The real cost of employment tribunals for SMEs

Early Conciliation (ACAS)

Purpose: To encourage settlement before a claim reaches the tribunal.

Before an employee can submit an Employment Tribunal claim, they must first notify ACAS. This step is mandatory under Section 18A of the Employment Tribunals Act 1996.

ACAS will assign a conciliator who contacts both parties confidentially. The goal is to explore whether a voluntary agreement — known as a COT3 settlement — can be reached without a formal hearing.

Key facts:

• The standard conciliation period is four weeks, extendable by two weeks if both sides agree.
• In early 2025, 77% of potential cases were settled or withdrawn before tribunal proceedings began. (ACAS, 2025)
• All discussions are confidential and “without prejudice” — meaning they cannot be used as evidence later.

Employer risks:
Failing to respond promptly or dismissing ACAS engagement can look unreasonable if the case proceeds. Tribunals can consider your behaviour during conciliation when awarding costs.

Employer actions:

• Respond quickly and professionally to ACAS contact.
• Consider negotiation or mediation where feasible.
• Document all communications and decisions.
• Seek HR or legal advice before offering settlement terms.
• Ensure any agreement is formalised in a COT3 — this is the only legally binding settlement method ACAS offers.

Claim Submission (ET1) and Employer Response (ET3)

Purpose: To formally initiate and defend an Employment Tribunal claim.

If conciliation ends without resolution, the employee can submit an ET1 claim form through the online tribunal service. The form outlines the nature of the complaint — e.g., unfair dismissal, discrimination, or breach of contract — and the remedy sought.

The tribunal will then notify the employer (the “respondent”) and provide 28 days to submit an ET3 response. The ET3 must outline your defence, include relevant facts, and raise any preliminary objections (for example, jurisdiction or out-of-time arguments).

Key facts:

• ET1 and ET3 forms must be submitted electronically.
• Late or missing ET3 responses may result in a default judgment — meaning the claimant wins automatically.
• ACAS remains available for settlement discussions even after claim submission.

Employer actions:

• Acknowledge receipt immediately and diarise the 28-day deadline.
• Review the claim carefully and gather evidence (emails, meeting notes, policy documents, etc.).
• Seek HR or legal advice before drafting the ET3 — wording errors can weaken your defence later.
• Decide early if you wish to contest all claims or settle selectively.

Case management and preparation

Purpose: To organise the claim before the hearing and identify what issues the tribunal must decide.

Once accepted, the tribunal issues a Case Management Order. This document sets deadlines for both parties to exchange:

• Lists of documents (evidence disclosure)
• Witness statements
• Chronologies or case summaries
• Preliminary issue responses (e.g., time limits, employment status, jurisdiction)

Preliminary hearings may be held virtually to clarify legal points or assess complexity. For example, if a claim involves alleged discrimination, the tribunal might order additional case management to narrow the issues.

Typical preparation time:
SMEs should expect to spend 40–100 hours gathering and reviewing documentation, preparing witnesses, and drafting statements.

Employer actions:

• Organise evidence early — use clear naming and version control.
• Train witnesses on tribunal procedure and impartial testimony.
• Keep a consistent narrative — contradictions between witnesses are often decisive.
• Adhere strictly to deadlines set by the tribunal.

Tribunal Hearing

Purpose: The formal adjudication of the case.

Hearings are public legal proceedings. They may be conducted in person or remotely.
Cases are typically heard by:

• A single Employment Judge (for most claims), or
• A panel of three (judge plus two lay members) for discrimination and complex cases.

Each side presents evidence, examines witnesses, and makes closing submissions. Proceedings are recorded, and all judgments are published on GOV.UK’s Employment Tribunal Decisions database.

Employer experience:

• Cross-examination can be stressful — witnesses must stay factual and avoid speculation.
• Employers should ensure full disclosure; withholding relevant evidence can be viewed as unreasonable.
• Legal representation or HR support can help maintain focus on procedure and avoid reactive responses.

Costs and timing:

• Most hearings last 1–5 days, depending on case complexity.
• Each party usually pays its own costs unless one side is found to have acted “vexatiously or unreasonably.”

Judgment and Remedies

Purpose: To decide liability and award remedies where appropriate.

After the hearing, the Employment Judge issues a written judgment, usually within a few weeks.
This may include:

• Liability decision – whether the claim succeeded.
• Remedies hearing – to determine compensation amounts.
• Written reasons – explaining the rationale behind the decision.

Common remedies include:

• Reinstatement or re-engagement (rare)
• Compensation for loss of earnings
• Injury to feelings awards (for discrimination)
• Aggravated or exemplary damages (in severe cases)

Appeals:

Either party can appeal to the Employment Appeal Tribunal (EAT) on points of law only — for example, if the tribunal misapplied legislation or procedural fairness.
Appeals must be lodged within 42 days of the written decision.

Employer actions:

• Review the judgment promptly and note any compliance deadlines (e.g. payment dates).
• Seek legal advice immediately if considering appeal.
• Reflect internally on lessons learned — policy gaps, manager training, or documentation weaknesses.