Employment Tribunal fees ruled unlawful by Supreme Court

The upshot is that, as of today, fees cease to be payable for claims in the ET and appeals to the Employment Appeal Tribunal (“EAT”). In addition, the Government will be required to reimburse all the fees paid by claimants since the ET fees regime was introduced in 2013.

Background to the ET fees regime

The Government introduced ET fees in July 2013, by means of the Employment Tribunals and the Employment Appeal Tribunal Fees Order 2013 (“Fees Order”).

The Fees Order divided claims into two types: A and B. Type A claims included those for statutory redundancy payments, unlawful deductions from wages, breach of contract and failure to permit statutory time off. The issue fee for a Type A claim was £160 and it cost a further £230 for the full hearing (£390 in total). Type B claims, such as discrimination, unfair dismissal, whistleblowing and equal pay, were more expensive - £250 to issue and £950 for the full hearing (total: £1,200). Full and partial fee remissions were available for those with limited resources, with both an income and capital test to determine eligibility for remission. The Lord Chancellor also had discretion to waive fees in exceptional cases. ETs had to reject claims if they were not accompanied by the prescribed fee.   

The introduction of fees was hugely controversial because ETs were originally designed as an inexpensive and accessible forum for settling employment disputes. The contentious nature of the fee regime was exacerbated by the fact that only the claimant had to pay a fee to participate in ET proceedings. The respondent employer did not, although losing employers were often ordered to reimburse the claimant’s fees at the end of a case. The Government’s stated aims in introducing fees were threefold: to transfer some of the ET system’s running costs to those “users” who could afford it; to discourage unmeritorious claims; and to encourage earlier settlement and alternative means of dispute resolution.

Unison’s legal challenges

The trade union Unison originally challenged the lawfulness of the fee regime in a judicial review application made in June 2013, before the Fees Order came into effect. The High Court handed down judgment in February 2014, dismissing the claim on the basis that it was too early to tell what impact the Fees Order was having on claimants.

In March 2014, the Ministry of Justice (“MOJ”) issued statistics which showed a 79% drop in ET claims during October to December 2013 (the first full quarter since the introduction of fees) compared to the equivalent period in 2012. Unison appealed against the High Court’s decision but, before that could be heard, the Lord Chancellor agreed to a stay of the appeal to allow fresh judicial review proceedings in light of the new statistical evidence.

Unison’s second judicial review application was made on grounds that:

• The fees breached the principle of effectiveness under EU law because they made it “virtually impossible or excessively difficult” to exercise rights conferred by EU law (such as equal pay).
• The higher fees in type B claims amounted to unlawful indirect discrimination against women and other protected groups.

The High Court rejected the application for judicial review, holding that there was no evidence that the dramatic drop in claims was caused by claimants’ inability to pay the fees rather than simply unwillingness to take a risk. Accordingly, the statistics did not prove that the principle of effectiveness had been breached. On the issue of indirect discrimination, the court held that there was no disparate impact on women (the only protected group on which evidence had been) and in any event the fees regime was objectively justified.

Court of Appeal judgment

Unison appealed to the Court of Appeal (“CA”), which upheld the High Court’s reasoning and decision. The CA held that the statistics showing the reduction in claims were compelling, but were not enough on their own to prove that the principle of effectiveness had been broken. The fact that the Lord Chancellor had discretion to grant remission to those claimants who would not otherwise qualify for it meant that the regime did not automatically prevent claimants from bringing proceedings.

The CA also agreed that, in so far as the fees regime did impact disproportionately on women, it could be justified. The higher fees for type B claims corresponded to the increased demand those claims placed upon the system. The CA further held that the Government had complied with its equality duty, dismissing Unison’s arguments that it had failed to anticipate the effect of the fees regime or assess whether it adversely impacted on the elimination of discrimination. Unison appealed to the SC.

Further developments

Meanwhile, in June 2016, the House of Commons Justice Committee published a report concluding the ET fee regime had had a significant adverse effect on access to justice. It recommended substantially reducing the level of fees and simplifying the remission system as well as increasing the thresholds to qualify for remission.

In January 2017, however, the MOJ published its own post-implementation review which concluded that the fee system was working well. The MOJ agreed that potential claimants may have been discouraged from bringing claims, but argued that there was no evidence that they had been prevented from doing so. It also concluded that the public sector equality duty had not been breached and that any indirect discrimination could be justified. The MOJ rejected all the Justice Committee’s recommendations, other than to say it would introduce certain minor reforms, such as adjusting the remission scheme by slightly increasing the monthly income threshold.

Supreme Court judgment

By the time Unison‘s challenge reached the SC, the legal arguments had moved onto broader principles focusing on the right of access to justice as an essential element of the rule of law. Unison contended that ET fees unjustifiably interfered with the right of access to justice under both UK common law and under EU law. It was also forcefully argued that specific employment rights legislated by Parliament could not be reduced by means of a statutory instrument issued by a government minister. Finally, Unison continued to press the argument on indirect discrimination that it has pursued before the lower courts.

In a unanimous judgment, the seven judges of the SC allowed the appeal and ruled that the Fees Order does prevent access to justice and should be quashed. The wide-ranging judgment includes the following key points:

• The empirical evidence as to the operation of the Fees Order showed that it had had a dramatic impact on the number of claims (particularly low value claims).  It had also made a lower contribution to ET costs than predicted, failed to deter unmeritorious claims and did not appear to have encouraged settlement of cases.
• Against that background, the SC the emphasised the fundamental importance of unimpeded access to the courts as a means of ensuring that laws created by Parliament are applied and enforced. Access to courts and tribunals was not just of value to “users” of the system, but of broader benefit to the public as a whole. The SC concluded that the Fees Order would be unlawful if there was a “real risk” that it effectively prevented people from having access to justice, or alternatively if the degree of intrusion into access to justice went beyond what was justified by the Order.
• While fees for small claims in the civil courts are related to the value of the claim, the ET fees bear no direct relation to the amount sought and could therefore be expected to deter claims for modest sums or non-monetary remedies. Evidence showed that fees were the most frequently cited reason for not submitting a claim, while worked examples of hypothetical claimants showed that, in order to pay the fees, they would have to restrict spending that was ordinary and reasonable for maintaining living standards.
• Whether fees effectively prevent access to justice had to be decided according to their likely impact on “behaviour in the real world”. If low to middle-income households could only afford fees by forgoing an acceptable standard of living, they could not be regarded as affordable. Moreover, the SC considered that even where fees are affordable, they prevent access to justice where they make it futile or irrational to bring a claim. For example, no sensible claimant would pay a substantial fee to pursue a modest claim, unless it was virtually certain to succeed and the award would include recovery of fees and be satisfied in full.
• The SC therefore concluded that the Fees Order did effectively prevent access to justice. Moreover, although the stated purposes of ET fees were legitimate aims, it had not been shown that the Fees Order was the least intrusive means of achieving those aims. It also imposed disproportionate limitations on the enforcement of EU employment rights.
• Finally, the SC upheld Unison’s arguments that Fees Order constituted indirect discrimination against women (as well as others with protected characteristics) contrary to the Equality Act 2010. In particular, because Type B cases (including discrimination claims) attract a higher fee and a higher proportion of women bring such claims than Type A claims, women are placed at a particular disadvantage. The charging of higher fees for Type B claims had not been shown to be justified as a proportionate means of achieving the Government’s stated aims in introducing the Fees Order.

For the above reasons, the SC concluded that the Fees Order had the effect of preventing access to justice and was unlawful under both UK and EU law (to the extent that rights asserted before ETs are based on EU law). Since the Order had that effect as soon as it was made, the SC ruled it was unlawful ab initio – from the beginning – and must be quashed.

Implications

This momentous judgment will have lasting significance far beyond the world of employment law. It is a powerful and resounding reaffirmation of the importance of the rule of law in society and the constitutional right of unimpeded access to the courts. The SC relied upon historic authorities and sources in reaching its decision, even including words from the Magna Carta of 1215: “We will sell to no man, we will not deny to any man either Justice or Right”.

The SC’s judgment will also inevitably have immediate political ramifications, given that Labour’s manifesto for the general election pledged the abolition of ET fees, whereas the Conservatives were silent on the matter. Interestingly, the judgment chimes with a CIPD/Lewis Silkin study published earlier this year on employer attitudes to employment law, which revealed significant opposition to ET fees. We found that a majority of employers responding to our survey wanted fundamental change, with 15% saying the ET fees should be abolished, 11% agreeing that they should be substantially reduced and 19% supporting a single £50 fee for all claims.

This should provide food for thought for the Government, which will now have to decide whether to develop proposals for a new ET fees regime that could be defended before the courts as being compliant with proper access to justice. This will no doubt take some time and a consultation document is likely to be published in due course.

Pending that process, an immediate consequence of the SC’s judgment is that fees are for the time being no longer payable, either for bringing an ET claim or appealing to the EAT. This will present administrative and logistical challenges for the Employment Tribunals. Impressively, however, the guidance on completing the ET1 online claim form has already been amended to state:  “You do not have to pay a fee to make a claim to the Employment Tribunal, even if it says so on the form”. There will probably now be a significant increase in ET caseloads – particularly lower-value claims – for which the ETs may be inadequately resourced.

In addition, it has been reported that the MOJ has made a commitment immediately to begin the process of reimbursing ET claimants, dating back to 2013. How this is implemented in practice remains to be seen: clearly it will be a complex and time-consuming project.

Finally, it is very likely that some would-be claimants from the past, who were deterred from pursuing an ET claim at the time by the obligation to pay a fee, will now seek to bring their claims out of time. Whether ETs will be prepared to allow this will depend on the type of claim and the claimant’s particular circumstances. For example, with an unfair dismissal claim, the issue would be whether it was “not reasonably practicable” to bring a claim within the time limit on account of the fees regime. In contrast, in a discrimination case, the test would be more flexible - whether it is now “just and equitable” to extend time to bring the claim.

R (on the application of Unison) v Lord Chancellor [2017] UKSC 51 – judgment available here.