ET fees ruled unlawful – what next for employers?

Now that the dust has settled over last week’s surprise ruling from the Supreme Court that Employment Tribunal (ET) fees are unlawful, we consider some of the further detail we know to date, the implications this will have for employers and what to take into consideration going forward.

Whilst the principle of access to justice is extremely important, this decision by the Supreme Court is a blow to employers who are already struggling with the impact of increased employment costs of the Apprenticeship Levy, the increase in the National Living Wage and other measures.

Its immediate impact is that ET and Employment Appeal Tribunal fees ceased to be payable as of Wednesday 26 July. The Government had previously pledged to reimburse past fees if it was unsuccessful, and the Supreme Court found that fees were unlawful from the time they were introduced (July 2013). The practicalities of how the Government will arrange reimbursements remain to be seen, and it is not clear how much it will cost, but estimates range from £27m-£31m.

What happens to Employment Tribunal claims about to be issued?

Last week, HM Courts and Tribunal Service (HMCTS) confirmed that the relevant Fees Order – The Employment Tribunals and Employment Appeal Tribunal Fees Order 2013 – has been quashed.  HMCTS went on to say:

“We have immediately taken steps to stop charging fees for proceedings in the Employment Tribunals and the Employment Appeal Tribunal. For an interim period, the digital service has been withdrawn for essential maintenance work to remove references to fees. During this period, anyone seeking to issue an Employment Tribunal claim will need to complete an ET1 form and submit it by post, or in person to the relevant office.  Full details on how to do this are available here. We hope to have an online submission portal up and running early next week.  While these arrangements are in place, it may take us a little longer to process claims and deal with enquiries. We would ask for your patience during this period.” 

What happens to past claims that have been dismissed or not even made?

Employers could expect a claim to be revived if it was struck out because the claimant did not pay the fee. Each case will depend on its facts, but employers should ensure that all paperwork is kept and that they are ready to respond in such cases. Our specialist Employment Tribunals team is available to help you with any issues that arise.

In addition some individuals who did not bring a claim because of the fee may try to have time limits which have expired extended – by arguing that it was not reasonably practicable for them to bring a claim (for unfair dismissal) or that it is just and equitable to extend the time limit (for discrimination claims). Whether these arguments would succeed remains to be seen. We anticipate that:

• The Presidents of the Employment Tribunals in England and Wales and in Scotland may issue a practice direction to ensure consistency as to how ETs deal with such claims;
• Employment Tribunals may look for clear evidence that an individual was prevented from issuing a claim because of the fee. This could include evidence that:
  • the individual had a strong claim,
  • the individual had initiated Early Conciliation, allowing the employer to be contacted by ACAS for consideration of a settlement,
  • Early Conciliation had failed, for whatever reason,
  • the individual had applied for “Help with Fees” (formerly known as Remission – see further below) and been refused it, and/or
  • the individual was still unable to raise the money to issue a claim and/or pay the hearing fee (except perhaps where the amount of the fee was almost as much as the claim itself)

The Supreme Court noted that depending on circumstances many potential claimants on the National Minimum Wage would not qualify for “Help with Fees”, and one-off payments on dismissal such as a redundancy payment of £3,000 would also mean they did not qualify. Prior to the introduction of fees, the Government had estimated 24% of claimants receiving full help and a further 53% receiving partial help. In the event, only 29% of claimants received any help at all, whether full or partial. In addition the power to grant help in exceptional circumstances was very rarely used. As a result (and depending on any ET practice direction) a failure to apply for “Help with Fees” if an individual had been advised they would not qualify may not necessarily be a barrier to issuing a claim now.

How could employers respond to any such claims brought out of time? Depending on how long ago the claim was or would have been issued, the employer could argue that it would not be possible to have a fair hearing because of the delay since the original events took place. It would need to show, for example, that witnesses are no longer contactable or able to remember events in enough detail for a fair hearing to be possible and that the employer would suffer unfair prejudice.

In some cases employers may argue that the ET fee itself was not the real deterrent or reason why a claim was not issued or taken to a full hearing. For example, employees may be paying for representation often running into thousands of pounds. A cost/benefit analysis of the likelihood of success compared with what could be actually recovered after paying for representation and taking into account the duty on employees to mitigate their loss by finding another job (in dismissal or constructive dismissal cases) could deter an employee from pursuing a claim. However, this may be hard for an employer to prove.

It is important that where employers are aware that a dismissal or grievance, even some time ago, could have resulted in an ET claim, they retain the relevant records. The length of time records are retained should already be considered by employers under the Data Protection Act 1998, and will be under even more scrutiny when the General Data Protection Regulation comes into force in the UK next year. However it is likely that employers will be able to justify retaining such records as necessary for the defence of legal claims.

Could employers who have lost claims be reimbursed Employment Tribunal fees?

The short answer is potentially yes. HMCTS has said “Full details of the refund scheme will be announced in due course.” The Court of Appeal judgment beforehand referred to an undertaking by the Lord Chancellor that if ET fees were found to be unlawful the Government would reimburse “all fees that have been paid”. It is also reported in the press that the Ministry of Justice has said it would take immediate steps to refund payments, but it is not clear whether Government could try to limit this in some way.

What is clear is that it will be very complex to work out, because in successful claims it will be the employer who has been ordered to reimburse the employee for the fee, so in those cases the money may go back to the employer. It could even involve unravelling settlement agreements or ACAS settlements where the employer reimbursed ET fees as part of a settlement. In unsuccessful cases it may be trade unions or a legal expenses insurer who paid the initial fee rather than the individual. How far the Government will go in reimbursements could remain unclear for some time to come.

Will there be an increase in ET claims?

Whilst the Supreme Court concluded that the ET fee regime has prevented access to justice, the reduction in claims seen since 2013 is potentially also due to the increase in qualifying service required to bring a claim for unfair dismissal introduced in 2012. Therefore it will be interesting to see what level the increase in claims will be as a result of removing fees. Nevertheless our view is that an increase in claims is inevitable, particularly some low level claims such as holiday pay and unlawful deduction of wages.

Significantly, recent statistics showed that the dramatic fall in claims did not result in a fall in unmeritorious claims. Prior to the judgement, therefore, there were already indications that the ET fee regime was deterring claims with real merit. Whilst there will always be those that “try it on”, a large increase in spurious claims is unlikely. In our experience the majority of claims without merit did not make it to a final hearing in the ET, even before the introduction of fees.

Will a new, different fee system be introduced?

We would not be surprised to see the Government responding in due course with an attempt to introduce new legislation for a modified fees regime, rather than abandon fees entirely. This may take into account the level of any claim when setting a fee (as in the civil courts) which was a specific point made by the Supreme Court when concluding that the regime prevented access to justice. One criticism of the ET fees regime was that the Government had not produced any evidence to show why the fees for different types of cases had been set at the level they had. In many cases, for example, bringing a claim for a small amount of holiday pay, or unlawful deduction of wages, would not have been worthwhile compared to the fee to be paid.

However any new regime would also need to take into account the discrimination issues addressed by the Supreme Court, where it concluded that the regime was indirectly discriminatory because a higher proportion of women bring the more expensive type of claim (often sex or pregnancy discrimination) than the cheaper type of claim. It is also questionable whether any such legislation could be pushed through with a minority government and the main opposition parties having pledged to scrap ET fees prior to the General Election. ET fees are not payable in Northern Ireland so it was not mentioned in the DUP manifesto.

The Supreme Court in its judgment commented on the issue of enforcement. The Taylor Review recently recommended that the Government should make the enforcement process simpler for employees and workers by taking enforcement action against employers/engagers who do not pay ET awards and a naming and shaming scheme for employers who do not pay Employment Tribunal awards within a reasonable time.

Employers must ensure, more than ever, that they carefully follow employment law in their treatment of employees. Of course, many employers will already be doing so as a matter of best practice and getting the best out of their staff.