Lord Sugar, founder of Amstrad, has lost his application for costs against former Apprentice winner Stella English, who brought an unsuccessful constructive dismissal claim earlier this year.

Employers hope that the new tribunal fees (up to £1,200 to get to a hearing) will discourage litigation, particularly from serial litigants or those who know their claim is spurious. However, some claims will inevitably still reach trial and employers may want to claim back their costs from an unsuccessful employee. This briefing looks at how costs orders in the employment tribunal remain the exception rather than the rule and considers whether the new employment tribunal rules will change the status quo.

In depth

The exception but not exceptional

Based on published statistics, costs are awarded in less than 1 per cent of registered employment tribunal (ET) claims per year. The majority of these awards are in favour of respondents and the median award hovers around the £1,000 to £2,000 mark. There are anomalies: in 2012, an unrepresented claimant was ordered to pay a third of the respondent’s costs, the one third amounting to up to £87,000.

However, there do not have to be exceptional circumstances for the ET to make an order. The receiving party (typically an employer respondent) must simply meet the test set out in the ET rules.

Three types of costs orders

There are three types of costs orders: (i) ‘standard’ costs orders; (ii) preparation time orders; and (iii) wasted costs orders. The difference is explained below but with particular focus on standard costs orders.

Standard costs orders are made in respect of any fees incurred by the receiving party and include legal fees and witness expenses. The new ET rules also permit costs to be recovered in respect of lay representatives (ie not a lawyer); this is something that claimants may seek to take advantage of because they are more likely to be represented by a lay person.

Preparation time orders compensate for costs incurred in preparing for a case while the receiving party was not legally represented and generally speaking cannot be made if a standard costs order is made.

Finally, wasted costs orders are made against a representative of a party. The representative can be ordered to pay costs to the other side or to their own client but only where costs have been incurred as a result of any improper, unreasonable or negligent act or omission by the representative.

When will costs be awarded?

The power for the ET to award costs is discretionary – save in one narrow exception when it must do so – and may be made of its own volition or on application of a party at any point during proceedings.

The ET may make a standard costs order and must consider whether to do so if:

  1. a party, or its representative, has acted ‘vexatiously, abusively, disruptively or otherwise unreasonably’ in brining or conducting a claim; and/or
  2. a claim or response had no reasonable prospect of success.

Limb 2 is slightly narrower than its predecessor, which referred to claims being ‘misconceived’. In practice this is unlikely to matter: ‘misconceived’ previously included claims for which there was no reasonable prospect of success and it is helpful now to have a clearer test.

Costs may also be awarded where a party has been in breach of any order of the ET or where a hearing has been postponed on the application of a party.

If any of these tests is met then the ET must consider whether it should exercise its discretion to make a costs order; a costs order should not be made automatically on the basis of a party’s conduct.

Although respondents may sometimes feel that a claimant is acting vexatiously or unreasonably, ETs are reluctant to agree. This is not to say that it is not worth pursuing a costs order, but the sort of things that may have to be shown include:

  • that a claim was hopeless and brought out of spite or for some other improper motive;
  • that a party has tried to make a financial gain by exploiting the tribunal system or demonstrates contempt for it;
  • dishonest behaviour;
  • alleging minor incidents gave grounds to a claim without considering the merits any one allegation; or
  • pursuing reinstatement or re-engagement after it was obvious that the remedy was not practicable.

A mistaken but genuine belief of the claimant in her allegations is unlikely to lead to a costs award (indeed, this appears to have been the case in Lord Sugar’s application for costs).

How much will be awarded?

There is no limit on the amount of costs that may be awarded. Under the old rules, if an ET wanted to order a party to pay more than £20,000 in costs, the amount would have to be determined by a county court. This is no longer the case and an employment judge may make a ‘detailed assessment’, which will involve considering detailed information of the costs incurred.

Beware that a costs order may now include the tribunal fees introduced this summer.

The ET may take into account a party’s ability to pay (considering both capital and income), but it does not have to do so.

Should the claimant be put on notice?

It is best practice to notify the opposing party if an application for costs may or will be made. It can also be a good negotiating tactic during a settlement discussion, although failure to accept an offer of settlement will not of itself be considered unreasonable conduct for costs purposes.