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How to make money out of Employment Tribunal fees

July 16, 2014

Today, I received an email from a well establised insurance company promoting what appears to be after the event (ATE) insurance for potential Claimants in Employment Tribunal cases. I only ever work on the other side of ET cases (i.e. representing the employer), so I very nearly pressed the “delete” button without a second look. But then I thought about it a little more.

This essentially looks like “no win, no premium” cover for ET fees, so that the Claimant does not need to pay unless they win. If they lose, or abandon their case, then the insurers cover all of the ET fees.

If that is the case then it would imply that the insurance industry has taken the view that there many are ET Claimants with strong or winnable cases who are being put off purely by the upfront fees. Otherwise they wouldn’t see any profit in it.

This takes me back to a conversation I had with the Chief Executive of another insurance company (also in the legal expenses sector) who told me that someone would find a way to make money out of ET Fees and would develop an insurance product to do that. They thought that could ultimately lead to an increase in Employment Tribunal cases, if for example a claims farming approach was to be taken by someone.

I haven’t seen much evidence of that until now, and we certainly are a very long way from seeing an inreased number of claims, but I do think that the timing of this particular development is quite telling.

We know that there has been a massive reduction in the number of ET claims (up to 80% in some cases). We also now know that, according to the recent HM Courts & Tribunal Service annual report, approximately £4.5million of fee income was generated from ET fees in the period between 29 July 2013 and 30 March 2014 (which equates to approximately £6.7million when extrapolated for a full year). This is only 67% of the £10million per annum that HMCTS had hoped to generate from the introduction of ET fees.

Now, HMCTS are the people who have all of the statistics and records that show the level of issued claims and their results over the years, so you would expect their prediction to be pretty accurate. I certainly wouldn’t expect it to be 23% out, and I anticipate that is the way that the insurers are looking at it too.

The insurers are after that 23% of arguable claims which have not been lodged with the ET. If those missing claims are lodged using their ATE insurance, then the insurers can make a tidy profit from their premium when a case is settled or won by a Claimant.

Interestingly, this development lends weight to the Trades Union argument that the ET fees regime is preventing access to justice. In essence, individuals with arguable cases, are being prevented from arguing their cases. However, if ATE insurance in this sphere takes off, then that will ironically provide the mechanism for enabling access to justice again, which would then undermine the Trades Union challenge to the ET fees regime.

The end result will probably still mean less ET litigation than we have seen in the past, but an increased cost for the litigation that continues. Claimants will keep less of their settlement/award money. In the meantime HMCTS make a little revenue out of it, and the insurance companies potentially make a lot of money out of.

This time though, you can’t blame the lawyers for making money out of it. Lawyers have definitely seen a marked reduction of work in this area, even leading to some employment litigation teams reducing their headcount.

I would be really interested to hear if you have any experiences or comments to share on this subject.

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