UK: Is Mediation the way Forward in Employment Disputes?

Last Updated: 20 December 2005
Article by Alan Julyan

Introduction

When first introduced, the employment tribunal system was designed to deliver a cheap, accessible and non legalistic process for resolving workplace disputes. Since 1964 the work undertaken by employment tribunals has changed dramatically. Many would say that the key objectives set out when they were created are no longer being delivered.

The CBI/Pertemps Employment Trends Survey 2005 indicates a high level of concern over the complexity of employment tribunal procedures. The report also highlighted that employers were pessimistic about the impact of the new disputes resolution procedure and did not see the rules as having any impact on the number of vexatious claims being made. The wide spread pessimism about the system would suggest employers should be actively seeking ways of resolving employment disputes out of court.

The CBI/Pertemps Employment Trends Survey 2005 also recommends changes to the employment rules and the dispute resolution procedures to remedy this lack of confidence by the business community. The main recommendations are to improve both the operation of the employment tribunal system and the new statutory dispute resolution procedures. What was not suggested is the use of mediation as an alternative to litigation.

Why is mediation still not seen as a solution to some of the problems identified? Mediation is the recommended route in a number of other countries to resolve such disputes. US company law requires mediation and it is increasingly used in disputes relating to collective bargaining disputes. In New Zealand mediation is compulsory. In Italy and France alternative dispute resolution (‘ADR’) is brought into the legal framework using labour inspectorates to promote mediation in more of a policing role. In civil disputes in the UK, the parties are encouraged to use ADR. So why is mediation not seen as a solution to employment problems? This article reviews mediation in the context of employment disputes.

A changing landscape

The take up of mediation in employment cases has lagged behind its use in civil and commercial disputes in the UK. Despite an increasing number of employment rights, and tribunal claims, employers and employment lawyers should see mediation as an ideal way of resolving disputes. In many employment claims the employment relationship remains in existence and mediation provides the best way of resolving the underlying employment problem whilst sustaining the relationship.

At one time the lack of knowledge of the value of mediation appeared to be one of the reasons why mediation had not grown. In 2003 the Employment Lawyers Association carried out a survey of its members, the prime group who might advocate its use, to find out what they felt and knew about mediation. Overall the response to the survey was positive but there were some surprising findings:

Most employment lawyers who answered the questionnaire were prepared to admit they knew what mediation was but surprisingly 33% said they had no knowledge of it, 66% said they never used it, and only 25 people responding claimed to have a considerable degree of knowledge of mediation in the employment field. Since then the use of mediation has grown, which may suggest that it is becoming better understood by those that might use it. However, its use does not match the growth in other areas of the law. Of course mediation, or ADR, has become an established feature of resolving litigation disputes in the UK as a direct result of Government intervention.

The court system and ADR

Since the reforms of the court system promoted by Lord Woolf (the Access to Justice Act 1996), the court has encouraged parties to litigation to consider ADR, including mediation. Prior to these reforms litigation was beyond the means of anyone save for those that were funded by legal aid or those with deep pockets. The reforms were intended to address this financial barrier to justice.

Part I of the White Book (the court bible governing the conduct of civil litigation) states that there is an overriding objective to act reasonably in exchanging information and documents relevant to the claim and generally in trying to avoid the necessity for the start of proceedings and to deal with cases justly. Moreover, the court must further that objective by actively managing cases. This includes the court encouraging the parties to use an ADR procedure, ie to avoid the court process to find a solution normally by way of mediation.

The Court of Appeal reinforced the rule by stating that it was the duty of the parties as well as the court to consider alternative ways of resolving the dispute.

In the case of Halsey v Milton Keynes General National Health Trust the enthusiasm was discouraged. It was made clear that the court is not in a position to compel parties to adopt mediation although it is in a position to encourage them to do so. Certainly it was never the intention of Lord Woolf to compel its use.

The use of mediation in stress cases has recently been given further momentum by the decision in Vahidi v Fairstead School Trust Lted [2005] EWCA Civ 06 where Lord Justice Longmore said:

"One shudders to think of the cost of this appeal and of the trial which apparently took as long as 9 days. As the court has settled many of the principles in stress at work cases, litigation really should mediate cases such as the present. Of course, mediation before trial is infinitely preferable to mediation before appeal. But it is a great pity that neither form of mediation has taken place in this case, nor if it has, that it has not produced a result."

As most employment disputes end up in an employment tribunal, is what the courts advocate of any relevance? Clearly it is as the contractual jurisdiction of the employment tribunals is limited to claims up to £25,000 and many employment disputes involve complicated contractual claims beyond that financial limit. Furthermore, there are employment cases that will find their way to court as it will be the forum of choice for the parties eg cases that require the court to intervene and grant interim orders to compel parties to comply with contractual obligations.

In these cases there will be pressure on the parties to consider mediation. Following the steer given by the court it is now important for lawyers to routinely consider with their clients whether their disputes are suitable for ADR. Many employers will be aware of the benefits of mediation and will see it as the logical way forward to resolve any dispute. Knowledge of mediation and its benefits will grow as more parties gain experience of mediation as a way of resolving disputes.

All manner of disputes can be resolved by way of mediation. For example it was originally thought that mediation was inappropriate for disputes which turned on narrow questions of law. But this view was rejected by the court in the case of Royal Bank of Canada v Secretary of State for Defence, a case principally turning on the construction of a break clause in a lease.

In this case the Ministry of Defence refused a number of offers from the Claimant to go to mediation, notwithstanding the commitment issued on behalf of all government departments and agencies by the Lord Chancellor’s Department to engage in ADR in all suitable cases where the other party was willing to do so.

The MOD’s principal argument in justification of its refusal to mediate was that the case turned on a narrow point of law, which required a clear answer one way or the other. The Judge was unimpressed by this argument regarding the case as suitable for ADR notwithstanding that he was in no position to form a real view on whether mediation would have led to settlement. As a result he made no order as to costs.

Certainly, there are contractual disputes in employment law that could be referred to mediation. Disputes about the terms of service agreements and disputes on termination, such as wrongful dismissal, are clearly claims that could be resolved using mediation. It is less likely that those relating to restrictive covenants would be referred to mediation as the parties’ respective views may be very divergent and it is not common for the claims to be pursued beyond an interlocutory stage. However, again there is no reason why mediation could not play a part in most employment disputes.

The court enforces the requirement to consider ADR through the discretion that it has to award costs. Rule 44.5 sets out the factors to take into account in deciding the amount of costs to be awarded if mediation has not been followed. It gives the court discretion to take account of the conduct of the parties including in particular:

  • conduct before, as well as during, the proceedings, and
  • the efforts made, if any, before and during the proceedings in order to try to resolve the dispute.

This rule is fraught with difficulty and there are no clear guidelines for the exercise of the power.

Even though there has been this strong pressure to move toward resolving disputes in this way there is still some way to go. Indeed not long ago Lord Woolf expressed regret that ADR had not succeeded in changing the strong litigation culture and that one reason was that ADR had not been made compulsory when the procedure rules were first introduced. Lord Woolf has given a further endorsement to mediation as, on retirement, he is now to train as a mediator and offer his services as a mediator through CEDR.

Changes to the Employment Tribunal system

The government remains concerned about the increase in the number of claims being brought before employment tribunals and the costs involved. Although the government may bemoan the new compensation culture in the UK, it fuelled its growth by making the changes that allowed lawyers and others to offer "no win no fee" contracts. The growth of employment rights, and the difficulty small employers have in ensuring their compliance with the law, has given some momentum to this compensation culture trend. Again, it was a feature of the CBI/Pertemps report that many employers felt that there were too many vexatious claims and many claims were settled on a nuisance value basis even where the employer was advised that they would win if the matter proceeded to a hearing.

In order to address the problem the government introduced a range of new measures to curb the number of claims both to the rules of the employment tribunals and to the procedures to be followed by employers and employees. If the changes introduced do not have the impact of reducing claims further, the government may take the view that ADR should be introduced and that the parties should be required to submit to mediation. As it is the view of many employment lawyers that the new procedures are too complicated and accordingly difficult to follow, the government may well consider imposing greater obligations on the parties to consider mediation.

Rules of Procedure

The new rules introduced in 2004 to the Employment Tribunal in part mirror those introduced by Lord Woolf. The overriding objective of employment tribunals is to enable tribunals and chairmen to deal with cases justly. It is also made clear that it is the duty of the parties to assist them to achieve that objective. Another new rule gave the employment tribunals greater scope to actively manage cases. The aim is to identify the key issues in dispute as soon as possible and ensure that parties address them, so encouraging the parties themselves to work towards a settlement solution. Finally, the employment tribunals have been given greater scope to make cost orders. The main complaint now made is that the employment tribunals are not using the powers they have been given.

In the past cost awards have not been high on the agenda for claimants or respondents. Since the introduction of the new Tribunal rules in 2004 costs are a feature and parties are seeking to ensure that when they come before an employment tribunal they will not find themselves on the wrong end of an application for costs. The new power to make a cost award is not as wide as in the court but covers claims where the paying party has acted vexatiously, abusively, disruptively, or otherwise unreasonably, in bringing or conducting proceedings or the action is misconceived. The ability to award costs for failing to mediate is not one given to the Employment Tribunals but there is evidence of them being more prepared to make realistic costs orders where one of the parties has acted badly.

In certain cases a fixed period of conciliation has been introduced. The normal period is a period of 13 weeks and a further period of two weeks can be granted where there is a real prospect of a claim being settled. During that period the employment tribunal cannot list the case for hearing. Furthermore, the employment tribunal can adjourn proceedings to allow time for them to be resolved by way of conciliation.

Costs will always be a major factor for both parties in employment disputes. It is still the case, that despite the change in the rules, costs awards are rarely made and this means that win or lose the parties face the inevitable expense of the cost of the action before the employment tribunal.

Mediation in employment - why are employment disputes suitable for mediation?

First, many employment disputes arise in circumstances where the parties have a continuing relationship. This is the case, for example, where an employee brings a discrimination claim whilst still in employment. In those circumstances, the litigation process can be immensely stressful and destructive of the employment relationship. It particularly has a corrosive effect on the personal relationships of those involved.

Invariably claims of discrimination slide inexorably towards claims of victimisation and unfair dismissal. Often the original discrimination claim may not be founded on good grounds, but by the time the employee leaves, quite often, when others have reacted negatively to the personal complaints made about their conduct, there may well be evidence of discrimination in the latter stages of the relationship. Mediation should offer parties the opportunity of containing the dispute, and to find a solution which reflects both parties’ interests.

Second, the employment tribunal may not deliver the best solution to an employment dispute. The best solution may be to address the management, or organisational issues, rather than having findings made in respect of the particular historic complaint. Mediation provides a flexible and sensitive tool for achieving practical solutions.

Third, employment disputes often involve particularly stark differences in perception on the part of the parties. A mediation process offers some prospect of the parties better understanding each other’s respective positions, particularly if the mediator brings them together for parts of the mediation.

Fourth, employment disputes are often emotionally highly charged. A mediation process might provide an outlet for all the parties’ strong feelings about the case. The process of venting or articulating emotion can itself be a crucial step on the road to settlement. Often the party making the complaint may be motivated to get the employer to accept there is a problem and sometimes more importantly to apologise.

Fifth, the nature of an employment dispute is such that the merits are seldom cut and dried. Except in the rarest of cases, there is no such thing as a ‘risk free claim’, or a ‘cast iron defence’, particularly where cases are brought before an employment tribunal, an unpredictable forum at best. It follows that both parties are likely to have an interest in managing risk through a negotiated settlement and in particular managing the risk of high legal costs.

Sixth, confidentiality is an essential feature of mediation. It is an obvious benefit to the employer who may well wish to keep things confidential. The employee Claimant will often take a contrary view. The employee may see publicity as a way of forcing the employer to settle. However, many employees find to their cost that publicity is a two-edged sword and one that they cannot control. Trade unions cynically refer to employers washing their dirty linen in private particularly when the employer may not wish information about wrongdoing, or confidential information coming into the public domain.

Finally the speed in which a solution can be found can be a virtue of mediation. Even complicated problems can be resolved within short deadlines.

It is, of course, important to bear in mind that not all employment disputes are susceptible to mediation. A Claimant may specifically be seeking vindication from the employment tribunal. Whilst mediation can seek to deal with reputational issues, sometimes nothing short of a judgement, or a decision, will suffice. This is often the case where claims are promoted by Trade Unions or the EOC. However, Claimants will often find that their day in the employment tribunal does not provide them with the outcome that they wish.

There are cases where the parties’ perception of their dispute is so starkly divergent that the prospects of settlement through negotiation or mediation are negligible. This is particularly so in cases of discrimination which for all the reasons outlined above would appear to best lend themselves to mediation. The employee may be convinced that they have been discriminated against, whilst the employer may be equally adamant that no unlawful discrimination has occurred.

Ignorance of the process, and in particular its effectiveness and cost, is probably still one of the major factors inhibiting the growth of mediation in employment disputes. Although many more people are becoming involved in mediation, the lack of publicity about the successful outcome achieved by mediation obviously inhibits its growth as a means of resolving disputes and does little to dispel some of the ignorance of the process. Employees in particular fear that their employer will use mediation to gain information about their claim, cynically run up costs or, in fact, use the process to bully them into submission, or to use the process in order to demonstrate that it had been tried but have no real desire to resolve the dispute through mediation.

Some discrimination cases will involve a third party. For example, another employee is accused of carrying out the act of discrimination. Mediation in such a case may be more difficult as the action might involve disciplinary action being taken against that party.

Finally, there is a concern as to whether mediation will deliver a binding solution on the parties. This is not a real problem and the parties can decide if the result is to be legally binding. Where solicitors are acting for the parties to bring forward a positive outcome it is possible for the conclusion of the mediation to be binding on the parties and a compromise agreement entered into formally recording the terms, which will be binding.

Of greater concern may be where the relationship is continuing. In these circumstances will it be possible to come up with a binding agreement. It may well be that some parts of the agreement will not be binding and will be dependent upon the parties’ behaviour. But often there are many points that can be agreed and a failure to follow these agreed protocols could give rise to further evidence of discrimination.

One of the powerful forces to force compliance is if the parties have committed time and resources to the mediation. If they have done this they will be committed to making any solution that has been found, work. Otherwise the time and energy devoted to the process has been wasted.

Statutory disciplinary and grievance procedures

Mediation should become a greater feature in employment law due to the introduction by the government of the new disciplinary procedures and grievance procedures brought into force in October 2004. Indeed ACAS has noted that some employers are already introducing mediation as a requirement of their grievance procedures in response to the changes.

The government’s intention is that disputes should be resolved using these internal procedures. It was suggested that where employers have good written procedures, claims were avoided. The expectation is that by forcing compliance with the procedures, many claims will be avoided. The procedures force the parties to communicate their respective views and by so doing, resolve them. As employers or employees use these procedures and become more familiar with the positive outcome that can emerge from such a dialogue, they may find that mediation may be helpful in enabling them to find solutions, rather than allowing matters to progress to an employment tribunal.

There are also a number of soft reasons why employees might consider mediation.

The employer’s HR specialists are often driven to take a course of conduct that is designed to protect the business from claims. The reality is that HR may find it difficult to take a neutral position and are driven to act to limit the risks that the employer faces rather than seeking to find a solution to the problem that they have had reported to them. In cases where claims of discrimination are brought, employees need HR to play a positive role in assisting them to articulate their concerns, ensure confidentially and provide support and protection against the person who is acting inappropriately. But this does not always happen. For example in the Stephanie Villalba and Merrill Lynch case, the HR department was criticised by the employment tribunal for adopting a defensive position and for not providing her with more support.

In such cases employees often feel that they are being let down by HR who are not seen as supportive of the Claimant employee, regardless of the merits of their claim or their knowledge of the offending persons behaviour in other cases. It is not common for an employer to be prepared to demonstrate zero tolerance of bad behaviour, particularly where the employee is a major contributor to the success of the business. Mediation would enable HR to propose solutions to problems without exposing the business to high risks.

There are a number of other reasons why mediation may offer a practical solution and these are as follows:

  • First, the number of employment rights, and therefore claims, are increasing, so there is a need for employers to address new ways of managing an escalation of employment disputes and, accordingly, cost to the business.
  • Second, given the irrecoverable costs of employment disputes before an employment tribunal, (estimated by the CBI/Pertemps survey to be £4,360 for each claim ignoring management and administration time lost to the business) it is clear that there is a real cost benefit in choosing mediation as a way of resolving these disputes rather than confrontation.
  • Third, in addition to demonstrating a direct cost benefit, there is also an indirect people benefit as it must add value to the organisation if it is perceived by its employees as finding innovative ways of resolving disputes without going to litigation. It is no bad thing to recognise the importance of the psychological contract between employer and employee, ie that of fairness and trust. The use of mediation reinforces that there is a real psychological contract between employers and employees and this is bound to deliver benefits to the business. The positive employment climate established by a virtuous circle of employment relations will be of benefit.

The main barrier to achieving some of these gains to the business may be the traditional approach of management towards its profile, which has been that of management prerogative. Mediation will have to be actively encouraged to demonstrate to management that there are advantages to following the route to resolve disputes.

Additional considerations

There are other changes in the law which are going to increase the need for better performance management. Age discrimination will be a new right given to employees in October 2006. This will force employers to address performance management issues. Performance management will often give rise to conflict and this will need to be tackled. Age discrimination will result in greater reliance on an analysis of competencies and whether people are performing to an appropriate level. As there is an increased emphasis on performance management, this will lead to more disputes and the need to find ways of cutting down the waste of time in managing running conflicts.

The rights of employees are not decreasing but increasing and mediation should be an attractive alternative to the employment tribunal system. Certainly, why allow a system that most observers believe gives rough justice to be the way forward. It is also the case that many claims are brought when the employee is still in employment, mediation allows solutions to be found that are not always corrosive of the employment relationship.

Mediation may be introduced by foreign companies who are already in the UK, or who are setting up businesses here, who will wish to introduce these methods of resolving disputes that they are already required to use in their own jurisdictions. Such employers may take the view that these methods are seen to be working and making good commercial sense. They may see no reason why they should not be used at all their locations.

Certainly, mediation should be capable of providing a speedy response solution. The employment tribunal system is much quicker than it used to be and employment tribunals claims get through the system at a reasonable rate. But the original purpose of employment tribunals was to provide easy, informal, speedy, accessible and inexpensive access to employment dispute resolution. This is no longer the case. There will be increasing pressure from policy makers to limit the workload of the employment tribunals to get back to that original mission statement.

Conclusion

As employees become more used to using mediation in normal disputes, and certainly there is an upward trend in the use of mediation in this area, it will provide an impetus for more employment disputes to be solved in this way.

One of the main reasons why mediation has not yet become a feature in employment law is that it is only considered at a point when some of the advantages of doing it have been lost. The more it is the first thing to be considered, the more likely a positive outcome will be secured.

Mediation is not a panacea but it is a powerful, cost effective method of dispute resolution, with which HR professionals and lawyers should be familiar and which will become an established route to follow to achieve dispute resolution.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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