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The cost of a settlement agreement

Lodders’ employment law specialist, Jennifer Linford, examines the need to break the habit of offering a set amount towards legal costs when it comes to settlement agreements.

On 29 October 2019, the Employment Appeal Tribunal (EAT) handed down its judgment in the case Solomon v University of Hertfordshire.

Background

The claimant was dismissed by the University for poor timekeeping, concerns about the quality of her work, and because her relationship with her immediate line manager had broken down.

The claimant claimed that her dismissal was unfair, and that it was motivated by, and linked to, her race, sex, and due to her having taken two periods of maternity leave. She brought claims of unfair dismissal, discrimination, harassment, and victimisation against the University.

Prior to the hearing, the University attempted to settle: perhaps they wanted to avoid, if possible, having to defend the 38 allegations, (which spread over a three and a half year period) that formed the basis of the claimant’s claim.

Settlement agreement

The University offered the claimant, via a settlement agreement, £50,000. In addition, and as stated within the settlement agreement, the University offered to pay a contribution of up to £500 plus VAT towards the legal fees the claimant would incur as a result of having to take advice on the settlement agreement. The University made it clear that its contribution in this respect was conditional upon her signing the settlement agreement.

The claimant refused the University’s offer and did not seek legal advice. The claimant probably regrets making this decision. The tribunal dismissed most of her claims, save for finding that she had been unfairly dismissed, for which it awarded compensation just shy of £2,000.

Unlike the Civil Courts, the winning party of an employment tribunal claim is not automatically entitled to recover the costs it has incurred as a result of having to defend a claim. However, there are some circumstances where a tribunal will award costs, for example, if there is evidence that the other party has acted, ‘vexatiously, abusively, disruptively or otherwise unreasonably’.

Perhaps, unsurprisingly, the University made an application to the tribunal for the recovery of its legal costs, which amounted to £122,000, from the claimant. In support of its submission for the recovery of these costs, the University referred the tribunal to the (attractive) settlement offer it had made to the claimant. The tribunal awarded the University £22,000 towards its costs.

Appeal

The claimant appealed, and the EAT held that the tribunal hadn’t determined whether the claimant had acted unreasonably or not. The EAT stated that:

‘The Employment Tribunal must be careful not to substitute its own view but rather to review the decision taken by the litigant’, and that it should, ‘keep in mind that in many (though not all) circumstances there may be more than one reasonable course to take.’

The issue was remitted back to the tribunal for their determination.

Unrealistic offer

The EAT went on to say that the University’s offer to pay a contribution of £500 towards the claimant’s legal fees was ‘wholly unrealistic’, and would not cover the work required to: ‘read and consider’ the claimant’s claim; to advise on the terms of the settlement agreement; and whether, on balance, the offer was reasonable or not.

It has become somewhat of a habit for an employer to offer £250 to £500 towards the legal costs its (former) employee is likely to incur as a result of having to take advice on the settlement agreement; and to make this contribution conditional on the settlement agreement being signed and agreed by the employee.

Break the habit

This case demonstrates that there is a need to break out of the habit of simply offering a set amount towards the contribution of legal costs, without giving much thought to the unique circumstances surrounding the presentation of the settlement agreement.

It is, therefore, important, that as an employer you give as much consideration as to what is a fair and ‘realistic’ contribution towards an employee’s legal fees, as is given to the amount of compensation being offered. This is particularly important if you want to be able to rely on the settlement agreement in support of an application for costs, in the event that the matter proceeds to a tribunal hearing. Lodders’ expert Employment Law team can provide you with the specialist advice that you need when it comes to settlement agreements.

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Get in touch...

The Employment team has vast experience in acting for employers and employees in respect of settlement agreements. For more information, please contact Nick Rowe on 01242 229096, or via email.