Employment Tribunals

An employment tribunal is a specialist court that hears disputes between employers and employees (or former employees) about employment rights. For employers, a tribunal claim represents a significant cost in management time, legal fees and potential compensation – even when the claim is successfully defended.

Understanding the tribunal process, the financial risks involved and how to prepare is essential for any business that employs staff.

Types of claim

Employment tribunals hear a wide range of claims. The most common are:

Claims for unfair dismissal, wrongful dismissal and redundancy pay make up a large proportion of tribunal work, but discrimination claims pose the highest financial risk because compensation is uncapped and can include an injury to feelings award.

The tribunal process

ACAS Early Conciliation

Before filing a claim, the claimant must notify ACAS (Advisory, Conciliation and Arbitration Service) and go through Early Conciliation. This is a mandatory pre-claim process designed to resolve disputes without a hearing.

• ACAS contacts both parties and attempts to broker a settlement
• The conciliation period is up to 6 weeks (one calendar month, extendable by a further 2 weeks)
• If no settlement is reached, ACAS issues an Early Conciliation certificate, allowing the claimant to proceed with a tribunal claim

Around a third of cases are resolved at the ACAS stage, making it a genuinely useful opportunity to settle before costs escalate.

Filing the claim

The claimant files an ET1 form with the tribunal, setting out the details of their claim. The employer must respond by filing an ET3 form within 28 days of receiving the claim.

Failing to file an ET3 on time is serious – the tribunal can issue a default judgment against the employer.

Case management

After the ET3 is filed, the tribunal issues case management orders setting out the steps each party must take to prepare for the hearing:

The final hearing

At the final hearing, both parties present their case, call witnesses and cross-examine the other side’s witnesses. The tribunal panel consists of an Employment Judge (legally qualified) and, in discrimination and certain other cases, two lay members. Hearings are held in public, and the tribunal issues a judgment either on the day or reserved for a later date.

Costs and financial exposure

Legal costs

Employment tribunals do not generally follow the “loser pays” principle that applies in most civil courts. Each side normally bears its own legal costs.

When costs are awarded

A tribunal can make a costs order if a party acted vexatiously or unreasonably, the claim or response had no reasonable prospect of success, or a hearing was postponed because of a party’s conduct. Orders can be up to £20,000 without a detailed assessment, or unlimited following one.

Compensation awards

Unfair dismissal compensation has two elements:

• Basic award – calculated the same way as statutory redundancy pay , based on age, length of service and weekly pay (capped at £643 per week for 2024/25)
• Compensatory award – loss of earnings, benefits and pension, capped at £115,115 or 52 weeks’ gross pay, whichever is lower

For automatically unfair dismissal and discrimination claims, there is no cap on the compensatory award. Discrimination awards also include:

• Injury to feelings – assessed using the Vento bands (lower: £1,200 – £11,200; middle: £11,200 – £33,700; upper: £33,700 – £56,200; exceptional cases above £56,200)
• Personal injury – if psychiatric injury is caused
• Aggravated damages – in exceptional cases

Settlement

Most employment tribunal claims are settled before reaching a final hearing. Settlement can occur at any stage:

• During ACAS Early Conciliation (before a claim is filed)
• After the claim is filed but before the hearing, through negotiation or judicial mediation
• At the door of the tribunal on the day of the hearing

Settlement is normally recorded in a COT3 (an ACAS-brokered settlement) or a settlement agreement (a legally binding agreement where the employee receives independent legal advice). Settlement agreements are commonly used alongside notice period arrangements.

A settlement agreement must be in writing, relate to the particular complaint, confirm that the employee has received independent legal advice from a qualified adviser with professional indemnity insurance, and state that the statutory conditions are satisfied.

How to reduce tribunal risk

Before disputes arise

1. Use written employment contracts – ensure every employee has a compliant statement of employment particulars from day one
2. Follow fair procedures – use ACAS Code of Practice-compliant disciplinary and grievance procedures
3. Document everything – keep records of performance reviews, warnings, meetings and decisions
4. Train managers – ensure line managers understand employment law basics, particularly around dismissal, discrimination and flexible working
5. Take legal advice early – consult a solicitor before dismissing an employee, especially in complex or sensitive cases

When a claim is received

1. Respond within 28 days – missing the ET3 deadline can result in a default judgment
2. Preserve documents – put a litigation hold in place to prevent relevant documents from being deleted or destroyed
3. Assess the merits – take an honest view of the strength of the employer’s position and the realistic range of compensation
4. Consider settlement – weigh the cost and management time of defending the claim against the cost of a reasonable settlement
5. Prepare thoroughly – if the claim proceeds to a hearing, invest in clear witness statements, a well-organised bundle and professional representation