade and Industry (DTI) launched its review of the employment tribunals this spring.

It was the Confederation of British Industry (CBI) that first delivered the charge. "We have to show that tribunals are for administering justice, not for playing games or for having a punt for some sort of cash windfall," declared Digby Jones in May, the CBI director-general and former senior partner of Edge Ellison.

The Federation of Small Businesses [FSB] was just as vociferous, claiming that, with a 50 per cent success rate in the tribunals, there was plenty of evidence for embittered employees "trying it on".

The DTI reports next month, so businesses will not have to wait long to see if the Government intends to tackle the perceived problem. And there is a further opportunity for more fundamental reform next year if the review fails to please the bosses. Sir Andrew Leggatt, a retired Appeal Court judge, reports back to the Government following his independent review of the whole tribunal system next March.

According to the CBI, claims have leapt up by 32 per cent over the last year, with as many as 164,000 actions compared with 124,000 for the previous 12 months. Jadine Riley, senior policy officer at the CBI, says: "We were getting very strong signals from our member companies that they were increasingly concerned at the sheer volume of claims going through. Very few had not, at some time over the last few years, been faced with at least one claim which they felt was unjustified."

According to the CBI, the volume of claims has tripled in 10 years, and the failings of the tribunal system left the bosses in a no-win situation. "A lot of employers certainly find it cheaper and obviously potentially less damaging to their reputations to just settle out of court," says Riley. But she adds that disgruntled staff had cottoned on to this and were causing their bosses grief.

Kevin Charles, the employment litigation unit manager at Abbey Legal Protection, which handles claims for the FSB, says that many unmeritorious cases are settled at an early stage "on a commercial basis". He cites the example of a £50 settlement in a recent constructive dismissal case which technically "just didn't exist", as the ex-employee had not completed his one-year qualifying service. "We thought this was an absolute waste of time, because we knew we were going to be successful," he recalls. But a preliminary hearing would have cost £500 in lawyers' time and perhaps a hotel bill. "In the end we offered him £50 and he went way," he says. The FSB has called for a £250 deposit to deter "mischief" claims.

Hilary Schrader, an employment lawyer with the foods giant Nestle, manages the employment litigation arising from approximately 18,000 staff. "If you're going to a tribunal, you know what your basic legal costs and management time costs are. And any settlement that is less than a few thousand pounds is worth it from the point of view of costs savings," she reckons. "But it sets a precedent, and you don't want people to think they can make these claims just to put money in their pockets."

She estimates that at any one time there are 15 ongoing tribunal claims compared with five when she joined the company five years ago. "I'm expecting that number will only go up," she says. "We're becoming a more litigious culture, which is reflected in the number of people willing to go to tribunal. If we had five well-founded claims there would probably be another four vexatious ones on top of that."

Unsurprisingly, many believe the industry is overstating the case about "have-a-go" claimants holding their bosses to ransom. "In terms of employers' woes, one could look rather clearly at the Government, because it's the legislation that's giving rise to the flood of claims," says Yvonne Gallagher, an employment partner at Lawrence Graham. She points to the mass of new employment law on the statute books as well. "I don't think that it's fair to blame the tribunals because they're busy."

Jane Mann, chair of the Employment Lawyers Association (ELA) and a partner at Fox Williams, has spotted only a handful of really vexatious claimants in 20 years as an employment lawyer. "Most people who bring claims believe they have genuinely legitimate grounds to do so, and few want to spend time and effort and incur the inconvenience and strain of bringing litigation unless they genuinely feel that they have a case," she says.

According to Mann, while employees might be more inclined to fire off an angry letter before action, they are less likely to commit themselves to proceedings. She says: "The real grievance for employers is that there's so much more employment law around. That is a matter for Parliament and for Europe, and the employers are chafing under the weight of it."

Paul Gilbert, the Law Society council member representing in-house lawyers and former head of legal at Cheltenham and Gloucester and the United Assurance Group, points out that the cost of keeping management personnel away from their jobs to prepare for a tribunal hearing is greater than any legal bill. He describes the role of the industry lawyer as a "preventative consultant". He says: "It's very important that in-house lawyers realise their value in that respect and do something about it."

The danger of allowing a case to go as far as the tribunal is the lottery-style unpredictability of awards, Gilbert reckons. The increase in the compensation limit of unfair dismissal claims from £12,000-£50,000 and the scrapping of the cap for discrimination claims means that the stakes are high for businesses.

"Before, you had the prospect of going to the tribunal and the cost would be a few thousand pounds. You could factor that into your decision-making process," he says. "Now, though, you can't be sure whether it's going to be a few thousand pounds, a few tens of thousands or a few hundreds of thousands, which makes it hard to make sensible decisions and manage the risk of going to a tribunal."

According to a DTI spokesman, some of the "aggressive deterrents" against time-wasting claims that the Government is presently considering include a more demanding claims form, greater powers for tribunals to dismiss weaker claims without involving the respondent, and a more stringent costs regime. However, any reforms will have to be introduced within existing legislation.

It remains to be seen how far the Leggatt review will impact upon employment tribunals. But Julie Quinn, deputy chairman of the ELA and an associate solicitor at Allen & Overy, believes there are more fundamental issues that need to be addressed outside of the scope of the DTI's sights.

She believes, for example, that the two-tier system where claims over £25,000 are dealt with in the County Court or the High Court is less than ideal. "There's this ridiculous system where you might have an entirely employment-related dispute, but part of that should not be held in the tribunal. So, effectively, you have to issue proceedings in two different jurisdictions," she says. Another bugbear that needs to be addressed, according to many employment lawyers, is the delays, which frequently mean it can take up to a year before a case is heard.

Schrader at Nestle says that she welcomes any measures to tighten up on claims. Applicants are often unrepresented and, as she points out, tribunals have "a certain duty to bend over backwards" to validate claims. Consequently, an ET1 – the equivalent of a statement of claim – can be vague to the point of meaningless, she says, and a case that could easily have settled ends up in a tribunal.

Julie Quinn also notes that it is "incredibly easy" for an employee to fill an E1 form causing "untold amounts of havoc". There is already a process for a preliminary hearing which could identify weaker cases where a costs order could be made against a party or a deposit demanded. But according to Quinn such powers are rarely used, as the tribunal chairmen are keen to push cases on. "They haven't heard all the evidence and they don't want to prejudice any party, which, to an extent, is admirable."

Gnousoulla Tsioupra-Lewis, group employment adviser at the media company United News and Media, says that any reforms must be a "balancing exercise" between the rights of employers and employees. "The whole point of the tribunal is that it should be accessible to employees that do not need detailed legal knowledge to access it," she says

In particular, she opposes the introduction of more punitive cost measures. "We can't impose a strict costs system because it would dissuade employees from bringing claims, but it would be fairly straightforward for the tribunal to take a more robust approach."

Mann at the ELA also has reservations about a more stringent costs regime. "One of the things about employment cases is that they aren't easy to assess in terms of their merits," she says. "A lot depends on judgments as to the concept of reasonableness, which are matters of opinion sometimes."

In other words, the threat of costs might deter an enormous number of people who feel that they have strong cases. "Often you're sitting with a client and you have a strong feeling that they have been discriminated against, but you don't know on the day whether the tribunal will find for you," says Mann.