A recent survey has found a major discrepancy between the median level of costs incurred by employees going through the Employment Relations Authority (ERA) and the median costs awarded.
The survey was conducted by employment lawyer Karen Radich and MBIE mediator Peter Franks. The results are reported in the September/October edition of Employment Today.
The research was conducted over the period from 2011 to 2016. It shows that costs awarded to the successful party in ERA cases are significantly below the legal costs being incurred. This means that even a win in the Courts could result in the successful party owing money at the end of their case.
There is a daily tariff applied to costs claims in the Authority. It is charged on a daily basis and is seen as “a creature of common law, not of statute”. “Even though the daily tariff was increased recently, [Court] costs are also increasing,” Ms Radich says.
According to the ERA’s Practice Note 2: Costs in the Employment Relations Authority (30 June 2016) “…the Authority adjusts the daily tariff having regard to movements in the cost of legal and other advocacy services…” The Practice Note also acknowledges that “costs fixing in the Authority…is often the source of controversy.”
The ERA encourages a level of predictability and balancing the successful party's right to have a financial contribution to its cost while allowing the unsuccessful party to not have such a great impost on its financial resources.
These increases are reported to be partly because of the legislative requirement. This is because the Authority gives an oral decision or oral indication at the end of an investigation meeting.
“This can result in more ‘up front’ work for lawyers and parties – at the direction of the Authority member,” says Ms Radich.
The Employment Court has implemented several changes relating to costs awarded by the Authority.
The research explains that the Court has found the daily tariff approach enables parties and representatives to clarify what costs might be awarded to the successful party. Ms Radich explains her viewpoint: “I think this needs to be balanced, with a daily tariff which more accurately reflects what it actually costs to bring or defend a case in the Authority.”
The survey findings
The results show that employees who were successful in their cases were awarded only 37% of their actual costs.
“The key finding is that in the Employment Relations Authority, the median level of cost incurred by employees is approximately $8,200, while the median of costs awarded was just over $3,000 – so there is a $5,000 shortfall…" says Ms Radich.
“In a number of cases, any compensation awarded was swallowed up by costs, and in some, the employee was worse-off after bringing a successful case.”
For employers, the median costs incurred were only 29% of their court costs - $11,755 - and the median costs award was $3,431.
In the most extreme example, a party was awarded $22,020 from combined money awarded and costs awarded; the actual Court costs were $47,264.00. This resulted in a net outcome of -$25,244 for the successful party.
Asked whether she believes there might be an access to justice issue as a result of these high court costs, Ms Radich says there is an access to justice issue for both employees and employers.
“Employees can be told that they have a valid claim, but that it might cost more to take that claim to the Authority than the compensation they might then be awarded – particularly if they have a new job already (in a dismissal case) and so will not achieve an award for ‘lost wages’.”
As for employers, the opinion is that they need to weigh up the pros and cons for both legal costs and the time and effort involved in defending a case.
As there are two steps prior to taking the case to the ERA, both mediation alternatives, Ms Radich says almost all employment cases go to mediation first, and this provides a strong incentive to both parties to settle in that forum.
She does not believe the encouragement of mediation and high cost is an attempt to tighten the leash a little on lawyers.
“No – I don’t think that is the case (in terms of ‘negotiations’). However, you do see cases where an awful lot of time and energy (and therefore cost) is obvious...”
The ERA does state that if parties elect to incur costs that are likely to exceed the ERA’s daily tariff rate, they are “entitled to do so but cannot confidently expect to recoup additional sums”. It also has the authority to increase/decrease the tariff depending on a party's behaviour.
An example of this is if the ultimately unsuccessful party refused an operative Calderbank offer, the Authority Member can increase the daily tariff appropriately.
It is also noted that the daily tariff does not reflect the actual preparation time required in ERA cases.
The ERA charges $4,500 for the first day of the investigation; this equates to around 20 hours of a lawyers’ time.
“Even for a one-day hearing, it is simply not possible to take instructions, prepare a claim or response to the claim, prepare briefs of evidence, organise documents (including preparing a bundle), research and draft legal submissions, and then attend a 7-8-hour investigation meeting day within that time," says Ms Radich.
As an experienced employment lawyer, Ms Radich speaks from experience when discussing this issue. She points out that this workload is closer to around 30-40 hours' worth of practice, so the cost doesn't reflect the real-life amount of work.
The researchers give recommended solutions that could be considered if the system were to be looked at:
- The Employment Relations Authority (which is an investigative body) could more strongly direct the process and prevent lawyers (and non-lawyer representatives and litigants in person) from making cases much larger than they need to be.
- If a costs tariff continues to be applied, there needs to be a greater reference to the steps which have actually been required in the particular case, with the tariff only being a starting point – so that where the Authority directs that certain briefs of evidence are prepared or a bundles of documents be created by one party, then that party can recoup those costs in due course.
- The daily tariff should be increased to reflect the actual hours of work involved in bringing or defending a case in the Authority.