New Clause 5
Employment Bill [Lords]
3:00 pm
Jonathan Djanogly (Shadow Minister, Business, Enterprise and Regulatory Reform; Huntingdon, Conservative)
I beg to move, That the clause be read a Second time.
We now go back to the first part of this Bill, dealing with employment tribunals. At the start we discussed the procedure of employment tribunals and penalties for non-compliance. I said at the time that it was difficult to have that debate without discussing vexatious claims, not least because we did not have the facts and statistics to make a decision in relation to the procedural aspects, but also because vexatious claims are of most concern to employers. Now we can have that debate in an area where there are more statistics on vexatious claims.
The new clause has two proposed subsections, the first stating that
“The losing party in any proceedings before an employment tribunal should bear the costs of the winning party.”
Since 1999, on average 111,754 claims have been accepted every year by employment tribunals, of which only 15 per cent. are successful; 66 per cent. are withdrawn or settled; and 19 per cent.—some 21,233—are dismissed or unsuccessful. Given that the estimated average cost to employers of defending a tribunal case is about £9,000 and almost 10 days of lost time, it is unsurprising that the CBI reports that a quarter of cases are settled by employers, despite receiving advice that they are likely to win. This pattern is especially true for small and medium-sized companies that are less likely to have internal resources or legal advisers to fight claims on their behalf.
There is another recurring pattern with small businesses, in that tribunal applications are disproportionately high in small employers, particularly those employing between 50 and 249 employees—215 applicants came from a group of employees that employ only 4 per cent. of the work force. Taken together, those businesses that employ fewer than 250 people are respondents in 62 per cent. of cases but employ only 37 per cent. of the labour force.
Business organisations report that there is a culture of settling cases to get rid of them, which is encouraged by the fact that costs are rarely awarded against litigants, and complainants may have relatively few costs of their own. Employers believe that cases are pursued using no-win, no-fee lawyers in the expectation that businesses will settle a claim at a level below what they believe it would cost to defend it at hearing.
Take, for instance, the case of the Law Society in 2001, when it ran up costs of more than £1 million defending itself against claims of race and sex discrimination made by its former vice-president, who had previously been forced to resign after allegations that she herself had bullied and harassed staff. Despite finding that the claimant had indeed created an atmosphere of “fear and dread”, and that she had also lied under oath, a tribunal found in her favour after a six-week trial.
The Employment Tribunal Service reported in 2003-04 that 976 awards of costs had been made—34 per cent. to claimants and 66 per cent. to respondents—out of 30,107 claims that went to a hearing, the average order being £1,859. By 2006-07, that figure had shifted with 509 cost orders being made: 32 per cent. to claimants and 68 per cent. to respondents. The average award was £2,078, but the maximum was £65,000. That means that costs were awarded to employers in fewer than 0.3 per cent. of all cases, with the majority getting less than £1,000. To compound this, the number of cases accepted by employment tribunals has gone up since 2004-05 from 86,000 to 132,000 in 2006-07, an increase of 53 per cent.
The Employment Tribunals (Constitution and Rules of Procedure) Regulations 2001 introduced changes to the employment tribunals rules, including an increase in the maximum amount of unassessed costs that tribunals could award from £500 to £10,000, and the power to make an order for costs in cases where a claim had been misconceived. Rules 39 and 40 set out when an award of costs must and may be made respectively. Employment tribunals must make an award only where a hearing is postponed because a business fails to adduce reasonable evidence as to the availability of the job, or a comparable one, from which the claimant was dismissed or, alternatively, if the claimant informs the respondent business at least seven days before the hearing that they seek re-engagement. This is a provision that will hardly set the mind of small businesses at ease when they consider the cost of defending themselves.
Rule 40 allows employment tribunals to make cost awards where claimants have brought proceedings and have
“acted vexatiously, abusively, disruptively, or otherwise unreasonably, or that the bringing or conducting of proceedings has been misconceived.”
If that is the case, the employment tribunal must then consider whether it should exercise its discretion to make a costs order. Employment tribunals have been held to have acted erroneously in three cases, because after finding that the case fell in to one of the headings in rule 40(2) they did not then separately consider whether they should exercise their discretion to make a costs award.
The discretion to make such awards in favour of businesses is hampered by this dual procedural hurdle. Can the Minister tell the Committee how often cost orders are made under this provision? The scope of these powers when combined with statistics that I outlined earlier makes me deeply suspicious that employment tribunals are ruling against awarding costs to companies in a disproportionately high number of cases. While I accept that a few small businesses may employ sharp practice and deserve to be brought to book, it is the widespread belief of business in the UK that the tribunals have a predisposition towards claimants and that in any event the system is such that companies are being forced to settle because of the costs of the system.
The Bill seems to be saying that dealing with the procedural issues will solve the problem, which is not at all the case. To that end, my amendment seeks to redress the balance and ensure that businesses are not penalised disproportionately by employment tribunals into paying the costs of claimants. The second part of new clause 5 suggests that up to 25 per cent. of any claim can be awarded to the defendant as a penalty on the claimant in the event that the claimant’s action is deemed vexatious.
The rise in employment claims since 2000 has been almost unstoppable on the back a compensation culture that is spiralling out of control, according to the CBI deputy director-general. He said:
“I visited a company where they had a security camera showing an employee leaving his shift, getting on his bike and falling off outside the factory gates. What he did then was to get up, get on his bike, come back into the company’s gates and fall off again.”
In 2004 the CBI employers association said that 69 per cent. of firms thought more employees were bringing weak and vexatious claims. The CBI now reports that 44 per cent. of respondents to its CBI/Pertemps employment trends survey 2008 felt that weak and vexatious claims have increased over the past year. It goes on to point out that employers believe that far too many weak claims proceed through to tribunal as some tribunal offices are reluctant to use the powers available to them. It is felt that this is an issue of resources, as the existing powers could be used more effectively and consistently with better filtering of claims during the stage at which they are issued to tribunal.
In recent weeks, I have spoken to various organisations that have raised concerns about the record of employment tribunals, especially in relation to vexatious litigants and the cost of proceedings being disproportionately heavy on small businesses. We must appreciate that we are not talking about large outfits with big human resources departments. Often, those operating small businesses with one or two employees are no more sophisticated than the employees who are bringing the claims.
The Department of Trade and Industry’s “Survey of Employment Tribunal Applications” in 2003 estimated the cost of employment tribunal proceedings to business as £4,362 per business. That does not include the main cost: that of time. On average, about 9.8 days were spent on a claim, 7.7 days of which were the time of directors or senior managers. Further figures for 2005-06 estimated that the average cost to the Exchequer of each claim was £606. Given those figures, the cost for the 19 per cent. of dismissed or unsuccessful cases is about £93 million for employers and £12 million for the Exchequer. Can the Minister give us the preliminary figures for this year?
While I accept that not all dismissed cases are vexatious, a considerable proportion are. An example is the employee who was caught dealing cannabis at work and admitted that he had been doing so for some time. He was dismissed, but claimed unfair dismissal and his notice money. The case went to a hearing but he did not turn up. Nevertheless, the company’s representatives were made to go through the evidence to get the case rejected. Another example is the case of an accountant who claimed under disability discrimination law for a disability of acute anxiety about her work performance, which prevented her from working to deadlines or submitting herself to appraisal. She argued that her employer had not sufficiently adjusted her working conditions to take account of that. At lunch time during the tribunal hearing she disappeared. The case was abandoned, leaving the employer with substantial, irrecoverable legal costs.
Rule 18(8) of the employment tribunal rules, which are set out in schedule 1 to the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004, enables an employment tribunal to strike out a claim. There are provisions for deposits to be paid and for restriction of proceedings orders to be made against vexatious claimants. It seems strange that the Government have been looking to amend employment tribunal powers when the current rules are so clearly underused. Should they not instead insist that tribunals use those powers more effectively? Many businesses, along with my party, believe that this issue must be dealt with. How does the Minister intend to get tribunals to work more fairly against vexatious claimants and prevent more from trying it on in the future?
The new clause is designed to ensure that vexatious claimants are penalised for wasting the time of the employment tribunal and, more importantly, the employer. I have already noted that the cost to business is in excess of £93 million each year and to the Exchequer, £12 million. Is it not about time that those who cause that out-of-pocket expense start helping towards its repayment?