How to tackle tribunal settlements in a commercially sensible way
Litigation, by its very nature, is an uncertain beast and the potential outcomes are usually numerous and difficult to judge.
This is particularly so in the employment tribunal where so much depends on the credibility of witness evidence – a bad cross examination can sink a defence that looked solid on paper. Add to this the fact that the general rule in the tribunal is that both sides bear their own legal costs irrespective of the result, and the incentives to settle are pretty clear.
That being said, it isn’t about settling for the sake of it – employers want this to make commercial sense. That begs the question: how do you know if a settlement is commercially sensible? Considering the following can help to answer that question:
What are my commercial priorities?
This should be the first question answered when considering whether to settle and for what amount.
For example, employers more concerned about potential reputational damage may be willing to pay a premium, whilst those purely concerned by financial matters will probably want to drill into the numbers.
Being absolutely clear in your mind what commercial goals are behind any settlement will determine your attitude to the below points, and consequently the limits of what settlement you consider commercially sound.
What could I be made to pay if I lose in the Tribunal?
This will depend on the type of claim being faced so can vary, but common claims are for unfair dismissal and discrimination.
If someone wins an unfair dismissal claim, they will be awarded a basic award (calculated in exactly the same way as a statutory redundancy payment) and a compensatory award (basically future loss of earnings). There are a number of principles in play here, but you can estimate a ball-park figure of an award.
If a discrimination claim is brought, there will be the additional head of compensation known as injury to feelings. Tribunals use guidelines when awarding such losses, but these can be very difficult to gauge as they are wide (the first of three bands is from £900 – £9,100) and depends on the Tribunal’s views of the impact of the discrimination on the employee.
Knowing what the worst-case scenario is can help put settlement offers into a commercially sensible context, and make it easier to challenge silly demands.
What is it going to cost me to fight a claim all the way?
The short answer, irrespective of the result, is time and money.
Defending a claim requires a lot of managerial work and dedication. This is only intensified by delays in the tribunal resulting in hearings set for dates often 18-24 months after the initial claim is issued.
Given managers are likely to be directly involved in matters underpinning claims, they will need to attend the Tribunal to give evidence. This can cause disruption to businesses as it could mean several managers being tied up for days giving evidence.
Added to this is the fact that only rarely will you recover any legal costs in the Tribunal even if you win.
In the cut and thrust of litigation it is easy to forget these costs when thinking about settlement, but it is impossible to assess the commercial basis of a settlement without this.
Settlement is about knowing what you are willing to risk and what limits you are willing to go to avoid that risk. Left to litigation, you might win and pay nothing but you could also lose and pay a lot more than you could have settled for.
It also provides everyone with an opportunity to agree their own resolution rather than having one devised and imposed by a Tribunal. Being able to do this whilst feeling like it’s commercially sensible can make a settlement much easier to swallow.
Author: Jonothan Scollen, Employment Law Solicitor at Howarths