· 2 min read · Features

How will the abolition of tribunal fees affect small businesses?

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We're no closer to knowing the full impact of the July 2017 ruling that found tribunal fees were unlawful

No new system has been put in place and it is not known what the government's intentions are. It is also unclear how many potential claims that the fees deterred will now be brought forward.

The particular implications of this situation for small businesses are important, as SMEs provide three-fifths of employment and almost half of turnover in the UK private sector. At the start of 2016 total employment in SMEs was 15.7 million. Twelve-and-half million people, or 48% of the private sector total, are employed in small businesses. The average small employer with the Federation of Small Businesses (FSB) has seven staff.

Being an employee in a small business is quite different to being in a large organisation. Small businesses employ staff on a much more individual basis than larger organisations are able to. Individuals from disadvantaged groups are much more likely to find employment in a small business and personal introductions are much more important. Research undertaken by the Westminster Business School, and sponsored by the FSB, found that nine out of 10 people moving from economic inactivity into work started their new job in an SME or became self-employed.

The most common claims brought against an employer are unfair dismissal, discrimination and unlawful deductions from wages. For the past four years taking these claims to an employment tribunal could cost more than £1,000. For some claims (notably unlawful deductions) the fees could be greater than the loss faced by the employee. If the claim was successful the fees would be added to the compensation awarded. However, the perceived risk was often greater, and there is always the possibility that even if an award is made it would prove difficult or impossible to collect.

Now that the fees system has been abolished it stands to reason that employees are more likely to bring claims. A typical application to an employment tribunal has again become a 'no cost' option for disgruntled staff, while defending a claim has never been a no cost option for the employer. One reason for this is the management time taken up preparing for a hearing, which is particularly a problem for small owner/managed businesses. As a result, it is frequently cheaper to settle a weak claim than successfully resist it. Unfortunately settling weak claims is likely to encourage more speculative claims in the future.

Inevitably the number of tribunal applications is likely to start increasing again towards the much higher levels experienced a few years ago. In the meantime, the FSB will lobby for the urgent introduction of a system of affordable fees – perhaps similar to county court fees – with a fair remission system for disadvantaged individuals who cannot afford that level of up-front payment. At the same time as this campaigning work, providing small businesses with employment law advice and resources through FSB membership will continue to be a priority. A balanced approach to tribunal fees would help fund the tribunal system and limit the of number malicious claims, while also giving workers access to justice.

Michael Mealing is chairman of the Federation of Small Businesses’ employment policy unit