Why it sometimes makes sense to settle a tribunal claim

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The altercation between Chelsea football club’s former team doctor, Eva Carneiro, and its former manager, José Mourinho, provided some dramatic injury time scenes and led to the incongruity of an Armani-wearing respondent attending an employment tribunal in Croydon. These phenomena were unusual – but the eleventh-hour settlement of the medic’s constructive dismissal, sex discrimination and harassment claims was not.

Last-minute settlements are surprisingly common in employment tribunal claims. Both sides, particularly in high-value cases, are playing poker, trying to convince their opponents they are willing and able to pursue or defend a case all the way to trial, in order to achieve more favourable settlement terms.

But employers need to carry out a cost-benefit analysis when weighing up claims. One reason to settle is when the costs of defending a claim are likely to dwarf any compensation awarded by the tribunal. Although employment tribunals can and do award costs against the losing party in certain circumstances, this is still the exception rather than the rule, and realistic cost estimates at the outset can save money in the long run.

For example, if an employee makes an unfair dismissal claim which is likely to be document-heavy and bitterly fought, it makes little sense to spend £100,000 defending it when the employee’s compensation will be capped at a year’s pay or the statutory cap (currently £78,962), whichever is the lower, and where there is no discrimination or whistleblowing claim (compensation is uncapped for these claims).

However, legal fees are not the only factor. A key issue for larger employers is the desire to avoid gaining a reputation as a soft touch. While settlements often include confidentiality terms, these can be difficult to police. A reputation for paying out at the first hint of a spurious claim is likely to encourage further claims, although that risk may be lower since the introduction of employment tribunal fees which has resulted in a substantial reduction in the overall number of claims being brought.

On the other hand, the risk of setting an unhelpful precedent for the rest of the workforce may be a factor in favour of settlement. If the case concerns a particular policy or practice, and the judgment is likely to be unfavourable to the employer, it may be preferable to settle the case quietly at an early stage, possibly during the Acas conciliation process, rather than risk encouraging further claims. The one thing more likely to encourage claims than a reputation for settling cases without merit is a highly public judgment criticising an organisation’s employment practices.

For example, a case involving the BBC in 2014 exemplifies the importance of early cost-benefit analysis. The corporation was found by an employment tribunal to have unfairly dismissed its former chief technology officer, John Linwood, and to have shown an “apparently cavalier disregard” for a fair disciplinary process. Several senior individuals involved in the case were also heavily criticised. It emerged that the BBC had spent around £500,000 on lawyers in defending the claim, despite Linwood having offered to settle for £50,000 – less than he reportedly received at trial.

Another factor is the reputational risk arising from a claim. This may take many forms: merely being accused of discrimination can be immensely damaging in some sectors, while a finding of discrimination against an individual can have professional regulatory implications (for solicitors, for example). In the financial services sector, allegations of regulatory breaches (often as part of a whistleblowing case) can be even more damaging, and even unfounded allegations of regulatory breaches can have an impact on investor confidence. While it may seem attractive to employers to clear their name publicly, an early settlement with stringent confidentiality terms may be the best way to prevent giving more oxygen to such allegations.

Another factor is the reputational risk arising from a claim. This may take many forms: merely being accused of discrimination can be immensely damaging in some sectors, while a finding of discrimination against an individual can have professional regulatory implications (for solicitors, for example). In the financial services sector, allegations of regulatory breaches (often as part of a whistleblowing case) can be even more damaging, and even unfounded allegations of regulatory breaches can have an impact on investor confidence. While it may seem attractive to employers to clear their name publicly, an early settlement with stringent confidentiality terms may be the best way to prevent giving more oxygen to such allegations.

Where a claimant is perceived as a troublemaker, or to be pursuing the claim from cynical motives, it can be tempting for senior managers to dig their heels in and refuse to pay any money. However, it is far preferable for settlement decisions to be made on the basis of a hard-headed assessment of the pros and cons of a public dispute.

 

Story via – http://www.cipd.co.uk/pm/peoplemanagement/b/weblog/archive/2016/06/23/why-it-sometimes-makes-sense-to-settle-a-tribunal-claim.aspx

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