The Lifecycle of a Business - See you in court…? Employment claims against a company

Setting up and running your own business is an amazing achievement. It requires vision, creativity, motivation and stamina. On occasion, it can even bring you fame, riches and fortune. But it can also result in reams of paperwork and cause sleepless nights. And as someone once said to me about children “It doesn’t get easier, it just changes”, so the same can be said for your business throughout its lifecycle. From setting up to exit, it will force you to consider issues that you might not previously have known anything about and it will need you to make many decisions, sometimes very quickly. What it certainly is not is mundane.

With this in mind, the corporate team at Forsters, together with some of our specialist colleagues, has written a series of articles about the various issues and some of the key points that it may help you to know about at each stage of a business’s life. Not all of these will be relevant to you or your business endeavours, but we hope that you will find at least some of these guides interesting and useful, whether you just have the glimmer of an idea, are a start-up, a well-established enterprise or are considering your exit options. Do feel free to drop us a line or pick up the phone if you would like to discuss any of the issues raised further.

We’ve already discussed various topics, including funding, employment and commercial contracts, but it’s now time to discuss when things go wrong...

See you in court…? Employment claims against a company

Companies will have disgruntled employees from time to time. Having well drafted contracts, effective policies and procedures and good HR management can often resolve or limit issues, but sometimes employment litigation is inevitable. This article provides a brief introduction to the employment litigation process, but we strongly recommend that you get in touch with your employment legal advisor if litigation is on the cards.

Most employment litigation takes place in the Employment Tribunal and often relates to:

• Unfair dismissal – where an employee alleges that their dismissal was not for a “fair” reason (being conduct, capability, redundancy, legal reason, some other substantial reason) or that a fair procedure was not followed. In addition, an employee can bring a claim for automatic unfair dismissal where they have been dismissed for one of ten statutory reasons (such as asserting the right to be paid at least the national minimum wage).
• Constructive dismissal – where an employee alleges that they have been treated so badly they have no option but to resign and treat themselves as having been dismissed.
• Discrimination – where an employee alleges that they have suffered some form of adverse treatment due to a “protected characteristic” (such as age, sex or race). Discrimination can take several forms, including direct discrimination (such as not being promoted directly because of your protected characteristic), indirect discrimination (where the employer operates a policy or practice which adversely affects a particular group with the same protected characteristic) and harassment (where an employee is bullied or harassed by colleagues because of a protected characteristic).
• Whistleblowing – where an employee alleges that they have suffered a form of detriment or been dismissed due to raising concerns about their employer’s practices.
• Monies owed – where an employee alleges that they have not been paid what is due to them (such as salary, notice pay or in respect of annual leave).

Compensation for employment claims varies and often depends on the type of claim and the employee’s salary. Compensation for certain claims (such as unfair dismissal) is capped (at the lower of year’s salary and, currently, £115,115). Other claims, for example, whistleblowing and discrimination are uncapped and compensation awards tend to reflect any injury to feelings and, where the employee has been dismissed, the time it will take for them to find comparable income.

Please note that there are many other types of employment claims which can be brought in the Employment Tribunal. It is also possible for employees to bring certain claims in the county court or high court. These tend to be for breach of contract and can often be valuable – in particular claims in relation to unpaid bonuses.

Who can bring a claim?

Generally speaking, all employees can bring most types of employment claims, however some claims have service length requirements. For example, at the time of writing, only employees with at least two years’ service have the right to bring an unfair dismissal claim. However, the Labour government has committed to changing this and we are awaiting the detail.

Given the current service length requirement, it is a common litigation tactic for employees to allege some form of whistleblowing or discrimination in order get a claim off the ground.

The process

The time limits for bringing a claim in the Employment Tribunal are short and employees typically need to take action within three months of the issue (for example, the alleged poor treatment or dismissal) having occurred.

Before an employee can file a claim in the Employment Tribunal, they need to first follow the ACAS early conciliation process. This provides the parties with an opportunity to see if settlement can be achieved before any claim is filed. If settlement cannot be reached, ACAS will issue the employee with a certificate which allows them to then proceed to file a claim at the Employment Tribunal.

Once a claim is filed and accepted, the employer will be provided with a copy and is required to submit a response within 28 days. It is important that an employer spends time getting its response correct as this is the first opportunity it will have to set out its position. Once the response has been accepted, the Employment Tribunal will look to list a hearing and set out a timetable leading up to it. In essence, this will require the parties to disclose certain documents, agree a bundle of relevant documents to be referred to at the hearing and exchange witness evidence prior to the hearing.

The cost of defending employment litigation can be considerable and, unlike in a court, it is not normal for the losing party to pay the winning party’s costs (so it is unlikely that an employer will recover its legal costs even if it wins). Depending on the nature of the allegations, employers may also need to consider the reputational impact of fighting a claim and attending a hearing which will most likely be in the public domain. On the other hand, depending on the nature of the employer’s business and workforce, taking a stand and fighting against the employment claim could help to avoid setting a precedent that a company will always settle.

Where parties do agree a settlement prior to a hearing, this can be documented by way of an ACAS COT3 agreement or a settlement agreement, normally depending on whether the employee is legally represented or not.

Disclaimer

This note reflects the law as at 6 September 2024. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.