Labour Market

Tribunal fees – a policy which has worked for once

It is rare indeed that we see a government policy clearly succeeding in its objectives within a short time frame. However this seems to be what has happened with the coalition’s introduction of fees for applying to employment tribunals. Introduced at the end of July last year, they led to an immediate drop in claims which might have been seen as a temporary aberration. However evidence is mounting that the once seemingly inexorable rise in tribunal claims has now been decisively halted.

Last week new figures showed that total claims in January to March 2014 fell by an extraordinary 75 per cent from their level in the corresponding period last year. Every single category fell significantly in percentage terms: for example unfair dismissal (long the commonest type of claim) fell by 62 per cent, with sex discrimination claims falling 81 per cent and those for equal pay by 84 per cent.

There are caveats to this. There have been fluctuations in the average number of people associated with a ‘multiple claim’ over time, and the reduction over the last year in the number of people associated with, say, a particular equal pay claim, may not be sustained. However the reduction in single claims is still a huge 59 per cent.

It is also possible that some potential claimants may be switching to other forms of litigation, for instance small claims courts.

And it should be pointed out that there have been other changes to tribunal rules recently, for example a reduction in the qualifying period for unfair dismissal, and an increase in the potential cost awards against vexatious claimants: these may account for part of the fall in numbers.

But it does seem that the fees have had an impact far greater than I for one expected, suggesting that many past claims (very few of which proceeded to a full hearing, and even fewer of which were successful) were speculative. This would hardly be surprising given that the system involved something close to a one-way bet on the part of claimants, with employers often making a settlement even in very weak cases rather than facing significant legal costs by fighting a claim.

Despite this, the TUC has argued (to quote their press release) that ‘tribunal fees are stopping wronged workers from seeking justice’. Do they have a case?  First, bear in mind that large numbers of potential claimants are exempt from the charges because they receive income-related benefits or are otherwise on low incomes (with the cut-off point making allowance for family responsibilities). Second, many of the successful cases at tribunal are supported by unions and other campaigning bodies, which act as a screen to claims and largely ensure that those going forward under their aegis have some merit. This is likely to continue.

Where there may be some cause for concern is with claims for unauthorised deductions and other payment breaches which have been illegal since the 19th century. These claims are usually for relatively small amounts of money and anecdotally often seem to be justified. Such claimants also suffer disproportionately from non-payment by employers even when tribunals find in their favour, and it is possible that justified claims may be deterred by fees (which amount to a minimum of £390 for claims which go to tribunal).

Otherwise, is this good news for employers? Some fears have been expressed that strikes and other industrial action, which have fallen in the private sector with increasing recourse to tribunals, may begin to rise again. There is also the point that falling tribunal claims should not be used to justify the government’s failure to cut back significantly on labour market regulation: it has indeed added to it since 2010 in areas such as working time, agency work, parental leave and pension auto-enrolment. The cost of these obligations does not fall if fewer weak claims go to the tribunal service.

Nevertheless, at least two and a half cheers for a policy which seems to have worked as intended.

Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.