Managing Costs in Employment Tribunals: 2025 Blueprint for UK Small Businesses to Crush Tribunal Cost Orders and Emerge Unscathed!

Fortress Your Finances

Employment tribunals can feel overwhelming for small business owners across Great Britain. Unlike regular court cases, where losers typically pay winners' legal bills, employment tribunals work differently. Each side usually covers their own expenses, making these proceedings more accessible for everyone involved. This approach helps ensure that financial concerns don't prevent people from seeking justice.

But here's what many business owners don't realise - tribunals can still order one party to pay the other's legal bills under certain circumstances. These "costs orders" happen rarely, yet they can create serious financial problems for small businesses when they do occur.

The numbers tell a concerning story. Employment tribunal claims jumped by 23% in 2024/25, with 42,000 new single cases filed. Unfair dismissal claims alone rose by over 25% in the final quarter of 2024. With such increases, understanding costs in employment tribunals has become more important than ever for business survival.

"The key to avoiding costs orders is demonstrating reasonable conduct throughout tribunal proceedings. Even if you lose the case, tribunals rarely penalise parties who have acted professionally and followed proper procedures."

What makes a tribunal decide to award costs against your business?

This guide breaks down everything you need to know about managing costs in employment tribunals. We'll explore when tribunals make these orders, what constitutes reasonable conduct, and practical steps to protect your business. Whether you're running a startup, managing HR for a growing company, or simply want to understand your legal obligations better, this information could save you thousands of pounds and significant stress.

Understanding Costs in Employment Tribunals

The "each party bears its own costs" principle

British employment tribunals operate on a simple premise - you pay your own legal bills regardless of who wins. This differs dramatically from civil courts, where unsuccessful parties often face hefty cost orders covering the winner's expenses. The self-funding approach removes financial barriers that might otherwise prevent legitimate claims from proceeding.

"Employment tribunals operate on the basis that access to justice should not be denied by fear of adverse costs orders. However, this protection does not extend to those who abuse the process."

There are no fees for submitting tribunal claims, making the system accessible to employees and employers alike. However, this doesn't create a completely cost-free environment. Tribunals retain discretion to impose costs orders when circumstances warrant such action, particularly when parties behave unreasonably or pursue hopeless cases.

This principle protects genuine claimants from financial intimidation while maintaining accountability for misconduct. Understanding when exceptions apply becomes crucial for businesses wanting to avoid unexpected cost liabilities.

Types of costs orders

Tribunals can issue two distinct types of cost awards when departing from standard practice:

1. Costs Order - applies when parties have paid for legal representation, compelling the other side to contribute towards solicitor and barrister fees. These orders address actual expenses incurred through professional legal services.
2. Preparation Time Orders - serve a different purpose, compensating unrepresented parties for time spent preparing their cases. The tribunal calculates this compensation using fixed hourly rates, currently around £45 per hour, according to Citizens Advice guidance. This recognises that people representing themselves still invest significant time and effort in their proceedings.

Importantly, tribunals cannot award both types simultaneously in the same case. The choice depends on whether the successful party had professional representation or handled the matter themselves.

Direct and indirect costs for businesses

Legal expenses extend far beyond potential tribunal orders. Direct costs include obvious items like solicitor fees, barrister charges, expert witness expenses, and various disbursements. Simple employment tribunal cases might generate costs between £4,500 and £8,000, while complex discrimination or whistleblowing claims can exceed £36,000.

Many businesses are caught off guard by the hidden indirect costs. Management time diverted to case preparation, HR resources tied up in proceedings, and operational disruption can prove expensive. Lost productivity, employee morale issues, and potential reputational damage add layers of financial impact that don't appear on legal bills.

These indirect costs often surprise small business owners who focus primarily on legal fees. The true cost of employment disputes frequently doubles or triples when accounting for all business disruption and lost opportunities.

Grounds for an Adverse Costs Order

Unreasonable conduct in bringing or conducting proceedings

Most costs orders stem from unreasonable behaviour during tribunal proceedings. This covers various problematic actions that waste time, resources, or undermine the process:

• Vexatious conduct designed to harass or annoy
• Deliberately misleading tribunals with false information
• Missing document disclosure deadlines
• Failing to attend hearings without valid reasons
• Ignoring tribunal directions
• Late claim withdrawals without proper justification

The key lies in maintaining professional standards throughout. Tribunals expect parties to behave reasonably, follow directions promptly, and engage constructively with the process.

Are you confident your business would pass the reasonableness test?

Claim or response having no reasonable prospect of success

Tribunals also award costs against parties pursuing hopeless cases. This assessment focuses objectively on whether claims or defences had realistic success prospects from the outset. Personal belief in your case doesn't matter - only whether evidence and law supported your position.

Simply having weak arguments isn't enough to trigger costs orders. The case must genuinely lack any reasonable foundation or be clearly misconceived. Tribunals particularly target situations where parties continued pursuing obviously flawed cases after receiving warnings about their no reasonable prospect of success.

This ground protects against frivolous or speculative litigation that wastes tribunal resources and imposes unnecessary costs on opposing parties.

Specific situations and aggravating factors

Certain scenarios carry heightened risks of adverse costs orders. In unfair dismissal cases, employers who fail to provide reasonable evidence about job availability after claimants request reinstatement face mandatory costs orders under specific rules.

Refusing to engage meaningfully with settlement discussions, especially through Acas Early Conciliation, can contribute to unreasonable conduct findings. While tribunals show more leniency towards unrepresented parties, persistent disruptive behaviour can still result in costs orders even against litigants in person.

Aggravating factors include repeatedly delaying proceedings, making last-minute adjournment applications, or demonstrating consistent disregard for tribunal directions. These actions show contempt for efficient dispute resolution and often justify cost penalties.

Proactive Measures to Avoid Cost Orders

"Prevention is always better than cure in employment law. Businesses that invest in proper HR practices and early intervention typically avoid tribunal proceedings altogether."

- ACAS

The five main strategies for avoiding cost orders are:

1. Robust internal policies and procedures
2. Effective HR management and training
3. Diligent record-keeping and documentation
4. Utilising Acas early conciliation
5. Strategic settlement negotiations

Robust internal policies and procedures

Strong internal frameworks provide the foundation for avoiding employment tribunal costs. Clear, comprehensive employment contracts that define rights and responsibilities for both parties help prevent disputes before they start. Regular policy reviews ensure your documentation remains current with legal developments and business changes.

Workplace policies covering disciplinary procedures, grievances, and equality practices require consistent application. Inconsistent policy enforcement creates vulnerability and suggests unfair treatment. Proper communication, through handbooks and regular training, ensures all employees understand policies from day one.

Well-documented policies demonstrate your commitment to fair treatment. This evidence proves invaluable if disputes arise, showing tribunals that your business operates reasonably and professionally.

Effective HR management and training

Investment in HR training pays dividends in dispute prevention. Well-trained managers spot early warning signs of employee discontent and address issues before they escalate. Regular training sessions on communication, documentation, and legal compliance reduce risks significantly.

Early intervention prevents minor workplace problems from becoming formal tribunal claims. Quick, fair grievance resolution often satisfies employees and avoids costly litigation. Seeking specialist employment law advice when uncertainties arise demonstrates responsible business practice.

Professional HR management shows tribunals that your business takes its obligations seriously and acts reasonably when problems occur.

Diligent record-keeping and documentation

Comprehensive record-keeping forms the backbone of effective tribunal defence. Detailed documentation of employment decisions, investigations, and employee communications provides crucial evidence of reasonable conduct. Well-organised records demonstrate transparency and professionalism.

Encourage managers to document performance reviews, disciplinary actions, and significant conversations thoroughly. This documentation often proves decisive in tribunal proceedings, showing that decisions were made fairly and followed proper procedures. Good records also facilitate prompt disclosure if claims arise.

Poor documentation suggests disorganisation or potential unfair treatment, increasing risks of adverse costs orders. Professional record-keeping standards protect your business and demonstrate reasonable conduct.

Utilising Acas early conciliation

Acas Early Conciliation offers mandatory dispute resolution before formal claims can proceed. This service provides neutral facilitation to help parties reach mutually acceptable solutions without expensive tribunal hearings. Early engagement often resolves disputes efficiently and cost-effectively.

Conciliators work impartially to bridge differences and explore settlement options. Their involvement frequently leads to agreements that satisfy both parties while avoiding the unpredictability and expense of formal proceedings. Statistics show that around 79% of cases have been resolved without reaching full hearings during recent periods.

Constructive participation in early conciliation demonstrates a willingness to resolve disputes reasonably. Tribunals view this engagement favourably when assessing overall conduct.

Strategic settlement negotiations

Even when cases progress beyond early conciliation, settlement discussions can manage costs effectively. Careful assessment of case strengths and weaknesses helps determine appropriate settlement strategies. Evaluating potential tribunal awards against legal costs and business disruption guides decision-making.

Strategic settlements often provide certainty and cost control compared to unpredictable tribunal outcomes. Well-documented settlement negotiations show reasonable conduct and proactive risk management. Early resolution preserves business relationships and avoids prolonged disputes.

Thoughtful settlement approaches balance legal risks against commercial realities, often producing better outcomes than contested hearings.

The Employment Tribunal Process and Associated Costs

Initial stages and preparation

Employment tribunal proceedings begin with mandatory early conciliation through Acas. Once claims proceed, employers must respond carefully through ET3 forms that articulate their defence clearly. Early legal consultation helps assess case merits and potential liabilities accurately.

Thorough preparation during the initial stages sets the foundation for successful defence. Document gathering, evidence organisation, and strategic planning reduce the risks of procedural errors that might attract cost orders. Investment in early preparation typically saves money and stress later.

Professional guidance ensures compliance with tribunal directions and deadlines from the outset.

Case management and preliminary hearings

Tribunals manage cases through directions and preliminary hearings that establish timelines and requirements. These sessions address administrative matters, clarify issues, and ensure both parties prepare adequately for full hearings. Compliance with case management orders remains essential.

Preliminary hearings resolve procedural questions and may address substantive issues like jurisdiction or claim amendments. Non-compliance with directions can result in unless orders or costs penalties. Effective legal representation ensures proper engagement with case management requirements.

Good case management reduces overall costs by streamlining proceedings and avoiding unnecessary delays or complications.

Evidence gathering and witness statements

Evidence collection represents a crucial and resource-intensive phase. Both parties must identify, gather, and disclose relevant documents comprehensively. Witness statements require careful preparation, often involving significant time from employees and legal representatives.

Expert witnesses may be necessary for technical or medical issues, adding substantial costs. Thorough evidence preparation supports strong defences while demonstrating reasonable conduct to tribunals. Poor evidence management can appear unprofessional and increase costs order risks.

Meticulous preparation shows tribunals that your business takes proceedings seriously and acts professionally throughout.

The final hearing and judgment

Final hearings culminate in tribunal proceedings where parties present arguments before employment judges. Legal representation typically involves solicitors and barristers, with daily rates varying significantly based on case complexity and advocate experience.

Hearing duration directly impacts costs, ranging from a single day to multiple weeks, depending on case complexity. Post-hearing applications for costs orders must be made within specific timeframes, requiring detailed cost schedules and supporting evidence.

Professional presentation and compliance with hearing procedures demonstrate reasonable conduct and reduce risks of adverse findings.

Compensation Awards and Their Impact

Basic award

Basic awards resemble statutory redundancy calculations, considering claimant age, service length, and weekly pay within statutory caps. These fixed sums provide standardised compensation without complex loss calculations. Current weekly pay caps limit basic award exposure for employers.

Contributory conduct by claimants can reduce basic awards where their actions contributed to dismissal. Understanding calculation methods helps businesses assess potential liabilities and prepare appropriate defences.

Basic awards represent relatively predictable compensation elements compared to other tribunal awards.

Compensatory award

Compensatory awards aim to restore claimants to their pre-dismissal financial position. These awards cover lost earnings, benefits, and reasonable expenses incurred due to dismissal. Past losses run from dismissal date to hearing, while future losses consider likely unemployment periods.

For unfair dismissal, compensatory awards are capped at the lower of 52 weeks' pay or the statutory maximum (£118,223 as of April 2025). However, discrimination and whistleblowing claims face no caps, creating significant exposure for employers. Polkey deductions may reduce awards where dismissals would have occurred anyway with fair procedures.

Strong defences challenge excessive loss claims and highlight contributory conduct to minimise compensatory awards.

Injury to feelings compensation

Discrimination cases include injury to feelings compensation for emotional distress and humiliation. These uncapped awards follow Vento guidelines with banded approach based on severity. Recent high-profile cases have seen awards approaching £1 million, demonstrating substantial financial risks.

Small businesses face particular vulnerability from unlimited discrimination compensation. Robust equality policies, regular training, and documented fair treatment help minimise these risks. Professional handling of discrimination allegations reduces both liability and injury to feelings awards.

Prevention through proper policies and training provides the best protection against substantial compensation awards.

Average Legal Costs for Employers

Breakdown by case complexity

Case complexity drives cost variation through document volumes, witness numbers, expert requirements, and hearing duration. Early assessment helps businesses budget appropriately and make informed settlement decisions. Understanding cost ranges enables better risk management throughout proceedings.

Complexity assessment should consider legal issues, factual disputes, and procedural requirements comprehensively.

Factors influencing overall costs

Multiple factors affect final legal bills beyond basic case type:

• Proceeding duration and case complexity
• Document volumes and witness numbers
• Preliminary applications and case management hearings
• Geographic location and legal team seniority
• Whether opponents are represented or unrepresented

Effective cost management requires understanding and controlling these various factors throughout proceedings.

Legal fees and disbursements

Solicitor fees typically range £110-£350 per hour excluding VAT, varying by experience and location. Barrister fees for hearing representation range £500-£1,500 daily, with brief fees potentially £2,000-£7,000 for complex cases. Total solicitor costs for unfair dismissal cases often exceed £10,000.

Disbursements include expert fees, travel expenses, document management, and administrative costs. These additional charges supplement professional fees and must be factored into budget planning. Understanding fee structures helps businesses negotiate appropriate terms with legal representatives.

Comprehensive cost planning considers both professional fees and ancillary expenses from case outset.

The Impact of Recent Trends and Legislative Changes

Rising number of claims and backlogs

Employment tribunal claims continue increasing significantly, with 42,000 single claims in 2024/25 representing 23% growth. Multiple claims also rose by 23%, creating 73,000 additional cases. This growth creates mounting backlogs with 491,000 outstanding cases as of March 2025.

Extended resolution times increase legal costs and business disruption for employers. Some cases now face listing delays into 2026 and 2027, prolonging uncertainty and associated expenses. Rising claim volumes strain tribunal resources and extend proceedings beyond historical norms.

Businesses must plan for longer dispute resolution periods and higher associated costs when claims arise.

Impact of the Employment Rights Bill

Forthcoming legislative changes will significantly impact tribunal activity and costs. The proposed six-month limitation period extension from October 2026 will likely generate substantial claim increases as claimants gain additional time to initiate proceedings.

Day one unfair dismissal rights planned for 2027 will extend protection to millions of currently excluded employees. This change promises to create claim surges as qualifying periods disappear. Additional reforms covering flexible working and fire-and-rehire practices may generate further litigation increases.

Businesses should review HR practices comprehensively and update policies to address upcoming legislative changes proactively.

What steps is your business taking to prepare for these significant legal changes?

Increased compensation awards

Compensation levels continue rising alongside claim volumes. These rising compensation levels increase financial stakes for employers and emphasise the importance of robust compliance measures.

Higher awards make early settlement more attractive while emphasising the costs of poor employment practices.

Litigated's Approach to Cost Management

Proactive prevention and risk mitigation

Litigated helps businesses avoid tribunal costs through comprehensive prevention strategies. Our guidance on reasonable conduct draws from Employment Appeal Tribunal decisions and established best practices. We emphasise robust policies, timely HR advice, and regular compliance training to minimise dispute risks.

Our prevention-focused approach addresses root causes of employment disputes rather than simply reacting to problems. Clear guidance on employer and individual liability helps businesses understand responsibilities and implement effective risk mitigation measures.

Professional prevention strategies demonstrate due diligence and provide strong foundations for defending any claims that do arise.

Expert resources and community engagement

Litigated provides extensive resources to support business owners and HR professionals. Our Employment Law News & Updates deliver timely analysis of crucial legal developments, while our free membership offers exclusive content and monthly newsletters summarising key insights.

Our community platform connects HR professionals, legal advisers, and business owners for practical experience sharing. This collaborative approach builds confidence and provides access to expert guidance when challenging issues arise.

Engaging with our resources ensures businesses stay informed about evolving legal requirements and effective compliance strategies.

Simplifying complex legal concepts

Complex tribunal rules and legal concepts can intimidate business owners without legal backgrounds. Litigated addresses this challenge by translating technical information into clear, actionable guidance that non-lawyers can understand and implement effectively.

Our practical explanations focus on real-world applications rather than abstract legal theory. This approach enables confident decision-making and effective risk management based on solid understanding of legal obligations.

Clear communication removes barriers to effective legal compliance and cost management.

Holistic legal perspective

Litigated's unique approach integrates legal expertise with technology and philosophical insights. This multifaceted perspective helps businesses understand broader risk contexts beyond strict legal compliance requirements.

Our holistic approach addresses ethical considerations, operational efficiency, and long-term business sustainability alongside immediate legal obligations. This comprehensive view enables robust strategies that balance compliance with commercial objectives.

Integrated expertise provides businesses with comprehensive support for navigating complex legal challenges effectively.

Conclusion

Employment tribunals present significant cost risks for small businesses, despite the general principle that parties bear their own expenses. Understanding when tribunals award costs - primarily for unreasonable conduct or hopeless cases - enables businesses to protect themselves through appropriate strategies.

Effective cost management begins with robust internal policies, professional HR practices, and meticulous record-keeping. Early engagement with dispute resolution services like Acas Early Conciliation often prevents costly tribunal proceedings altogether. When disputes do arise, maintaining reasonable conduct and following tribunal directions carefully reduces costs order risks.

The rising number of tribunal claims and upcoming legislative changes make proactive cost management more important than ever. Higher compensation awards and extended proceedings increase financial stakes for employers across all sectors.

Litigated supports businesses through this challenging environment with expert guidance, practical resources, and community support. Our comprehensive approach helps businesses understand complex legal requirements, implement effective prevention strategies, and navigate tribunal proceedings confidently when necessary.

Professional cost management protects business finances while demonstrating commitment to fair employment practices. By staying informed and adopting proven strategies, businesses can minimise legal exposure and focus on their core operations with confidence.

FAQs

How rare are costs orders in UK employment tribunals?

Costs orders remain relatively uncommon in employment tribunals. In 2019/2020, only 177 costs orders were made from nearly 50,000 disposed claims. This demonstrates that such orders are exceptional measures, typically reserved for serious misconduct or completely meritless cases rather than routine outcomes.

What constitutes "unreasonable conduct" that could lead to a costs order?

Unreasonable conduct includes vexatious or disruptive behaviour, deliberately misleading tribunals, failing to comply with directions or deadlines, and withdrawing claims without proper justification. Tribunals assess overall party conduct throughout proceedings when determining whether behaviour warrants cost penalties.

Can an employee (claimant) be ordered to pay an employer's costs?

Yes, employees can face costs orders for vexatious, malicious, or unreasonable conduct, or for pursuing claims with no reasonable success prospects. While tribunals exercise caution with unrepresented claimants, persistent unreasonable behaviour can result in cost orders against any party regardless of representation status.

What is the difference between a "Costs Order" and a "Preparation Time Order"?

Costs Orders compensate parties for legal representation expenses, while Preparation Time Orders compensate unrepresented parties for case preparation time at fixed hourly rates. Tribunals cannot award both types in the same case, choosing based on whether successful parties had professional representation.

How can small businesses proactively reduce their risk of tribunal claims and costs?

Small businesses reduce risks through comprehensive employment contracts and policies, regular manager training, detailed record-keeping of all employment decisions, and constructive engagement with Acas Early Conciliation. These measures demonstrate reasonable conduct and often prevent disputes from escalating to formal tribunal proceedings.

Nick

With a background in international business and a passion for technology, Nick aims to blend his diverse expertise to advocate for justice in employment and technology law.