Are settlement agreement costs going to increase?

In a recent Employment Appeal Tribunal (EAT) case (Solomon v. University of Hertfordshire), an employee brought claims of unfair dismissal, discrimination, harassment and victimisation against her former employer. In the run-up to the hearing, her employer had made a settlement offer of £50,000. As part of this proposal it offered to contribute an additional £500 plus VAT so that she could obtain legal advice on the settlement. The claimant rejected, and the case proceeded to a hearing.

At the Employment Tribunal (ET), the claimant received £1,900 compensation for unfair dismissal, but lost her discrimination claims. As the claimant had rejected a substantially larger offer, the employer applied for costs. The ET ordered the Claimant to pay £20,000 costs. The claimant appealed to the EAT against both the decision on her claims and the costs judgement.
On appeal, the EAT upheld the substantive decisions of the ET. However, the interesting part here is in relation to the costs judgement, and the comments made by the EAT in relation to the £500 contribution.

The EAT held that the ET got the law wrong in respect of the costs order as it failed to take the full circumstances of the claimant into consideration. In particular, the contribution offered in respect of legal advice on the proposed settlement was considered. The EAT judge stated that the £500 contribution would only be enough to cover advice on the “terms and effect” of the proposed settlement. The judge went on to describe it as “wholly unrealistic” to think that this level of contribution would be enough to enable her to obtain advice on the merits of her claims before the tribunal and the value of any likely award of compensation. In the context of a costs application, the EAT clearly felt that an offer of only £500 plus VAT for legal fees was not reasonable so on this ground the claimant’s rejection of the offer was not unreasonable. The costs issue was referred back to the Tribunal to be reconsidered.

Employers should take note of this decision and may want to consider the contribution they make towards employees’ legal costs in these scenarios. It is likely that those representing employees in the negotiation of settlement agreements will rely on the comments to seek a higher contribution. However it is important to remember that, while it is common practice for employers to contribute and it does help to ensure that the employee receives the necessary legal advice, there is no obligation to contribute. Further the requirement for a settlement agreement is only for advice on the “terms and effect” of the agreement – not the reasonableness of a litigation. The amount of the contribution (if any) will not affect the validity of the waiver in the settlement agreement.

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Natasha Meikle

About Natasha Meikle

Natasha advises employers and employees on a wide range of employment issues. She has experience in dealing with both contentious and non-contentious matters. She acts for both public and private sector clients, across a variety of industries including education, leisure, financial and charity.

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