The most recent study of awards from employment tribunals stated that 46 per cent go unpaid in Scotland. That statistic might start to change after a significant new ruling – but that same ruling could also put many small businesses at financial risk.
In the case of AA v BEIS [the UK government’s Department for Business, Energy & Industrial Strategy], a complaint was made by AA, whose tribunal award of £75,000 plus interest was worthless, because, AA argued, there were no mechanisms to protect prospective tribunal awards.
In an opinion which will surprise many advisers of employees the judge held that there is a way for employees in Scotland to seek interim protection on any prospective tribunal award and this interim protection is not so complex that EU rights could not be enforced effectively.
To do so when an employee starts proceedings in the Employment Tribunal, they would also need to commence proceedings in the sheriff court. At the start of court proceedings (although it can be sought at any time), the employee would need to seek what is known as a ‘warrant to arrest on the dependence’. This is a court order which allows the employee to arrest sums held in the employer’s bank account or by the employer’s creditor as security in the event of an award from the Employment Tribunal. The court proceedings would then be frozen until the tribunal proceedings are concluded.
It is not hard to think of the serious difficulties that could be caused to cash flow within many small or struggling businesses if funds are arrested pending the outcome of an employment tribunal. Add to that the reputational damage by a sheriff accepting that there was a real and substantial risk of insolvency or the business concealing assets to defeat a judgment, then this has the potential to be a very damaging course of action.
For that reason, courts in Scotland will require an employee to meet a three-stage test. Does an employee have an arguable case at tribunal leading to an award of compensation? Is there is a real and substantial risk that any award would be defeated by looming insolvency of the employer or is it likely that the employer would dispose of, conceal or otherwise transfer its assets elsewhere to avoid such payments? Is it reasonable in all the circumstances?
An employer will usually be given an opportunity to challenge any attempt to seek arrestment by an employee before it is granted. Critically, where notice of a court hearing is given, employers will not have much warning or time to gather evidence to challenge an employee’s case.
One inevitability of AA v BEIS is that advisers to employees will be reviewing all their cases to assess whether there is a risk of non-payment of an award. If so, employees will likely be given advice about the option of taking protective measures (to avoid complaints later if the award is unpaid). Businesses with existing employee disputes could be grappling with these issues sooner rather than later. Employers (as well as employees) will incur additional cost and legal expense and that might deter employees seeking these protective measures.
An appeal of the opinion in AA is possible. An argument made in this case that EU rights are not adequately protected in Scotland will resonate with many, including those most affected by unpaid awards: individuals with short service at an SME employer seeking payments.
Robert Phillips is a senior associate with Burness Paull LLP