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In Scotland, "costs" are referred to as "expenses." In this guidance, costs have the same meaning as expenses.

Costs orders are rarely made at the Employment Tribunals. However, it is important to be aware of costs and the circumstances that can lead to a costs order being made.

A costs order is an order for a "paying party" to make a payment to a "receiving party" for recovery of costs that have been incurred while legally represented. There is a difference between being "legally represented" by a "lawyer" and being "non-legally represented" by a "lay representative." A legal representative is a qualified lawyer, while a lay representative is not a qualified lawyer, but charges for representation. Costs orders may be made in either case where a Claimant is represented by a lawyer or a lay representative. 

An Employment Tribunal may award costs if it considers that the paying party or the paying party's representative has acted vexatiously, abusively, disruptively or otherwise unreasonably in either bringing the proceedings (or part of them) or the conduct of those proceedings (or part of them). In addition, an Employment Tribunal may also award costs where it considers that a claim or response had no reasonable prospect of success. 

Costs may also be awarded because of a postponement or adjournment of a hearing on the application of a party, or where there has been a failure to comply with an order or practice direction.

Costs can include Tribunal fees paid by the receiving party and witness expenses. The 2013 Rules provide that where a witness attends to give oral evidence at a hearing, the Tribunal may order the paying party to make "a payment to ... a witness in respect of expenses incurred, or to be incurred, for the purpose of, or in connection with, an individual's attendance as a witness at the Tribunal." This adds to an Employment Tribunal's existing power to order a party to make a payment to the Secretary of State (in whole or in part) for any allowances that the Secretary of State has paid to a witness for the purposes of, or in connection with the attendance of any witnesses at a hearing. In equal value cases, this can include any allowance paid to a member of the Tribunal panel of independent experts.

Lay representatives and preparation time orders

A preparation time order is an order for the paying party to make a payment to the receiving party for preparation time while not legally represented. 

Preparation time is time spent by the receiving party (including that party's employees or advisers) working on a case. However, this will exclude the time spent at a final hearing. The 2013 Rules define a final hearing as "a hearing at which the Tribunal determines the claim or such parts as remain outstanding following the initial consideration, or any preliminary hearing. There can be different types of final hearings for various reasons that deal with issues such as liability etc. 

An Employment Tribunal cannot make both a costs order and also a preparation time order in favour of the same party in the same proceedings. This means that a party who is represented by a lay representative can claim either: 

  • A preparation time order for work that excludes representation at any final hearing. 

  • A costs order (at the preparation time order rate of pay for representation) at the final hearing.

Legal representatives

Costs incurred while legally represented are payable both in respect of the final hearing and related preparation work.

Costs and settlement negotiations

Costs may be awarded, even in cases where a Claimant is successful in circumstances where a Respondent makes an offer to settle, which is refused by the Claimant, who then goes on to win the case, but is awarded less by the Employment Tribunal than was originally offered by the Respondent.

In Power v Panasonic (UK) Ltd UKEAT/0439/04, after a seven-day hearing, the Claimant's complaints of direct discrimination, disability discrimination, unfair dismissal and breach of contract were upheld by an Employment Tribunal. The Claimant was awarded compensation including interest of £5,855.11. However, the same Employment Tribunal ordered the Claimant to pay the Respondent's costs of £10,000. Before the hearing, the Respondent made an offer of £10,000 to settle the claims. The offer was refused out of hand by the Claimant and without any consideration as to the merits of the claim. Sometime after this, the offer was increased to £25,000. That offer was also rejected out of hand. The EAT upheld the Employment Tribunal's decision to award costs and the Tribunal's findings that the Claimant had failed to enter into meaningful negotiations to settle her claims such that the need for a seven-day hearing could have been avoided, and that the Claimant was guilty of unreasonable conduct.

In Peat and others v Birmingham City Council EAT/0503/11, the EAT upheld the Employment Tribunal's decision to award costs against the Claimants on the basis that "by failing to engage with the Respondent's costs warning letter, which would have led them to an earlier assessment of the merits of their claims," the Claimants (who were legally represented) had acted unreasonably.

In Hooper v Sherborne School EAT/1375/08, the EAT upheld an Employment Tribunal order for a Claimant to pay £7,000 towards the Respondent's costs which amounted to £25,000. The EAT stated that the Respondent had made an offer of £5,000 to settle the Claimant's claim at an early stage, and the Claimant's rejection of that offer were factors that the Employment Tribunal was entitled to take into account in awarding costs.

In Dunedin Canmore Housing Association v Donaldson EAT/0014/09, the EAT held that an Employment Tribunal had erred in failing to find that a Claimant had acted unreasonably in bringing and conducting breach of contract proceedings to enforce payment of £9,000 due under a compromise agreement. The EAT stated that the Employment Tribunal should have made an award of costs against the Claimant on the dismissal of the claim. The claim was based on an assertion by the Claimant that there had been no breach of a confidentiality clause in the compromise agreement on the Claimant's part. The Employment Tribunal rejected this assertion and found that the Claimant had made prohibited disclosures to two individuals.

In Nicolson Highlandwear Ltd v Nicolson [2010] IRLR 859 EAT, the EAT allowed an appeal against the Employment Tribunal's decision that the Claimant had not acted unreasonably in bringing and conducting an unfair dismissal claim. The EAT noted that the Claimant had been dismissed on the grounds of gross misconduct, which on the face of it, amounted to fraud. The EAT held that the Employment Tribunal's decision not to award expenses was perverse and based on irrelevant considerations. The EAT made an order for expences and remitted the case to a different Employment Tribunal to determine the amount.

In Dean & Dean (a firm) and others v Dionissiou-Moussaoui [2011] EWCA Civ 1332 CA, the Court of Appeal dealt with a case in which an Employment Tribunal struck out a claim on jurisdictional grounds because of procedural issues. The Respondent applied for costs and asserted that the substantive claims involved "scandalous and salacious allegations of sexual misconduct." The Court of Appeal held that the Employment Tribunal did not err when it refused to award costs against the Claimant.

It is not necessary to determine if there is a link between the unreasonable conduct in question and the specific costs being claimed.

In Yerrakalva v Barnsley Metropolitan Borough Council [2011] EWCA Civ 1255, the Court of Appeal stated that although the Claimant's unreasonable conduct gave the Employment Tribunal jurisdiction to order costs, it "did not follow that the Claimant should pay all the Council's costs of the entire proceedings. The Employment Tribunal rejected some of the Council's criticisms of the Claimant. It also criticised the Council for making more of a meal than was necessary to respond to the Claimant's case. Those factors are relevant to how the costs discretion should be exercised and operate against a 100% order in the Council's favour."

The Court of Appeal restored the costs order that has been made by the Employment Tribunal, which had been overturned by the EAT. However, the Court of appeal varied the order, which meant that the Claimant was required to pay the Council 50% of the costs order rather than 100% in relation to a pre-hearing review.

Amount of a costs order

An Employment Tribunal can order the paying party to pay the receiving party a specified sum of up to £20,000 in respect of costs incurred by the receiving party. An Employment Tribunal can also make a costs order exceeding £20,000 that requires the paying party to pay to the receiving party:

  • All, or a specified part of the costs incurred by the receiving party, with the amount to be determined by way of detailed assessment of taxation carried out either by the Auditor of the Court in accordance with the Act of Sederunt (Fees of Solicitors in the Sheriff Court) (Amendment and Further Provisions) 1993(1), or by an Employment Judge applying the same principles.

  • A stipulated amount as reimbursement of all or part of a Tribunal fee paid by the receiving party.

  • A stipulated amount in respect of necessary and reasonably incurred expenses relating to an individual's attendance as a witness at the Tribunal (which may be paid to the witness).

Lay representatives costs

Where a costs order relates to fees charged by a lay representative, the hourly rate applicable for those fees must not be higher than the hourly rate applicable to a preparation time order (which as of February 2017 is currently £35 and rises by £1 every year on 6 April).

Ability to pay

An Employment Tribunal can have regard to the paying party's ability to pay when considering if a costs order should be made, or how much the order should be. When a Tribunal considers a party's ability to pay, the Tribunal must consider capital as well as income since to "look only at income where a person also has capital is to ignore a relevant factor." 

In Shields Automotive Ltd v Grieg EATS/0024/10, which was an appeal against a costs order in relation to a Claimant for bringing vexatious claims. The costs order was limited to £4,000. The EAT allowed the appeal and held that the Claimant had made misrepresentations to the Employment Tribunal about the nature and extent of regular outgoings and the disposal of a capital sum shortly before the hearing. The EAT was satisfied in all the circumstances that no regard could be had to the Claimant's means and remitted the case to the Employment Tribunal with a direction to remit the assessment of the Claimant's liability for expenses to the Auditor of the Sheriff Court. The EAT was also satisfied that the Employment Tribunal had erred in only taking account of the Claimant's income and outgoings and not the Claimant's capital.

In Doyle v North West London Hospitals NHS Trust EAT/0271/11, the EAT held that failing to consider the paying party's ability to pay, even if the issue is not raised by that party's legal representative, was an error of law which may have led to substantial injustice to the paying party.

In Bham v 2Gether NHS Foundation Trust EAT/0417/14, EAT/0029/15 & EAT/0030/15, the EAT held that when a costs order is made, the Employment Tribunal should expressly consider whether or not to exercise its power to take into account the paying party's ability to pay, and explain its decision to exercise, or not to exercise that power.

Costs warnings

A failure to warn a party about a proposed application for costs, and to supply a schedule of those costs, may make it harder to obtain an order for costs. 

In Rogers v Dorothy Barley School EAT/0013/12 (a breach of contract claim for unlawful deduction from wages) the Claimant was a caretaker at a school and was entitled to live in a caretaker's house. There was a change in water billing arrangements, and as a result, the Claimant was presented with a water bill by the Respondent. The Claimant believed that the Respondent had acted in breach of contract by presenting a water bill for payment and/or by instructing the Claimant to pay water bills. The Employment Tribunal dismissed the claims, because there had been no deduction as the Respondent paid the water bill, and because if the matter was a breach of contract claim, then the Claimant should have taken the complaint to the right place, which was not the Employment Tribunal. 

On appeal, the EAT upheld the Employment Tribunal's decision. The Employment Judge was clearly right that the Tribunal had no jurisdiction and the appeal was misconceived. The EAT also refused an application for costs against the Claimant since no schedule of costs had been supplied in advance of the hearing.

Calculation of preparation time order

To calculate the amount of a preparation time order, the Tribunal must take account of information provided by the receiving party about time spent on preparation (excluding time spent at any final hearings and, in accordance with the 2013 Rules, "the Tribunal's own assessment of what it considers to be a reasonable and proportionate amount of time to spend on such preparatory work, with reference to such matters as the complexity of the proceedings, the number of witnesses and documentation required." The number of hours arrived at is multiplied by the current hourly rate to arrive at the award. 

Costs against representatives

The 2013 Rules also allow wasted costs orders to be made against a party's representative in respect of costs incurred as a result of any improper, unreasonable or negligent act or omission on the part of the representative. However, wasted costs orders cannot be made against representatives who are not acting in pursuit of profit with regard to the proceedings. 

In Wilsons Solicitors v Johnson and others EAT/0515/10, the EAT upheld a wasted costs order that was made in respect of a case management discussion that proved abortive because the solicitors representing the Claimants had failed to prepare their case properly.

Costs protection

It may be feasible for costs protection to apply in cases that are pursued in a higher court. In Manchester College v Hazel and another [2013] IRLR 563 CA, the Court of Appeal upheld the EAT's order that the college could pursue its appeal in respect of two decisions by the Employment Tribunal and the EAT against the Respondent, but only on the condition that if successful, the Respondent would not apply for costs in the Court of Appeal.

Financial penalties for respondents

Under the provisions of s. 12A of the Employment Tribunals Act 1996, and with effect from 6 April 2014 for claims presented on or after that date, an Employment Tribunal can order a Respondent that has breached a Claimant's rights, to pay a financial penalty of between £100 and £5,000, where in the Tribunal's view, there has been a breach with one or more "aggravating features." In most cases, the financial penalty will be 50% of the amount of any financial award that the Tribunal has made against the Respondent and will be payable to the Secretary of State.

The Enterprise and Regulatory Reform Act 2013 does not define "aggravating features" which is a matter for the Employment Tribunal. However, the explanatory notes to the Act state that aggravating features "could include the size of the employer; the duration of the breach of the employment right; or the behaviour of the employer and the employee." The explanatory notes also state that: "An Employment Tribunal may be more likely to find that the employer's behaviour ... had aggravating features where the action was deliberate or committed with malice, the employer was an organisation with a dedicated human resources team, or where the employer had repeatedly breached the employment right concerned. The Employment Tribunal may be less likely to find ... aggravating features where an employer has been in operation for only a short period of time, is a micro-business, has only a limited human resources function, or the breach was a genuine mistake."

Section 12A of the Employment Tribunals Act 1996 provides that an Employment Tribunal can order a Respondent to pay a penalty irrespective of whether or not there has been a financial award. The Act defines a financial award as "an award of a sum of money excluding anything payable by virtue of s. 13" (which deals with costs and expenses)." 

Section 12A(2) provides that the Tribunal must consider a Respondent's ability to pay in deciding whether or not to order a Respondent to pay a penalty, and the amount of the penalty, which must be no less than £100, and no more than £5,000. However, there are additional restrictions on penalties that may be imposed in certain circumstances.

If an Employment Tribunal makes a financial award against a Respondent, and if the Respondent is also ordered to pay a penalty, the amount of the penalty must be 50% of the sum of compensation awarded, unless the award is less than £200, in which case the penalty must be £100, or the award is more than £10,000, in which case the penalty must be £5,000. 

It should be noted that different restrictions apply to the penalties that may be imposed in relation to multiple claims (see below).

Sections 12A(5) and (7) do not require or permit the review of an order imposing a financial penalty, or the failure to make such an order, if the Tribunal awards compensation under any provision that empowers it to do so, or in awarding further compensation for a failure to comply with an order or recommendation of the Tribunal. The explanatory notes to the Enterprise and Regulatory Reform Act 2013 state that the effect of s. 12A(9) is that references in s. 12A(5) and (7) to "'50 % of the amount of the award'... [do] not include any additional compensation awarded for a failure to comply with an order or recommendation of the Tribunal."

There is a significant discount for the early payment of a penalty. Section 12A(10) of the Employment Tribunals Act 1996 provides that a Respondent's liability to pay a penalty is discharged if 50% of the amount of the penalty is paid no later than 21 days after the day on which notice of the decision to impose the penalty is sent to the employer.

Multiple claims

In cases where an Employment Tribunal considers two or more claims together against the same Respondent that results in an order for the Respondent to pay a penalty in respect of any of the claims, then the total amount of the penalties must be no less than £100, and the penalty in respect of a particular claim must be no more than £5,000. Moreover, if the Employment Tribunal makes a financial award against the Respondent, this will be no more than 50% of the sum of compensation. However, if the sum awarded in any of the claims is less than £200 in total, the total amount of the penalties must be £100.

Section 12A(8) provides that two or more claims in respect of the same act and the same Claimant will be treated as a single claim for the purposes of s. 12A, which means that only one penalty can be imposed.

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