Employment Tribunal Claims - What Are the Benefits of Deposit Orders?

Given the difficulties any employer will face in having a weak claim struck out, a more cost effective and reliable option might be to apply for a deposit order.

What is a deposit order?

A deposit order may be made when a claim (or part of a claim) is found to have little prospect of success. The employment judge will order a deposit of up to £1,000 to be paid by the employee in order to allow the claim (or the relevant part) to continue.

If the deposit is not paid, the allegations about which the deposit order has been made will be struck out. If the deposit is paid and the employee's claim fails at a full hearing for reasons identified in the deposit order, the employee will be deemed to have acted unreasonably in bringing the case, which will place him or her at risk of costs.

When can a deposit order be used?

In the recent case of H v Ismail and Al-Megraby the Employment Appeal Tribunal (EAT) has provided some useful guidance about the approach judges should take when considering an application for a deposit order:

• The purpose of the order is to identify claims that have little prospect of success, not to make it difficult to access justice.
   
• The employment judge must make a summary assessment of the case rather than hearing detailed evidence. If there is a core factual conflict between the parties, then it is unlikely that a deposit order will be made.
   
• If an employment judge is minded to make a deposit order, he or she must make reasonable enquiries into the employee's ability to pay.
   
• The amount payable must be proportionate and not unlawfully restrict the right of the employee to receive a fair trial.

In H v Ismail, the Employment Tribunal had ordered the former employee to pay a deposit of £225 within a period of 3 months. On appeal, the EAT overturned this and substituted the original sum with an order to pay £1. The former employee had very limited resources and was vulnerable.

In light of this, it was not proportionate to order her to pay a higher sum. In effect, the higher sum amounted to a strike out as the employee had no means of paying it and this is not the purpose of a deposit order. The employee was still at risk of costs if her claims failed and this was sufficient in the circumstances.

Best Practice

When faced with a weak claim, many employers want to apply for strike out. Given the high threshold required for strike out applications to succeed, it might be more cost effective to apply for a deposit order instead. Even if the employee has limited means, and the amount payable as a deposit will be low, there are considerable benefits in terms of highlighting the weakness of the claim to the employee and putting them at risk of costs if their claim fails.

A strategic view will need to be taken in each case about the merits of making this type of application, in particular the prospects of success and the cost of making the application itself.

For further information please contact Michael Halsey in our Employment Law team on 020 7665 0842 or complete the below form.