Resolving disputes at work: the new tribunal system

There were 85,181 employment tribunal claims in 2004/05, the lowest number of applications since 1997/98 and almost 30,000 fewer than in 2003/04. Although it is too early to attribute the 25% fall to the changes in the employment tribunal system introduced on 1 October 2004, if the downward trend continues the government will believe it has secured some of its core aims for the revision: to encourage better dispute handling in the workplace; and greater focus on conciliation ahead of litigation. "The new law is designed to encourage employers and employees to discuss problems first, before resorting to tribunals," said the Department of Trade and Industry (DTI)¹.

Eighteen months down the line concerns are mounting that, despite the initial decline in the number of claims, the changes are not fulfilling their objectives. The CBI saw the October 2004 changes as a positive development, but the main employers' body is concerned that they have failed to weed out what it calls "weak and vexatious" claims.

"The changes were very welcome. Encouraging more disputes to be resolved in the workplace is the right approach," says Richard Wainer from the CBI's employment and employee relations group. But he warns: "If weak claims are not dealt with properly, they undermine the whole system and reduce employers' confidence in its fairness."

The TUC also welcomed the revised system, but says there is now growing concern among trade unionists that employees are being denied "access to justice". "The changes introduced in 2004 represented a step forward in some aspects, but we do have concerns," says Hannah Reed, senior employment rights officer at the TUC. "The rules are too complicated and are not achieving workplace resolution. We also fear some workers are being denied access to justice," she adds.

The DTI has announced that a review of the new rules and procedures will take place this autumn. This article pre-empts that review by canvassing a range of views from those parties with first-hand experience of the tribunal system.

A different climate

With the number of jurisdictions that employment tribunals now cover having multiplied to more than 70, and the complexity of employment legislation having grown in tandem with its volume, it is not surprising that employers approach the prospect of a tribunal with caution. Well-trailed press reports of six-figure payouts for sex discrimination in City firms also serve as a sobering reminder of the harmful consequences of a successful claim. On a superficial level, the dread of being taken down the tribunal route may account for some of the negative commentary about the employment tribunal system that has appeared in recent years. But there has been unease about various aspects of the system for some time, and this goes much deeper than merely an employer's immediate worry of facing legal action. The pressure for reform culminated in the government introducing, in October 2004, the most far-reaching changes the tribunal system has ever experienced.

One of the main criticisms levelled at tribunals is that they are increasingly legalistic and adversarial. There is also the perceived threat of a compensation culture, with reports of high awards purportedly encouraging employees to "have a go" and file an employment tribunal claim. An examination of the compensation awarded by tribunals in 2004/05 counters this view: while the highest payout for unfair dismissal was £75,250 and the highest discrimination award was £179,026, the average awards for both categories were £3,476 and £6,235 respectively. Although the number of tribunal claims has roughly trebled since 1990 - in 2003/04, the number of applications peaked, to stand at 104,952 - few workplaces had had an employment tribunal experience in any given year². The 2004 Workplace Employment Relations Survey (WERS) found that 8% of workplaces had had an employment tribunal claim brought against them in the preceding year.

Another criticism of the tribunal system is its growing cost. It cost nearly £70 million to run the tribunal service in 2004/05, not including the additional expense when Acas conciliates individual disputes. At an employer level, the DTI estimates that advice and representation for each claim costs an average of £4,360, although this figure does not include subsidiary costs such as management time.

The increase in the cost of running the tribunal system is due largely to the increase in the number of tribunal claims, so it is logical that the main thrust of reforms has been to increase the resolution of disputes in the workplace, and therefore stem the flow of ET1 applications. The DTI's 2004 Regulatory Impact Assessment estimated potential savings of around £70 million for businesses as a result of the new disciplinary and grievance procedures³.

The October 2004 changes - the Dispute Resolution Regulations and the new employment tribunal rules - were requirements of the Employment Act 2002. The new Regulations include a statutory minimum three-step procedure for discipline and grievance cases and a two-step "modified" procedure for certain cases. These minimum legal standards are not a direct change to tribunal procedure itself. But the statutory requirement on employers to have in place internal grievance and disciplinary procedures is, of course, inextricably linked to whether or not a workplace dispute results in a tribunal application. This is because both employer and employee must first follow these procedures in order to pursue the tribunal route.

The new tribunal rules, meanwhile, tightened up time limits, and introduced a new nine-page application form, a pre-acceptance stage to filter out weak claims, and an extension of the employment tribunal ability to award costs. Another significant change is the introduction of fixed periods of Acas conciliation. Instead of Acas having a statutory duty to conciliate between the parties until the claim is heard by a tribunal, for some jurisdictions that duty is now limited. For example, redundancy claims and breach of contract cases are covered by a seven-week fixed conciliation period while other jurisdictions, including unfair dismissal, carry a 13-week time limit. At the end of these periods, Acas can exercise a discretionary power to offer conciliation. There are some jurisdictions, such as equal pay and discrimination, that are "open" and Acas is not restricted in the length of time it has to conciliate.

Following procedure

Eighteen months is not a long enough period to determine whether or not the new Regulations and rules are working in practice. But some evidence, and even more disquiet, is emerging that casts doubt on whether the statutory reforms are achieving their aims.

The question is whether the key aim set out by the DTI in Routes to resolution - to achieve better dispute resolution in the workplace - is being borne out in practice. A report by the CBI on the first anniversary of the new rules claimed that employers do not believe that the reforms have reduced the number of claims⁴. The number of tribunal applications may have fallen, but just 6% of CBI survey respondents said that the discipline and grievance reforms have reduced the number of claimants.

The survey found that business is "losing confidence" in the tribunal system, with just 31% of employers regarding it as effective and 45% seeing it as ineffective.

One aspect of the new regime causing confusion, for example, is the rigidity of the procedural reforms. The CBI fears that the grievance procedure has now become too formalised. "Firms are seeing too many tribunal claims decided on whether they have followed the rules rather than on the merits of the case," comments CBI policy adviser Wainer. He also says that greater formalisation is increasing employers' costs. "Because employers incur penalties for not following the procedures, they are doing so to the letter, which is taking up increasing amounts of management time," he says.

The potential cost to an employer for not following proper tribunal procedures was made clear with the recent Employment Appeal Tribunal ruling in the case of NSM Music. The company missed the 28-day deadline to respond to a claim and was ordered by the tribunal to pay almost £49,000 to the claimant.

The TUC fears that, rather than encouraging workplace resolution, the procedural formalities may be having the opposite impact. Reed says the TUC is planning to survey union representatives as part of its response to the planned DTI review of the new rules and procedures, but early feedback from members reveals that many have concerns regarding the changes made in October 2004. She says there is evidence that disputes are escalating earlier than in the past: "It appears that disputes are being formalised at an early stage, with the parties getting everything quickly down on paper rather than sitting down and resolving the problem informally."

Access to justice

Some lawyers and the trade union movement believe that in practice the changes made in October 2004 have established barriers that many employees are finding hard to breach. John McMullen, head of employment law at Watson Burton LLP, says early opinion on the new regime is generally unfavourable. "It's been a rocky start. There are a number of difficulties emerging, not least a perceived 'access to justice' problem," he says. He believes barriers are emerging that will prevent many employees accessing the tribunal system. "The substantive and procedural hurdles to access employment tribunals erected by the 2002 Employment Act and the 2004 rules of procedure raise disturbing issues about access to justice," he says.

There is a growing suspicion, for example, that the new nine-page ET1 claim form could act as a deterrent to potential claimants and that the more stringent arrangements now in place for submitting a claim could potentially affect an individual's access to justice.

According to McMullen, there are indications that the number of cases being submitted to tribunals is continuing to fall, that an increasing proportion are being rejected, and a disturbingly high number of those rejections are not, for whatever reason, being resubmitted. "People may be being put off by the complexity of the forms and the procedural mechanism," says McMullen. "And there is no evidence that significantly more disputes are being resolved in the workplace."

The TUC's Reed says the trade union body also sees the step-one grievance process as a potential barrier to justice for workers. Although she concedes that many tribunals have adopted a flexible view as to what constitutes a step-one grievance note, she still believes "a high proportion are being rejected". She agrees that the ET1 form is too complicated and lengthy and could act as a deterrent to workers making a claim, but says the increasing complexity of employment Regulations makes such a detailed form necessary. "The complexity results from the Regulations, not from the form itself," she says.

Wainer says the CBI is pleased the form is more comprehensive, believing that employers are better able to respond to claims if they receive adequate information regarding its basis. "Employers need a certain amount of information to deal properly with a claim," he says.

Putting a limit on talking

There is a fear that the new Acas fixed-term conciliation period could be leading to more claims going to tribunals and fewer workplace settlements. "Fixed-term conciliation ties the hands of Acas conciliators to get a settlement," claims Reed. "We believe more claims are going to tribunal as a result, and that Acas is less likely to achieve a satisfactory settlement."

But, in theory, fixed-term conciliation periods are a good thing. "Settlements are supposed to be reached earlier so fewer claims are settled 'on the steps of the court house'," Wainer says. The reality has been somewhat different. "Parties' minds are still fixed on the hearing date as the last chance for settlement," he comments. He also believes that seven and 13 weeks is not long enough for "meaningful conciliation" to take place. "Tribunals are not always the quickest to process claims, and any delay eats into the potential conciliation period," says Wainer. He also says the CBI has found little evidence that the further two weeks - that may be tagged on to the fixed conciliation period if the parties are close to a settlement - are being used.

"Resource constraints often make this impossible," says Wainer. He adds that, with Acas facing funding cuts that it has said could hit front-line services, there is a growing fear among employers that the conciliation service will have insufficient resources to maintain an effective conciliation operation.

Part of the problem, according to McMullen, is a lack of understanding about how the system works. He says that the new regime is shaped around fixed conciliation periods, but that not all customers understand that. "Employers and employees are taking some time to become familiar with how the new procedures work and how they impact on the dynamics of settlement of an actual case," McMullen adds.

What next?

The DTI's review will need to address the perceived failure of the recent dispute resolution reforms in these areas, although some of those involved would like to see more emphasis placed on alternative ways of resolving workplace disputes, particularly as the scope of employment legislation extends and new legal rulings emerge that put further strain on the existing system.

McMullen cites the equal pay victory by staff at North Cumbria Acute NHS Trust as an example of an unexpected ruling that is increasing the workload of the conciliation service at a time when its resources are stretched. He would like to see additional resources to promote arbitration as an alternative to workplace resolution. "The problem with workplace resolution is that the employer sets the agenda, so employees do not always feel they receive justice. Independent arbitration that has the respect of both sides may be a better way forward," says McMullen.

Ben Willmott, employee relations' adviser at the Chartered Institute of Personnel and Development, would also like to see alternatives encouraged. "Employers should invest in developing mediation skills among line managers so they can nip disputes in the bud," says Willmott. He believes that the recent fall in tribunal claims is probably a "blip". "The employment law landscape continues to expand," he says, citing recent legal changes, such as amendments to the Disability Discrimination Act, that are likely to see tribunal claims rise again.

¹ Routes to resolution: improving dispute resolution in Britain, DTI, www.dti.gov.uk .

² Annual report and accounts 2004-2005, Employment Tribunal Service, www.ets.gov.uk .

³ Full regulatory impact assessment: statutory dispute resolution procedures, DTI, January 2004, www.dti.gov.uk .

⁴ A matter of confidence: restoring faith in employment tribunals, available from www.cbi.org.uk .