Damage-Based Contingency Fees in Employment Cases: A Survey of Practitioners

Abstract

'American-style' contingency fees are often thought not to exist in the legal system of England and Wales, but in fact have existed for many years in employment tribunals (and other areas defined as 'non-contentious' business). Similarity with the American system is two-fold. Firstly, in employment tribunals there is generally no 'loser-pays' costs rule: each party normally bears their own costs. Secondly, in employment tribunals contingency fees can be 'damages-based': the adviser's fee can be calculated as a percentage of damages.

The development of damage-based contingency fees (DBCFs) has been vigorously resisted in civil litigation for fear that American-style fees would open a floodgate of dubious litigation which corrupted the quality and ethics of our legal system. Intriguingly, whilst tacitly permitted, the introduction of DBCFs outside of court-based litigation has escaped regulatory attention. As such, employment tribunals present an interesting example of the apparent Americanisation of a significant element of our justice system. It is also an area that is significantly under-researched. We know very little about how DBCFs operate in England and Wales.

This Study aims to go some way in rectifying that absence of knowledge. It provides in-depth data on the use of 'American-style' DBCFs amongst employment practitioners based on a telephone survey of 191 employment specialists working in solicitors firms and claims consultancies. It also reviews existing literature and conducts original analysis of the Survey of Tribunal Applications (SETA) data 2003.

It examines levels of access to justice in employment tribunals and the impact of DBCFs on that including the vexed area of equal pay and the issue of weak or spurious cases. It also considers whether DBCF charging exploits consumers and associated consumer potection issues particularly around settlement and 'handcuff' clauses which de facto require clients to accept their lawyer's advice.

Keywords: Contingency Fees, Employment Tribunals, Access to Justice, Ethics