Tag of war
27 September 2004
A couple of days after the management of claims farmer The Accident Group (Tag) sacked 2,500 staff – some by the now infamous text message last May, a meeting was convened at the Renaissance Hotel in Manchester by ex-employees to discuss compensation. It was suggested to those Tag footsoldiers who pioneered ‘no win, no fee’ arrangements and pedalled Tag’s discredited product in shopping centres around the country that they made deals with lawyers in a class action. If they were successful they would get a 33 per cent cut of recovery plus VAT – a total of 38.8 per cent. Many did not appreciate the irony and walked out, but some did not.
“There was no reason why they should lose any money,” comments Alec McFadden, the TUC officer representing more than 1,000 former Tag staff. “The reality is that we would do it for free and I felt that the scheme was absolutely horrendous.”
A year down the line, and McFadden reckons that as many as 600 workers lost more than a third of what they were entitled to receive under law. People might have little sympathy for the workers, as Tag left many accident victims out of pocket, but as McFadden puts it: “The real villains of the piece were at the top of the company.”
The Department of Trade and Industry has appointed investigators to recover the collapsed claims giant’s missing assets. In the first week of October there will be a court hearing concerning a recently-discovered £8.8m Jersey-based trust (known as the Employee Benefits Trust) set up by Tag’s solicitor-founder Mark Langford and his wife Debbie. It is hoped that former employees may be able to stake a claim.
McFadden, who also works as development officer at Salford Unemployed Community Resource Centre, takes a dim view of solicitors “preying” on prospective clients and running cases on ‘no win, no fee’. “The whole industry needs cleaning up and solicitors have the worst reputation of any profession,” he says. “It’s got far worse since New Labour changed the law on legal aid. Ever since then it’s been downhill all the way.”
It is a view that has some influential supporters in the legal profession, who now want contingency fees scrapped. These include John Hendy QC, head of Old Square Chambers and chair of the Employment Law Bar Association (Elba). The silk recently cited a hypothetical (but Tag-inspired) scenario in an article in the Employment Lawyers Association magazine, asking whether the solicitors’ behaviour was appropriate. “True, because employment matters are classed as non-contentious, there is no bar on solicitors charging contingency fees and it is lawful for solicitors to do so,” he reasoned. “But Elba can see no justification for them in any litigation in England and Wales.”
Hendy has been advising McFadden on the Tag claims. He reckons that contingency fees of 30-40 per cent are “scandalous and unjustifiable” in his own example. He adds that conditional fee arrangements (CFAs) are also “ethically flawed”, albeit not as bad as straight contingency fees, because the objectivity needed when advising a client was “necessarily diminished” by the lawyer’s interest.
Such thinking is close to heresy among some employment lawyers. “What he is dismissing is access to justice,” argues Marc Jones, an employment law partner at Turbervilles Solicitors. “If you aren’t a member of a union and you’ve just been dismissed for gross misconduct on a trumped-up charge, you have no money and you don’t have legal expenses insurance – so how do you fund a case? In the absence of other funding, what does he propose?” If the only alternative is the hourly rate then the clients could end up with nothing. “And if they were instructing counsel they could end up with a negative figure,” he adds.
So what is Hendy’s problem with ‘no win, no fee’?
“People are entitled to their rights, but what troubles me is that unscrupulous lawyers or employment consultants are making huge sums of money that aren’t merited by the risks or the work they’re undertaking,” he says. There is also another objection in principle. “It seems to me impossible for a lawyer acting on a contingency fee to advise people on a settlement,” he says. “If there’s a risk of nil recovery and not getting paid as opposed to making a recovery plus an enhancement on top, I can’t see how a lawyer will keep that out of their mind.”
How does he respond to those critics who believe scrapping ‘no win, no fee’ would block access to the law? “I can see that. Without doubt it’s an argument in favour of doing them,” he replies. “But it just demonstrates the inadequacy of not extending legal aid to the employment tribunals and not having other ways in which people can have proper representation. But to me it doesn’t outweigh the other dangers [of ‘no win, no fee’].” Hendy, who has a long list of trade union clients, is also concerned that card-carrying union members who would not have to pay a penny are now being signed up by lawyers.
Kerry Underwood, an employment law specialist at St Albans firm Underwoods Solicitors, is distinctly unimpressed by the Hendy line. Many firms use his firm’s contingency fee agreements, which charge 40 per cent including VAT across the board. “Nearly 60 per cent of something is better than 100 per cent of nothing,” the lawyer asserts. He is sceptical about the motivation for the bar’s opposition to ‘no win, no fee’, arguing that there is no incentive for a solicitor to instruct counsel if that cost is going to come straight out of the 40 per cent fee. “Therefore, if you do a contingency fee, you’re pretty stupid if you instruct counsel,” he adds. As for CFAs, Underwood reckons they do not exist at employment tribunal level because generally no costs orders are made and consequently success fees cannot be recovered. No one is doing CFAs, he adds.
Hendy also argues that if contingency fees are permitted, then they have to be regulated to curb the present abuse. “Obviously employment consultants are worse than solicitors, because there’s no restraint on them whatsoever,” he says. “They haven’t got a code of conduct, ethical standards or, indeed, the legal skills of solicitors.”
This, at least, is a point upon which lawyers from all sides of the profession can agree. “I see it with my own eyes. Clients of mine are approached on a continual basis by consultants who cold call and pester them,” says Jones at Turbervilles. “For the most part they’re untrained and simply not up to scratch.”
|No win, no fee|
Broadly speaking there are two types of no win, no fee agreements (NWNF):
1) Conditional fee arrangements (CFAs). These have two important features:
The success fee: The solicitor is allowed to charge a sum to reward the risk of NWNF in the event of success, which can be as much as double the fees.
After-the-event insurance: Under a NWNF deal a client will not have to pay their own solicitor’s costs win or lose, but they could be liable for their opponent’s. The insurance premium covers that risk (plus other outgoings).
2) Contingency arrangements. The solicitor takes as his fee a straight percentage of the award. Limited to non-contentious actions (ie, where there are no court proceedings), and especially popular in employment tribunals.