It has been a summer to forget for the UK Government, which - after losing its majority in a shock election result - has suffered another embarrassing defeat, this time in the courts. On 26th July 2017, the UK Supreme Court unanimously held in the case of R (UNISON) v Lord Chancellor [2017] UKSC 51 that Employment Tribunal Fees, a flagship austerity policy introduced in 2013, were in violation of domestic constitutional law and EU law. Under review was the Employment Appeal Tribunal Fees Order 2013, SI 2013/1893, which imposed fees on those bringing an action against employers. The fees were split into Type A claims, involving little/no pre-hearing work and short hearings (£390 per claim), and Type B Claims, involving all other claims, including unfair dismissal, equal pay and discrimination (£1.200 per claim).

Remission was available, but only if the claimant’s disposable income was under £3.000, with no explanation as to how this figure was calculated. Worryingly, the figure included the award the claimant may be contesting, meaning a claimant disputing a redundancy package of over £3.000 would automatically be disqualified from receiving any remission. Furthermore, using the legal minimum wage, the Court calculated that the earnings requirements effectively meant anyone in full-time employment would have to pay the fees in full.

When adopting the Fees Order, the government published a consultation paper, outlining a range of benefits. The fees would transfer some of the cost burden from general taxpayers to those that ‘used the system’ (suggested to save £84 million per year). Additionally, a fees mechanism would incentivize earlier settlements. Lastly, fees would dis-incentivise unreasonable behaviour, such as pursuing “weak or vexatious” claims.

The Court started by summarised the actual effects of the Fees Order, which it considered to be significant. There had been a “troubling” long-term reduction of around 70% of claims accepted by employment tribunals, which evidence suggested disproportionately affected smaller claims. For example, in cases concerning race discrimination, successful claims of under £3.000 had fallen from 34% in 2012 to just 8% in 2015. For claims under £5.000, the figures were 52% in 2012 to 19% in 2015. Even more troubling was the fact that the charges did not meet any of the benefits set out in the consultation paper. The financial savings were far smaller than envisaged, mainly because fewer cases were being brought, and there was “no basis” for concluding that only stronger cases were being litigated. Lastly, although there was suggested to be an increase in early settlements, this figure included cases where no settlement was reached due to the case not being pursued, which could obviously have been a direct result of the high costs involved! Finally, the Court was particularly unimpressed with the plan to ‘shift the costs’ of employment tribunals onto the ‘users’ of the system. The courts do not provide a ‘normal public service’ as their benefit is not restricted to the ‘users’ in any particular case. The court emphasised the importance of the court system to other potential claimants, using the landmark case of Donoghue v Stevenson to demonstrate just how far-reaching the implications of some decisions can be.

Moving onto the merits of the case, the judges took issue with the proceedings in the lower courts, which had focussed entirely on the conformity of the Fees Order with EU law. However, the Court asserted the importance of the main domestic principle at stake, namely the right of access to justice and the courts: “the right of access to justice is not an idea recently imported from the continent of Europe, but has long been deeply embedded in our constitutional law”. Access to the courts is a fundamental aspect of the rule of law, without which laws would be “liable to become a dead letter and the democratic election of Members of Parliament a meaningless charade” [64 – 68].

The Court then considered the decision of the Court of Appeal [2015] EWCA Civ 935, which decided that the imposition of fees would not violate EU law “unless it made it impossible in practice to access the tribunal”. This test required the fees to be unaffordable, rather than merely a sensible use of money. The Supreme Court disagreed, stating that to be lawful, they must be set at a level that everyone can afford, taking into account the availability of full or partial remission. This will not occur if it can be demonstrated that there is “real risk” that the fees will result in a sharp, substantial and sustained volume of case receipts as a result of the introduction of fees. In this sense, fees must therefore be affordable “not in theoretical sense, but is the sense that they can reasonably be afforded”. This will not be the case when households “can only afford fees by sacrificing the ordinary and reasonable expenditure”. In order to suggest that the fees were reasonable, the government had previously argued that households could sacrifice ‘non-essential’ spending on clothing, personal goods and services, social and cultural participation, and alcohol, in order to afford the fees. However, given the approach of the Supreme Court, this only served to reinforce the argument that the fees could only be afforded “by sacrificing ordinary and reasonable expenditure for substantial periods of time” [93 – 94].

The Supreme Court actually went further than the Court of Appeal, stating that court fees are unlawful if they “render it futile or irrational to bring a claim”. Regarding the smallest of claims (e.g. claims under £500), “no sensible person will pursue the claim unless he can be virtually certain that he will succeed in his claim”. The Government had argued that ‘the higher the fee, the more effective it is’, however, the Court was not impressed by this argument, stated that it is “elementary economics, and plain common sense” that the optimal price is not the highest possible, as the price elasticity of demand means there is a threshold, beyond which court fees will result in fewer claims being made.

After concluding that the fees violated the domestic principle of access to justice, the Court moved onto consider the case under EU law. The Court concluded that there were a number of relevant principles of EU law applicable in this case. Firstly, the principle of effectiveness requires that domestic judicial procedures must not be liable to render practically impossible or excessively difficult the exercise of rights conferred by EU law. Secondly, there exists the principle of effective judicial protection, both within the constitutional traditions of the Member States, enshrined in Articles 6 and 13 ECHR, and the European Union through Article 47 of the Charter of Fundamental Rights of the European Union. In this respect, whilst the Human Rights Act 1998 could not apply as the claimants were not ‘victims’, the test of proportionality under the ECHR could be used by analogy. Indeed, Article 52(3) Charter states that meaning and scope of (charter) rights shall be the same as those laid down by the Convention. The ECtHR has accepted limitations on these rights, however, they must pursue a legitimate aim and there must be a reasonable relationship of proportionality between the means employed and the legitimate aim sought to be achieved.

Far from being the overriding factor to consider, the Supreme Court considered the ability to pay is only one relevant factor when determining the proportionality of the measure. ECtHR case law suggests that other relevant factors to be considered are the stage at which the fees are imposed, and whether the fees are connected to the merits of a claim or its prospects of success (Teltronic CATV v Poland). In this respect, the fees for employment tribunals can be distinguished from those for civil claims, which range from £50 for the smallest claims and rising to £745 for claims of £10,000. The Court also used an example from the Strasbourg court, where it was held unreasonable to demand that the applicant spend part of her redundancy award on court fees, rather than to “build her future and secure her and her children’s basic needs after the divorce” (Kniat v Poland). Whilst the approach is different than that of domestic law, the result is the same - the fees were unconnected to the amount of the claim, and were liable to dissuade even those who could afford them from bringing smaller claims. As such, the fees “impose limitations on the exercise of EU rights which are disproportionate, and therefore unlawful under EU law” [117].

The Ministry of Justice has consequently said it will take “immediate steps to stop the fees and … refund those who have paid”, which is suggested to be around £27 million. It remains to be seen how far the decision will embolden anti-austerity campaigners and trade unions to challenge other legally questionable austerity measures in the future.