Unpaid award penalties to be introduced in April

Section 150 of the Small Business, Enterprise and Employment Act 2015 provides for a new Part 2A to be inserted in the Employment Tribunals Act 1996 and entitled “Financial Penalties for Failure to Pay Sums Ordered to be Paid or Settlement Sums”. This brings into effect the much heralded and somewhat delayed procedure for imposing financial penalties on paying parties who do not make their payments on time. Notably, any lateness, even of a day or two, can trigger the process although there is a final opportunity to make payment before the fine is levied.

New section 37A confirms that the scope is financial awards made by an order in tribunal proceedings including costs and expenses and amounts ordered to be paid to the Secretary of State. The amount covered includes the initial award and interest. It does not include any amount awarded when the order can still be appealed. Where an award is payable by instalments and there is a default in making a payment when it falls due any remaining instalments are treated as falling due on the same date as the missed payment, i.e. the balance is treated as payable forthwith.

The new system provides for the appointment of enforcement officers. Where a default is identified an enforcement officer may issue a warning notice stating an intention to impose a financial penalty overdue payments are made by a specified date. If there has been a prior penalty notice a further one cannot be issued for at least three months since the end of the prior relevant period. the date for payment (the specified date) must be at least 28 days after the date of the warning notice and the specified amount must be the amount due on the date when the warning notice is given. Once served it is possible for the employer (assuming that the employer is the paying party) to make representations with a view to challenging the order.

If the employer fails to comply with the warning notice an enforcement officer may issue a penalty notice This requires the paying party to pay a financial penalty to the Secretary of State. If the unpaid amount is less than £200 the penalty is £100. If it is more than £10,000 the penalty is £5000. Otherwise it is 50% of the unpaid amount of the relevant sum.

Ordered to pay costs despite inability to do so

It is a central maxim of international jurisprudence that, other than in the most exceptional circumstances, a judgment or order should not be made if it cannot be complied with by the person against whom it is made. This is why, for example, individuals who may owe thousands of pounds are often ordered to make nominal payments of, say, £1 or £5 per month, simply because they cannot afford any more.

The rationale is that to do otherwise is to undermine the authority of the court. If a court makes an order that it knows cannot be complied with it is effectively forcing a contempt of court since the element of choice does not exist. Contempt of court, according to its definition, entails disobedience or disrespect to a court in a form which opposes or defies authority, justice and the dignity of the court. It is therefore pretty clear why a court would not generally wish to bring about a contempt of court which does not involve any exercise of choice on the part of the contemnor.

Against this background the decision of the Employment Appeal Tribunal in the case of Mrs D M Chadburn -v- Doncaster and Bassetlaw Hospital NHS Foundation Trust and Mann makes interesting reading. In general costs are not awarded in employment tribunal proceedings unless a party has behaved unreasonably. Consequently there is a punitive element in such an award (even though some protest otherwise), reflecting the tribunal’s disapproval of a party’s behaviour.

Mrs Chadburn made a number of discrimination claims against her former employer. The tribunal rejected her claims and, significantly, found that she had made up allegations of race discrimination as a means of giving the tribunal jurisdiction over her complaints of harassment. The tribunal took the view, understandably, that this was unreasonable behaviour and went on to award costs against her in the sum of £10,000, thought to be under a third of the actual costs incurred by the respondents.

Mrs Chadburn’s appeal against the costs award was initially rejected. However, following a hearing in July 2014, it was allowed to proceed on the basis that it was suggested that the tribunal did not take into account the full evidence concerning the claimant’s current means, so it was arguable that the costs award was made on a false basis.

Further evidence was introduced suggesting that the claimant’s debts were not £600 as had been thought but were nearer to £4,285. However an application for reconsideration of the award was refused. The appeal was therefore made against both the initial costs judgment and the refusal to reconsider it. Mr Justice Simler was robust in his rejection of the appeal. He referred to Rule 84 of the Rules of Procedure which provides that the means of a paying party may be taken into account when considering whether or not to make an order and, if an order is made, when deciding how much to award. However there is no obligation to do so. Taking into account relevant case law (Arrowsmith -v- Nottingham Trent University) there must (my emphasis) be “a realistic prospect that the Appellant might at some point in the future be able to afford to pay”. As I go on to indicate, that prospect in this case was based on what can only be regarded as speculation.

Mitchell, costs and the trickle down to SMEs

So, Andrew Mitchell’s mission to seek redress for having been falsely accused of using the word “pleb” came to an ignominious conclusion yesterday when Mr Justice Mitting found that his behaviour was “childish” and that he did use the politically charged word. It mattered not that he admitted that his exchange with PC Toby Rowland was littered with expletives, but describing him as a “member of the common people”, derived from the Roman plebeians, was evidently beyond the pale. Foreign commentators have been thoroughly bemused by the entire process and why it has achieved such prominence – “what’s the problem?”.

The political ramifications are for others to deal with elsewhere. Of more relevance here is the costs fall-out. National newspapers have estimated Mitchell’s costs liability in a range from £1.5m to £3m. In fact, it turns out that Mitchell’s solicitors, Slater and Gordon, were representing him on a “no win no fee” basis so they will certainly be sharing a good deal of the pain. In such cases it is usual to insure against the potential liability for your opponent’s costs if you are unsuccessful by taking out an “after the event” policy. If an insurer was prepared to take on the risk in Mitchell’s case it would be reasonable to assume that the premium would have been eye-watering but not as bad as the uninsured outcome.

So what has all this got to do with SMEs? The answer is spiralling legal costs across the board. Although it is not an employment case Mr Justice Edwards-Stuart in the High Court case of Laing Construction v Healthcare Support (Newcastle) and Newcastle Upon Tyne NHS Foundation Trust in a judgment issued on 21 November called into question what he considered to be excessive costs incurred in a procedural hearing concerning interpretation of a document which took place over two days in July. Both the Claimant and Defendants were successful in part. Mr Justice Edwards-Stuart said that “the amount of the parties’ costs of preparing for this hearing were somewhat startling.

making costs orders against the impecunious

In April I reported on the first of two appeals by Ms A A Vaughan, which related to the admissibility of covert recordings in Tribunal proceedings. Following the dismissal of all her claims Ms Vaughan brought a second appeal, this time against a costs order of between £60,000 to £87,000 (depending on how the cost assessments went) against her. Ms Vaughan was successful in her last appeal but not with regard to costs. The order was made after her discrimination and whistleblowing claims were dismissed and she appealed on multiple (and diffuse) grounds, including that:

Her employers had never given her any warning that they would apply for costs, or applied for an order that she pay a deposit to be allowed to carry on with the case;
The employer had made a settlement offer, and had shown bad faith in negotiations;
No proper consideration had been given to the fact she was unrepresented or that she had a disability;
The costs order was punitive rather than compensatory; and
Her lack of means had not properly been considered – she was unemployed and she could not pay anything immediately.

Judgment on the costs issue was reserved and has now been published. All of the grounds put forward by Ms Vaughan failed. Although no one doubted that the she genuinely believed in her case, it was misconceived in the sense it had no reasonable prospect of success. The Employment Appeal Tribunal found that although there was some scope to argue that the tribunal had not expressly dealt with all her arguments in its written reasons, it was undoubtedly right that the claims had no reasonable prospect of success and so the tribunal had a discretion to make a costs order.

when criticism becomes apparent bias

Tribunal judges have the power and are encouraged to deal robustly with weak and vexatious claims (or indeed defences – sauce for the goose…), and in doing so are likely to be critical of the conduct of the case by the party in question. However, they must take care not to overstep the mark and appear to prejudge other issues – for example an award of costs. In Oni v NHS Leicester, the tribunal dismissed a nurse’s claims of constructive unfair dismissal, race discrimination and victimisation after a long hearing and commented that both the claims and the way in which they had been conducted were unreasonable. In particular they said she was an unreliable witness and her answers to questions were evasive and equivocal. An application was made for costs against her; she argued that the same tribunal should not consider the question of costs, on the ground of bias, but the tribunal declined to step down. The matter went to the Employment Appeal Tribunal who accepted that while there was no actual bias, the views expressed about the case’s weakness meant that there was apparent bias and so costs should be considered by a differently constituted tribunal. While tribunals are entitled to comment on the conduct of claims before them, they should be careful not to go too far and indicate what view they would take on a costs application.
A further point which arose from the case was that when considering costs the tribunal had not taken any account of the claimant’s ability to pay an award of costs. This is a factor which should always be taken into account – and it was suggested that tribunals could usefully direct the use of county court form EX140 to establish the losing party’s financial circumstances.
This case is particularly timely because, taking into account the Government’s proposed reforms, we can expect to see a significant increase in the number of costs awards made, as well as the "weeding out" of unmeritorious claims.

more about settlement agreements and compensatory awards

Proposals regarding settlement agreements from earlier this year have been fleshed out in a new government paper. Avid readers will recall talk of “protected conversations” – these seem to have died a death for now. The Government’s response to consultation seems to accept that such a concept could add to the administrative burdens on employers and create a new area of contention which could be “a field day for lawyers”. The response instead concentrates on “settlement agreements” to replace compromise agreements. The question is whether this will amount to more than just a change of name.
The paper sets out a proposed model wording for a settlement agreement, which doesn’t differ all that much from the sort of wording seen in compromise agreements in common use. This is not too surprising, given that any wording must be sure to satisfy the requirements of s203 of the Employment Rights Act 1996, which permits contracting out from employment rights in limited circumstances. Moreover, the standard wording sets out a long list of potential claims which could be covered. Many compromise agreements look pretty cumbersome, it is true, but that is for a number of reasons – some excessive caution perhaps, but many issues are often dealt with over and above statutory employment claims. Pensions and personal injury claims are frequently carved out. Benefits in kind and so on are dealt with. Employers want post termination restrictions and confidentiality obligations added or reaffirmed. The tax position needs to be dealt with. The employer wants written confirmation that the necessary legal advice has been given. The model agreement put forward covers some, but not all of these, and extends, with its guidance notes, to 15 pages.
More specifically we now have the answer to the question of contribution to the employee’s legal costs.