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Collaboration of Scottish courts and employment tribunals to protect employment awards before they are made – a ‘new’ way of obtaining interim security in employment disputes

Collaboration of Scottish courts and employment tribunals to protect employment awards before they are made – a ‘new’ way of obtaining interim security in employment disputes

The most recent study of awards from employment tribunals stated that 46% go unpaid in Scotland. That statistic might start to change after a significant new ruling, but could also put many small businesses at financial risk.

In the case of AA v BEIS, 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 cashflow 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 in court accepting that there was a real and substantial risk of insolvency or the business concealing assets to defeat a judgment, 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 be awarded? 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.  Employers will need to be ready to react quickly. 

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).  So businesses with existing employee disputes could be grappling with these issues sooner rather than later. Employees (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.  As the Supreme Court found that Tribunal Fees were a barrier to justice in the Unison case, there may yet be further challenges taken on whether Scotland has effective means of protecting employees’ EU rights (at least until Brexit).

There could also be a knock-on effect for UK-wide employers with assets in Scotland frozen pending the outcome of proceedings in employment tribunals in England and Wales. Employment awards in that jurisdiction are treated as payable as an order of the County Court.  In Scotland, judgments of the County Court are recognised. It follows that protective measures could be sought in Scotland (to secure Scottish based assets) pending the outcome of proceedings in English employment tribunals. 

Although there was UK Government consultation on enforcement of employment awards which closed on 16 May 2018, it dealt only with enforcement after an award was made.  Whether this issue will be picked up by the UK Government remains to be seen.

By Robert Phillips
 

Burness admin