Year in review
The landscape of employment law in an uncertain economy
When Ellis Whittam (EW) opened for business in 1994, the idea was simple: combine the service quality of a leading law firm with the cost certainty of fixed-fee Employment Law, HR and Health & Safety services.
Over the 15 years that followed, we have grown exponentially – now supporting over 17,700 organisations nationwide with their staffing and safety challenges. Our clients vary in size – from small owner-managed business right up to public listed companies – and sector – with our specialist teams providing tailored support to a broad range of clients within manufacturing, education, professional services, retail, hospitality, care, charities, logistics, and many more besides.
Given our scope (supporting businesses with their legal compliance) and our diverse client base, we are, in many ways, a fairly accurate microcosm of the UK economy. In addition, whilst operating on a fixed-fee basis, it is still necessary for us as legal professionals to track how much time we spend dealing with client matters and, crucially, what sort of issues are prevalent.
In light of the above, the data contained in our systems provides a unique insight into current trends in the UK employment law and HR sphere – and, having studied it closely, we believe that we can reasonably draw some broader conclusions about the state of the UK economy and the businesses operating within it by comparing data from financial year 17/18 (FY18) to that of 18/19 (FY19).
In the following article, we will set out the findings of our study and present the conclusions we believe can be drawn from the data.
Director of Legal Services
The general picture
Before delving into the intricacies of the data, the first, most evident point to make is that our workload has increased significantly year on year. Overall, the number of “activities” (i.e. client interactions, for example by telephone or email) we recorded increased by nearly 13%. That said, it is interesting to note that there was not an even split in terms of that increase if one considers the sorts of issues we have been asked to advise upon or the sectors in which our clients operate.
A dramatic rise in Employment Tribunal work
By far the most significant increase in workload we have encountered is in relation to Employment Tribunal claims. In fact, the number of activities recorded by our litigation team in FY19 was up 61.5% on the prior year. Notably, Tribunal work accounted for 16.6% of our overall workload in FY19, compared to 11.1% the year prior.
However, it is interesting to note that this increase is not reflected equally across all sectors. Manufacturing, for example, remains more or less static year on year; meanwhile, our education clients saw an increase of 49% and professional services 56%. Perhaps the most surprising statistics are the increases seen in retail (up 73%) and hospitality (up a staggering 318%). This seemingly debunks the notion that employers in sectors that traditionally employ fewer clerical type roles are less likely to become involved in a Tribunal claim; based on our data, this is certainly not the case. Instead, our data no doubt reflects how easy it is to fill in a claim form online – something that can be done in a matter of minutes by any disgruntled current or former employee.
Volume of claims
Turning away from our own data for a second to reflect on national statistics, since Employment Tribunal fees were scrapped in July 2017, FY18 saw a 32% increase in claims, followed by a further 26% increase in FY19. With claims levels in the pre-fee era still higher than the numbers we’re experiencing at present, the real concern for employers is that there is still plenty of headroom for claims to continue to soar.
NB: 35,429 single claim receipts were lodged between April 2018 and March 2019. In the 12 months prior to Employment Tribunal fees being introduced in July 2013, this number stood at a whopping 53,487. Accordingly, there is still potential for a further for a further 50% increase in claim numbers if we’re headed back to pre-fee levels.
Prospects of success
A total of 93,817 claims were disposed of (completed) in FY19. The majority will have settled or were withdrawn. However, 9,383 claims did make it all the way to a full Employment Tribunal hearing. Of those, 8,445 were won by the employee, putting the national employer win rate at just under 10%. By comparison, the team at EW successfully defended 82% of claims over the same period.
You’re over eight times more likely to win a Tribunal claim if advised by our expert Employment Law team.
The cost of litigation: Legal fees and compensation awards
From an employer’s perspective, there are two direct costs related to dealing with a claim. The first is financial, both in terms of legal fees and compensation. Instructing a private practice law firm to deal with a claim can be very expensive. Typically, they will charge by the hour, with most firms expecting their clients to pay in excess of £200+VAT p/h. As you can imagine, this expense can mount up fast, particularly in complex, lengthy cases.
Adding to the financial burden of receiving a claim is compensation costs. In FY18, the average award for unfair dismissal (the most common type of claim) was £15,007.
The average case can require employers to commit 20 hours of their own time.
The hidden cost of litigation: Management time
The second significant cost associated with litigation relates to the burden placed upon management time. In FY19, we spent 9,279 hours dealing with litigation. Our own analysis suggests that, on average, we will spend approximately 40 hours disposing with a claim. Whilst we handle the bulk of the work in terms of drafting Tribunal pleadings, collating documents and preparing witness statements, on the employer’s side, significant management time is needed to assist with that
Typically, we would expect the employer to spend about half the time we do in helping to prepare a case. With this in mind, an average case could eat up about 20 hours of an employer’s time. What’s more, if that case were to proceed to a full hearing, the management time spent dealing with that work could easily rise to 60 to 80 hours when attendance at Tribunal as a witness is factored in. Naturally, this incurs further financial outlay.
Mitigating the risks
Of course, the best way to mitigate against the costs of litigation is to avoid it in the first place. Whilst this is no easy feat nowadays – with the absence of fees making employers increasingly vulnerable to claims – there are steps that can be taken to reduce risk, and we’re well equipped to help you in this regard.
Procedures are only the first step. Once they are in place, it is important to have managers who are familiar with them and trained in best practice. At EW, we offer a wide range of options aimed at upskilling your management population, whether that be webinars offering practical tips and guidance, regular legal updates and insights via our client newsletter, thought-provoking podcasts hosted by our team of experts on best practice and recent case law, or on-site training tailored to your specific needs.
First and foremost, it is essential to ensure you have up-to-date and legally-compliant contracts and handbooks. Making sure you have robust procedures makes compliance easier and will help you to stand up to the scrutiny of an Employment Tribunal. Our specialist contract and handbook team will work with you as a new client to ensure your policies suit your needs and our right up to date. Regular updates are also provided either as requested, when new legislation appears or on an annual basis.
Central to our support is unlimited, fixed-fee Employment Law and HR advice from a trained legal professional. The unlimited nature of that support allows us to build strong and lasting relationships with our clients, which is reflected in the market-leading renewal rates achieved by our Employment Law team. This complete costs transparency also offers valuable peace of mind; unlike pay-by-the-hour private practice law firms, our fixed-fee service means there is no need to worry about watching the clock, or reluctance to pick up the phone for fear of racking up a substantial bill.
Importantly, despite our unique proposition, you can expect the same quality of advice as you would receive from a law firm. Approximately 85% of our team is formally legally qualified or training towards such a qualification. The rest of the team are either CIPD qualified or have practiced employment law for many, many years. Knowing the law so thoroughly gives us the opportunity to provide genuinely pragmatic and commercial advice to our clients with their particular situation in mind. We always start by finding out what solution you are looking for and then draw upon our in-depth knowledge and wealth of experience to plan the route there as quickly and efficiently as possible.
For added protection against legal risk, our advice is also backed by Legal Expenses Insurance. Unlike many other fixed-fee providers, our insurance is completely independent, meaning the decision on whether a claim should be insured has no impact on our bottom line. We have worked with the same insurer for many years and they trust our judgment; if we say a claim should be covered (and when our advice has been taken and followed, that is almost inevitable), it will be covered. The financial risks discussed above of Tribunal claims are simply not a worry for our clients as the insurance pays the cost of any compensation or settlement, and your legal fees are covered by your fixed fee.
In the event that you do encounter a Tribunal claim, you will have the first-class support of our litigation team, who are not only vastly experienced but also have an unrivalled success rate. As we set out above, in FY19, only 938 claims were defended by employers nationally, putting the average national win rate for businesses at less than 10%. At EW, we outperform that statistic significantly, with our clients enjoying a far superior 82% win rate at Tribunal hearings during FY19.
Early conciliation on the rise
Given we have seen such a large increase in activity levels when it comes to dealing with Tribunal claims, it is no surprise that the number of early conciliation activities recorded in FY19 is also up by 64%.
Early conciliation is a mandatory first step for any disgruntled employee who wishes to commence a claim and involves ACAS contacting both parties to see if settlement can be reached and a claim avoided. ACAS’s statistics for FY18 show that demand for its service increased by 40% year on year and its intervention prevented nearly 7,000 additional claims being lodged at Tribunal.
From an employer’s perspective, it is often wise to engage at this stage to see if a potential claim can be disposed of easily or cheaply. It is also preferable to have negotiations with ACAS dealt with by a legal adviser given that we can offer a view on the potential merits of any claim and its value. At EW, dealing with ACAS during early conciliation is a natural extension of our service, bridging the gap from the advice provided at the relevant time which has led to the dispute and any eventual claim. Continuity here is invaluable.
We have also seen a significant increase in activity levels relating to the drawing up and negotiation of settlement agreements, up 69% year on year.
The reason for this jump in numbers, in our view, is simple pragmatism. Many employers recognise the considerable amount of time that can be consumed by, for example, a grievance (or multiple grievances), subsequent investigations, and then the inevitable resulting litigation following the scrapping of Tribunal fees. Our clients are often time-poor and have business to run. Even with our support, litigious employees can be a huge drain on your time, money and resources. It is often far better for both employers and employees to attempt to negotiate an exit when the employment relationship starts to break down, even in a situation where the employer is backed by insurance. Once that point is reached, and the client is taking a pragmatic approach, a settlement agreement is the best mechanism for ending employment and preventing litigation. Our combination of straightforward advice and tactical acumen often results in very favourable deals for our clients when this happens.
More call for settlement agreements
A spike in absence-related issues
Generally speaking, absences can be split into two categories:
In the world of employment law and HR, medical capability is the term used to describe situations involving employees on continuous long-term sickness absence and the process involved in ending their employment. Employers often find this process frustrating given that it inevitably involves waiting for some months before action can be taken. Even when that time arrives, the law demands medical evidence on the condition and a prognosis of the employee. This typically requires a report from either a GP or occupational health practitioner, and it is not uncommon for employees to be uncooperative in this regard. To complicate matters further, this type of employee is usually suffering with a condition that would qualify as a disability under the terms of the Equality Act 2010, which requires employers to abide by strict discrimination laws in their dealings with these employees.
Short-term sickness absence
In contrast to the above, it will be fairly obvious what this refers to. Short-term sickness absence involves the sort of employee who is often off sick on a Monday or absent for a couple of days each month. It will not normally be necessary to obtain medical evidence in this sort of case, unless there is an underlying condition causing the absences. In theory then, short-term absences are more straightforward to deal with.
When comparing FY18 with FY19, it is interesting to note that activity levels for medical capability increased by 26%. Meanwhile, the number of short-term absence cases we dealt with rose by 7.5%. In July 2018, the Office for National Statistics produced a report on absence levels within the UK workforce. The figures show that employees took an average of 4.1 sickness absence days in 2017, compared with 7.2 days in 1993. Since the economic downturn of 2008, sickness absence rates in the UK have fallen by 0.5 percentage points to 1.9% in 2017.
Whilst statistics for 2019 have not yet been published, it seems doubtful that absence rates will have increased to the point where they could account for the upturn in activities and cases that we have seen. Instead, it seems more likely that there is a renewed willingness amongst our clients to tackle these sorts of issues with our help. Absence can be very disruptive to a business, placing additional strain on other employees. This is particularly acute when dealing with short-term absence, as it often happens with little warning, depriving the employer of the opportunity to put contingencies in place.
Employers need to understand the best way to approach either long or short-term absence, making sure the correct procedures are adopted for both. With our support and guidance, we can educate clients as to what they can and cannot do in these tricky situations and help them to avoid the legal pitfalls associated with the various types of disability discrimination. Our success in this regard is evidenced by the fact that we carried out over 33,000 activities in the areas of medical capability and sickness absence in FY19 and less than 1% of them led to a Tribunal claim for disability discrimination.
Our activity levels for medical capability increased by 26% from FY18 to FY19.
Are we in the early stages of a recession?
In August 2019, it was reported that the UK could be heading for its first recession in a decade, fuelled by grim official figures showing that the economy contracted in the second quarter of 2019. If that contraction extended into the third quarter of the year, then we would “officially” be in the midst of a recession.
However, our data suggests that the warning signs were there back into late 2018 into the early part of 2019. From FY18 to FY19, the number of activities we carried out relating to redundancies increased by 28%. Whilst there is no direct correlation between redundancy and recession, laying people off is hardly a sign of a healthy economy.
All our key sectors witnessed an increase in redundancy queries, with hospitality up 29%, education 35%, professional services 36%, retail 43% and manufacturing 48%.
From FY18 to FY19, the number of activities we carried out relating to redundancies increased by 28%.
On reflection, seeing retail struggling is no surprise. A recent report from KPMG showed that retail sales dropped 2.7% in the four weeks to 25 May 2019 compared with a month earlier, making it the biggest fall since records began in January 1995. The difficulties experienced by well-known brands such as HMV and Debenhams merely serve to highlight the point. Indeed, looking at our data, the indicators of this downturn were there.
A report published in June 2019, carried out by Cambridge University for the Department for Business, Energy and Industrial Strategy, reveals how a larger slice of UK exports than previously understood are vulnerable to EU tariffs in the event of a no-deal Brexit. The report avoids putting a fresh figure on the proportion of GDP accounted for by the sector, but one of its authors said it was near 15% (rather than the previous estimate of 9%).
During FY19, there was a steep decline in car production, and Donald Trump’s trade war with China has pushed the manufacturing sector into recession. Indeed, the quarterly contraction of the UK economy reported in April was largely in response to a sharp decline in manufacturing output. Given the reliance upon cross-border supply chains, it is perhaps no surprise to see the manufacturing sector suffering the most in this regard given the continued uncertainty surrounding Brexit.
Redundancy exercises are amongst the most complex and alarming processes that an employer can undertake. They are a time of great uncertainty for your workforce and that is before one considers the legal challenges of ensuring that you have a robust case for redundancy, have selected the right pools of employees from which a selection will be made, have designed objective selection criteria, have a plan for consulting with the workforce, and have considered alternative employment. It really is quite the minefield, but with a small, dedicated team of advisers who truly understand your business, we can help plan all those processes carefully to ensure that you are legally compliant and that the procedure is as painless as possible for you and your employees.
Between FY18 and FY19, we handled over 22,000 individual activities relating to redundancy. Of those, we received just nine redundancy-related Employment Tribunal claims, all of which were successfully defended at hearing. We believe this speaks to the quality of our advice and support, and our ability to deliver our clients’ preferred outcomes.
The bread and butter of employee relations: Disciplinary and performance
Our Employment Law team have seen a 69% increase in settlement agreement activity levels.
Over a quarter of all enquiries we deal with relate to disciplinary issues and performance management (18.5% and 8.5% of total activities respectively), which will not be news to anyone with experience of dealing with employment law and HR. However, much more surprising is the fact that both have increased year on year to a far lesser degree than other types of activity and below our average overall increase in work of 13%. Disciplinary issues have increased by 5.5% and performance queries by less than 2%.
Looking at a sector split, we have a wide divergence. For disciplinary queries, we saw a 2.8% increase in hospitality, a 4% increase in retail and a 9.7% increase in manufacturing. Professional service activity levels increased by 24% and education by a massive 47%. That probably reflects the unique challenges of dealing with employment law issues in the education sector. By way of an example, if a client in, say, manufacturing was disciplining an employee who then resigned, that would be the end of the matter. However, for certain allegations in education, that process must run its course regardless of whether the employee has resigned or not.
A sector split in performance management is much less instructive. Given the relatively small increase overall, each key sector only experienced a moderately small rise.
Discipline and performance are very much the ordinary, everyday matters that people automatically think about whenever considering employment law and HR. Nevertheless, each present their own challenges and can cause a great deal of disruption for employers.
No quick fix
The main problem we find for our clients is the time that it takes to deal with these sorts of issues. If we take disciplinary as an example, the process (and how long that will take) will largely be driven by our client’s desired outcome and how long the employee in question has been employed. As general rules of thumb, dealing with employees with under two years’ service, or those situations that only require a low-level sanction, will be straightforward. Our advisers are trained and encouraged to adapt their advice and your processes to get you where you want to be in a compliant and efficient manner. This saves you valuable time, which can instead be spent running your business or dealing with big-picture HR projects that might otherwise be lost in the minutiae of employee relations.
Of course, not every disciplinary process will be easy and straightforward. If you are required to investigate a Finance Director with 10 years’ service accused of accounting irregularities, the process will be different and more involved. However, we recognise that your time is not infinite, and by providing appropriate advice to lower-level queries, we can create the time needed to deal with more complex matters.
If anything, dealing with performance management issues can be even more time-consuming. Generally, it will not be fair to dismiss an employee for poor performance unless you have first gone through the full range of warnings, provided appropriate support to the employee and given them an opportunity to improve. For employees with over two years’ service, it would not be unusual for this process to last anywhere between three to six months with regular management meetings key to a fair procedure.
Realistic, commercially-minded solutions
When faced with this sort of situation, we are always keen to present our clients with commercial options. For instance, if the employer will need to spend three to six months managing a poor performer only to end up terminating their employment and paying notice anyway, it often makes more sense to wrap that up in the early stages by offering an amount equivalent to the time it would take to manage the employee out, plus their notice entitlement. Financially, the employer is not worse off overall and there will be a considerable time saving. Indeed, perhaps this commerciality is part of the reason why we have seen settlement agreement activity levels climb 69%.
Of course, employers may wish to deal with performance management in a more traditional fashion. We have the expertise to help with that too, whether that be providing guidance in relation to the performance management process, the contents of any performance improvement plan, or strategic advice in relation to the usual tactics deployed by employees in this sort of situation, such as the lodging of a grievance or an attempt to link poor performance with medical conditions.
So, what does it all mean?
This is a time of great uncertainty for UK employers. The information we have been able to glean from our records supports the fact that the economy stands on the brink of recession. To make matters worse, Employment Tribunal claim numbers are rising at a rate not seen since 2012, with plenty of room for that to continue, and we still see endless numbers of disciplinary cases, performance management issues and problems with employee attendance that put pressure on already stretched businesses. Our clients are time-poor and simply do not have the capability to deal with these general employee relations issues on top of trying to run a profitable business.
As an EW client, you have the reassurance of professional support whenever you need to solve your people problems quickly and compliantly. Our insurance option offers additional protection against financial loss, and our market-leading renewal rates demonstrate that we are a partner you can genuinely trust and rely upon in the long term. Should the worst happen, our litigation service means you are eight times more likely to successfully defend an Employment Tribunal claim as compared to the national average – giving you peace of mind that you’re in safe hands.