Understanding the hidden costs of employment tribunals

NOTE: Please be aware that this blog is written to provide employers with an insight into what hidden costs they may incur when litigating a matter in the Employment Tribunal. However, this blog may still be useful for employees to read for the purpose of understanding their employer’s perspective.

What Are Employment Tribunals?

Employment tribunals are the judicial body with responsibility for resolving employment disputes between employers and employees by holding formal hearings. These disputes can include issues such as unfair dismissal, discrimination, or wage disputes.

While tribunals are an essential part of ensuring workplace justice, and they are technically a no-costs jurisdiction (in that there are no court fees, currently, and costs are not automatically awarded against a losing party) they come with various costs that can significantly impact businesses and individuals and should not be discounted when considering whether litigation is the best route.

What Are the Direct Costs of Employment Tribunals?

The direct costs associated with employment tribunals are often the most visible and can be substantial. These include:

Legal Fees:

• Solicitor and Barrister Fees: Legal representation is often necessary, with costs varying based on the complexity of the case.
• Expert Witnesses: In some cases, expert testimony may be required.

Award Costs:

• Compensation: Many disputes are settled out of court which saves on legal and time costs to an employer, with compensation payments agreed upon to avoid a tribunal hearing but those are payments to be made nonetheless.
• Awards and Penalties: If a matter is not settled and a tribunal rule in favour of the claimant, the employer may be required to pay compensation.

What Are the Indirect Costs?

Beyond the direct financial expenses, employment tribunals can lead to significant indirect costs that may not be immediately apparent:

Time and Productivity:

• Management and HR Time: Significant time can be spent gathering evidence, preparing cases, liaising with legal representatives and attending hearings that could end up being multi-day hearings often.
• Operational Disruption: Focus on the tribunal can divert attention from regular business activities, directly impacting productivity.

Employee Morale and Turnover:

• Impact on Team Dynamics: Tribunal cases can cause stress and unease among staff, affecting morale.
• Staff Retention: Employees may leave if they feel insecure or unhappy, leading to additional costs in recruiting and training replacements.

Reputational Damage:

• Public Perception: Negative publicity from tribunal cases can harm a company’s reputation.
• Client Relationships: Loss of trust from clients or partners can result in lost business.

What Are the Hidden Costs?

In addition to direct and indirect costs, there are several hidden costs associated with employment tribunals that can further burden businesses.

Training and Compliance:

• Training Programs: Post-tribunal, companies may need to invest in training to prevent future disputes, covering topics like anti-discrimination, workplace behaviour, and compliance.
• Policy Development: Developing and implementing new HR policies to ensure legal compliance and prevent similar issues.

Insurance Premiums:

• Increased Premiums: Employers may face higher Employment Practices Liability Insurance (EPLI) premiums following a tribunal case, reflecting the perceived increased risk.

Psychological Impact:

• Stress and Well-being: Tribunal cases can cause significant stress for all parties involved, including management, HR, and employees. This can lead to absenteeism and decreased productivity.
• Workplace Culture: A tribunal can negatively affect the workplace culture, leading to long-term challenges in maintaining a positive and supportive environment which will require the management time to re-align the environment.

What Preventative Measures Can Be Taken?

Preventing employment disputes and mitigating the costs associated with tribunals is crucial for businesses. Implementing the following measures can significantly reduce the likelihood of facing a tribunal and minimise associated costs:

Effective HR Policies:

• Clear and Comprehensive Policies: Ensure that HR policies are up-to-date, clearly communicated, and compliant with current legislation.
• Regular Reviews: Regularly review and update policies to reflect legal changes and best practices.
• Compliance with Policies: ensure that managers are trained in acting within and enforcing HR policies to ensure behaviour.

Regular Training:

• Ongoing Training Programs: Implement training for employees and management on relevant topics, such as anti-discrimination laws, workplace harassment, and employee rights.
• Cultural Sensitivity: Promote an inclusive workplace culture through diversity and inclusion training.

Early Resolution:

• Open Communication: Foster an environment where employees feel comfortable raising concerns early on.
• Internal Resolution: Allow for an encourage resolution of matters internally before they escalate to bigger legal disputes, where possible, whether by way of a settlement agreement or agreed actions.
• Mediation and Conciliation: Encourage the use of mediation or conciliation services to resolve disputes before they escalate to a tribunal.

Conclusion

Employment tribunals can be costly, not only in terms of direct financial outlay but also in indirect and hidden costs. These can include lost productivity from employees, damage to morale, reputational harm, and long-term impacts on company culture.

By understanding and acknowledging these potential costs, businesses can take proactive steps to mitigate risks and ensure a more positive workplace environment.

Our Employment & Trade Union team specialises in providing expert advice and support to employers and employees facing employment disputes.

If you have any questions, call us on 020 7940 4060 or email us at mail@anthonygold.co.uk.