Is it better to settle or fight an employment tribunal claim?

The BBC spent £500,000 on the failed defence of an unfair dismissal claim brought by its former chief technology officer. It was later reported that he had offered to settle the case for £50,000.

Such cases raise interesting questions for employers defending employment tribunal claims, such as is it better to settle or to fight and, if you are going to defend the matter, how much should you be prepared to spend?

Consider settlement at the outset

As a respondent, it will always be helpful to consider the cost of settlement at an early stage. This will enable you to give thought to the overall economics of defending the matter before potentially embarking on what may be a costly defence, particularly where there are no or little prospects of winning. Consideration is likely to involve three key factors:

1. Chances of success

Based upon the documentation and information available it should be possible to make an early assessment of the likely chances of successfully defending an employment tribunal claim.  If those chances are 50% or less, it will generally be a good idea to look to settle at an early stage, sometimes even before entering a defence (if possible).

Employers should bear in mind that an outcome of an employment tribunal claim is never certain and, allowance should always be made for the unexpected. For example, you may have a strong case based on the documentation but when attending trial one of your witnesses suddenly discloses information that had not previously been made available, this seriously weakens your defence and leads to you losing the claim. Considering who the witnesses would be from an early stage is also a helpful way of assessing the strength of a case as some individuals are inevitably better suited to the role than others.

2. Remedy

It is also important to consider what compensation the Claimant may be awarded if they are successful. Not only may this affect your decision to offer settlement or not but also, what amount it may be appropriate to settle at.

For example, in a claim of unfair dismissal, the maximum compensatory award is the lower of 52 weeks’ actual gross pay or the statutory limit (currently £94,063). In a claim for discrimination, there is no limit on the amount of compensation awarded.

A Claimant is under a duty to mitigate their losses, so it will be taken into consideration whether a Claimant has found alternative work, at what point that work was found and what they are now earning.  If they have found work and are on an equivalent or higher salary and benefits, this can greatly reduce any compensation awarded.

The Employment Tribunal also has powers for reducing compensation, which should be taken into account when considering any settlement and/or negotiations.  This may be the case, for example, in an unfair dismissal claim where the employer has clear evidence that the employee was guilty of gross misconduct but did not follow a fair process prior to dismissal.  This may be found to be a procedurally unfair dismissal, but the Employment Tribunal can then go on to consider whether, had a fair procedure been followed, the employee would have been dismissed in any event. If so, they may reduce any compensation award by anything up to 100%. This is commonly known as a ‘Polkey’ deduction.

3. Wider impact

Settlement could have an indirect impact on your business, such as in terms of internal reputation as it may set a level of expectation among remaining staff if they become aware of the payment and/or effect employee relations.

Whilst Employment Tribunals are generally published to the public, including the press, the actual likelihood of a hearing attracting publicity is probably low unless the case would make a good news story and/or involves something of particular public interest, which is usually rare. Even if the case did hit the news, what sort of headlines would it attract and, how may this affect your business?

In terms of precedent that may be set, usually, any settlement will be under what is known as “COT3” terms via ACAS.  This can include clauses in relation to confidentiality meaning that the employee should not be discussing the terms and/or amount of any settlement. If they do, they may be obliged to repay to you some or all of the compensation that has been agreed.  However, it may still become known that an employer has settled a case and, if you begin to receive a number of claims all of which you settle, this is usually when a ‘precedent’ starts to be set and may cause an issue for an employer i.e. issue a claim and they will pay you off.

On-going employee relations may also be a consideration when it comes to settlement, it may be that as a result of an employee leaving or being dismissed, those left are now having to pick up the work until a replacement can be found.  In such circumstances, your employees may view any settlement as rewarding the ex-employee and this could have a negative impact on those still working for you.

Also, remember that if you defend a claim this may be stressful and time consuming for the key personnel involved.  Not only will you incur the legal costs of defending the claim but you will also incur the time spent for those involved such as preparing documentation and attending court to give evidence.

Summary

As an employer, you may take an early decision that you will defend a case no matter what and that you wish to send a message to employees that it does not pay to take you to tribunal.  However, before taking such a definitive stance it will be important to take all of the factors above into account and, only then, if you still think it the right thing to defend the claim, go ahead. Also be aware that, chances of success may change at different points in a claim, for example, following exchange of witness statements. It is equally as important therefore that chances of success and possible settlement are kept under review throughout the cycle of a tribunal claim.

Brachers can support you by providing early advice on the merits of a claim and/or potential settlement. If you have had a claim issued against you and are unsure of next steps please do contact us for further advice.

This content is correct at time of publication