Employment Tribunal Fees: The Supreme Court slaps the government down hard!
Every once in a while, a case comes along in which the judiciary goes beyond just giving its opinion, it decides to also make a point.
Enter the Supreme Court in R (on the application of UNISON) v Lord Chancellor, a case concerning the lawfulness of the introduction of fees to issue a claim in the Employment Tribunal.
Those of us lawyers in the employment game have found it difficult to be objective about the introduction of these fees for the simple reason that their impact was to effectively decimate the practice of Employment Law. Reports suggest a 60% - 80% reduction in the number of employment cases as a result of those fees. To the government this represented a welcome relief for businesses from the spiraling cost of employment litigation and anyone raising concern about the impact for employees was either out of touch with the needs of British businesses or on the side of those terrible fat cat lawyers - whoever they are!
Undeterred, Unison challenged the fee structure in court.
At a whopping £1,200 to issue and pursue an unfair dismissal or discrimination claim all the way to hearing, Employment Tribunal fees represented a significant sum to pay out for employees often on low incomes or freshly unemployed. Yes, there was a remission system but not many applied, fewer received it, and no one really understood it.
Unison lost before the High Court and lost again before the Court of Appeal. So hopes for success before the Supreme Court were not especially high. To the government this must have looked like a 'strong and stable' fee system.
"Not so!", decided the Supreme Court in a direct and powerful judgment delivered by Lord Reed and Lady Hale.
Were they just trying to remind the world about the independence of the judiciary? Was it intended as a legal lesson to the first non lawyer to occupy the Lord Chancellor role for 400 years (Chris Grayling) who introduced the fees? Or were they simply getting pay back for the more recent failure of another Lord Chancellor's (Liz Truss) to defend their judicial colleagues from public attacks over Brexit?
Whatever the reason, the Lords and Lady of Supreme Court clearly had their Weetabix that morning and promptly delivered not just a decision, but an opinion and lecture to the government about the primacy of the rule of law.
It quashed the fee system on pretty much every basis imaginable, finding variously that:
1) it breached constitutional law;
2) it breached statutory law;
3) it breached EU law;
4) it breached discrimination law;
5) it breached human rights law (though technically not applying to this case)
6) it breached the law of economics;
7) it even breached the law of common sense.
The fee system, they decided, was completely unjustified on all the bases on which it was introduced and therefore could not be allowed to stand a moment longer. Indeed it was unlawful ab initio.
Highlights of a very readable judgment (click here to read) include:
A lesson on the challenges of low income families: "if the children need new clothes because they have outgrown their old ones, replacements have to be purchased sooner or later. The impact of the fees on the family’s ability to enjoy acceptable living standards is not avoided merely by postponing necessary expenditure" (para 55)
A lesson in the primacy of the rule of law: "The importance of the rule of law is not always understood. Indications of a lack of understanding include the assumption that the administration of justice is merely a public service like any other..." (para 66)
A lesson in the societal value of the rule of law: "It is that knowledge which underpins everyday economic and social relations." (para 71)
A lesson in the historical importance of access to justice: "the right of access to the courts has long been recognised. The central idea is expressed in chapter 40 of the Magna Carta of 1215" (para 74)
A lesson on the importance of ensuring fees are affordable in practice not merely in theory: "The question whether fees effectively prevent access to justice must be decided according to the likely impact of the fees on behaviour in the real world. Fees must therefore be affordable not in a theoretical sense, but in the sense that they can reasonably be afforded. Where households on low to middle incomes can only afford fees by sacrificing the ordinary and reasonable expenditure required to maintain what would generally be regarded as an acceptable standard of living, the fees cannot be regarded as affordable" (para 93)
A lesson in elementary economics: "it is elementary economics, and plain common sense, that the revenue derived from the supply of services is not maximised by maximising the price. In order to obtain the maximum revenue, it is necessary to identify the optimal price, which depends on the price elasticity of demand" (para 100)
A lesson in fate: "the system of fees introduced in 2013 was, from the outset, destined to infringe constitutional rights." (para 102)
A lesson about future attempts to introduce fees: "However, as the existing Fees Order is unlawful, the Lord Chancellor will no doubt wish to avoid any potentially unlawful discrimination in any replacement Order." (para 121)
This was a judicial kicking.
It was the Supreme Court in full teacher mode. By the time Lady Hale added for good measure that by the way the fees were also discriminatory against basically everyone, you could almost picture the Lord Chancellor squirming in his judicial seat and pleading "Can I go home now, miss?"
The government has vowed to repay all fees previously paid out (totalling about £30 million), so there should be some cheques in the mail just in time for christmas.
Will they give it another go? That is the million pound political question. With the big battle of Brexit looming, I wouldn't bet on something this year.
If you're a claimant, get your claim in now.
If you're an employer, get your insurance in now.
If you're an employment lawyer, dust off the old employment law books, you might be needing them again soon.
If you're a Lord Chancellor, take a holiday and pretend the whole thing just never happened. That's what 'ab initio' means anyway.
Long live the Rule of Law!
SUMMARY NOTES FROM THE JUDGMENT
pars 6 - relationships between employers and employees are characterised by an imbalance of economic power
para 6 - Employment Tribunals are designed to provide a forum for the enforcement of employment rights
para 9 - the motivation for the proposals for the introduction of fees was (i) to transfer the cost burden from the tax payer to the tribunal users (ii) to incentivise earlier settlement (iii) to disincentivise weak claims
para 11 - the proposals identified the fee remission system as important to help maintain access to justice
para 12 & 13 - the proposals noted that forecasting the impact of fees was difficult but estimated a reduction of 1% - 5% for every £100 of fees introduced. Research of the fee structure in the civil courts suggested that users would not be especially price sensitive
para 15 - fees came into force in July 2013
para 16 - 19 - outline of the fees introduced
para 20 - comparison with civil courts fees
para 21 - 23 remission scheme. No remission for an individual with £3,000 in savings. There was no explanation of how this level was chosen and this didn't account for the fact that some employees who had just received a redundancy payment might have an artificially temporarily high balance.
para 25 - power of Lord Chancellor to remit fees for exceptional hardship
para 26 - effect of non payment of fees is that no claim has been issued
para 27 - 29 - recovery of fees by the successful party but there is no guarantee of success, or that fees will be awarded or that the fees will ultimately be recovered
para 30 - 34 - average level of awards; and some claims do not attract an award at all
para 35 - enforcement of awards is worryingly low: 35% of successful claimants were simply never paid even after enforcement action was taken.
para 39 - the impact of the fees: reports suggest between a 66% - 70% reduction in the number of claims accepted by Employment Tribunals as a direct result of the fees
para 40 - there was a far greater fall in lower value claims such as unpaid wages and holiday pay
para 43 - only 29% of claimants received a full or partial remission of fees compared to the estimate made before the introduction of fees that 77% would receive full or partial remission
para 44 - the Lord Chancellor's discretion to remit fees in exceptional circumstances was only exercised 31 times in 2015/2016 out of over 86,000 claims
para 46 - of 83,000 that had notified ACAS of a claim, only 8,000 said affordability of fees was a reason for not pursuing the claim, but this figure did not include those that considered the fees might equal the value of their claim or those that settled for a lower sum than they otherwise might have done
para 47 - the MOJ's assessment was that fees would 'discourage' but not 'prevent' people from pursuing claims
para 51 & 53 1 - hypothetical claimants (single mother with a child earning £27,264 p.a. or a couple with two children earning £33,380 p.a.) would suffer a substantial financial shortfall in the income required for acceptable living standards in order to pursue a claim
para 55 - the Lord Chancellor's argument that they simply needed to suspend discretionary spending such as children's clothes was problematic and in any event it was questionable whether sacrificing ordinary expenditure was an appropriate price for access to justice
para 56 - although one of the reasons for the introduction of fees was to recover costs, the recovery rate was actually 13%, which was far less than the 33% anticipated.
para 57 - a secondary objective of the fees was to deter the bringing of unmeritorious claims. Instead the proportion of successful claims has been consistently lower since the fees were introduced and the Lord Chancellor accepts that there is no basis for concluding that fees mean that only the stronger cases are being litigated.
para 59 - a third objective of the fees was to encourage greater settlement. In 2011/2012 33% of claims were settled through ACAS. In 2014/15 after the introduction of the fees only 8% were settled through ACAS and in 2015/16 only 31% were settled through ACAS, which means a decrease in settlements since the fees were introduced.
para 60 - 64 - history of the proceedings
para 66 - 85 - the substantial importance of the constitutional right of access to the courts and the importance of the rule of law. Access to the courts is not only of value to the individuals involved but to wider society. It is the knowledge of the right to access to the courts that underpins every day economic and social relations. The right of access to the courts dates as far back as the Magna Carta, was reasserted by Sir Edward Coke in the 1600s, by Lord Diplock in 1974. Impediments to the right of access to courts can constitute a serious hindrance even if they do not make access completely impossible. The court's approach is to ask whether the impediment has been clearly authorised by primary legislation and even then it will allow only such degree of intrusion as is reasonably necessary.
para 86 - fees paid by litigants can reasonaby be considered a justifiable way of making resources available for the justice system and measures to deter frivolous claims can increase the efficiency of justice
para 87 - but fees will be ultra vires if there is a real risk that it will prevent access to justice
para 88-89 the principle of proportionality is also relevant to the question of ultra vires. So even an interference in access to courts that is not insurmountable, will still be unlawful unless it can be justified as reasonably necessary
para 91 - in order for the fees to be lawful they must be set at a level that everyone can afford, taking into account remission. The evidence before the court leads to the conclusion that that requirement has not been met. The court does not require conclusive evidence of this, merely that a 'real risk' has been demonstrated. Here. the fall in the number of claims has been 'so sharp, so substantial, and so sustained...'
para 93 & 94 - affordability must be considered in the real world. If households would have to sacrifice ordinary and reasonable expenditure, that would not be regarded as affordable.
para 95 - the Lord Chancellor's discretion to remit fees do not help. The problems identified are systemic
para 96 - access to justice is also affected where the fees render it futile or irrational to bring a claim. This is relevant to claims where no financial reward is sought. No sensible person would pay £390 to pursue a claim of £500. This prevents a claim being pursued even if it is affordable. Additionally, a third of successful applicants actually recover no money.
para 97 - the evidence establishes that the fees have ad a particularly deterrent effect on the bringing of claims of low monetary value.
para 98 - therefore the Fees Order effectively prevents access to justice and is unlawful
para 99 & 100 - the Lord Chancellor's suggestion that lower fees would result in reduced income was unsupported by any evidence. 'It is elementary economics and plain common sense, that the revenue derived from the supply of services is not maximised by maximising the price.' Rather the optimal price should be identified and this depends on price elasticity of demand.
para 101 - no evidence that the level of fees set are necessary to incentivise earlier settlement and discourage weak claims
para 102 - the failure to consider the public benefits flowing from the enforcement of rights as confirmed by Parliament, meant that the system of fees was destined to infringe constitutional rights.
para 103 - the argument that statutory rights should not be cut down by subordinate legislation does not add much to the arguments already made
para 105 - 117 - the fees also impose limitations on the exercise of EU rights, which are disproportionate and therefore unlawful under EU law.
para 118 - since the effect of the fees was to prevent access to justice, the fees were unlawful ab initio and must be quashed
para 122 - 123 discrimination law also applies to the provision of this service and the government's public functions
para 124 - 131 - In the Court of Appeal case it was established that the higher fees for Type B claims (including discrimination claims) might put women at a particular disadvantage since 54% of Type B claims were women. Can higher fees for Type B claims be justified?
para 129 - in discrimination cases, Respondents are in a much more powerful position and the higher fees exacerbate that
para 130 - it has not been shown that higher fees result in greater recover of costs but there is clear evidence of a dramatic fall in both types of claims
para 131 - so the higher fees for discrimination claims has not been shown to be a proportionate means of achieving the stated aim
132 - Women who bring discrimination claims and men who bring unfair dismissal claims are in the same boat since they are charged the same fees.
134 - it is not necessary to resolve this question (of discrimination) in these proceedings. Nevertheless, it is accepted that higher fees have a disparate impact and have not been shown to be justified.