CHALLENGING “NO WIN NO FEE” ARRANGEMENTS FOR EMPLOYMENT CLAIMS

Challenging “No Win No Fee” Arrangements for Employment Claims

Most employers know the exposure that they have to personal grievance claims.  Under New Zealand law, employees can bring a personal grievance against their employer.  Some personal grievances are obvious and clear – think of firing an employee without any good reason, racial discrimination, or sexual harassment.  Others are more ambiguous, such as causing an employee “disadvantage” through an “unjustifiable action”.

With goodwill on both sides, an issue in the employment relationship can often be worked through with an honest conversation and agreement to a plan for moving forward.  But what happens when, out of the blue, an employer receives a letter from an “employment advocate” claiming an employee has been “disadvantaged” and demanding payment of $30,000 or else?

In New Zealand “no win no fee” arrangements are generally prohibited due to injuries being covered by ACC.  You might therefore be surprised to learn that “no win no fee” arrangements are playing out in New Zealand every day in the employment context.

If you run a Google search, for “no win no fee employment” you will find agencies offering “employment law professionals” or “employment law experts”.   These agencies do not use the regulated terms of “lawyer” or “legal services” because these employment advocates often don’t have professional legal training, and are not eligible to call themselves lawyers or providers of legal services.  What they will often have is an agreement with an employee to share in any settlement payment made by the employer. 

The sad reality is that most of the time the sensible advice to an employer is to offer a few thousand dollars to make the problem go away, even for a claim with no merit.  The risk if you don’t, is that even a questionable claim may proceed to the employment relations authority, ultimately costing the employer a lot more, i.e. thousands, or even tens of thousands in legal fees and dozens of hours of valuable time.

Everyone except the employer on the other side of a questionable claim benefits.  The employment advocate takes home a few thousand dollars for a letter that probably took a relatively short time to produce, and the employee takes home a few thousand dollars for what may be a claim with little foundation.  Even if the claim proceeds, and the employer chooses to fight it out, the employer might only recover one third of actual legal costs, and even then, only from the employee. The employment advocate has no exposure to costs… or do they?

Clearly, the best answer would be regulation of the sector. One has to question why almost every other profession has a mandatory regulatory body, but not employment advocates.

A possible approach seems to be an old one – the torts (a legal word for a wrongful act leading to legal liability) of maintenance and champerty.  At law, the tort of “maintenance” is committed where a person, without a lawful reason, helps another person to bring or defend legal proceedings, causing damage to the other party.  “Champerty” is the form of maintenance where that person does so in exchange for receiving a share of any proceeds of the proceedings.  It seems to us that this is exactly the arrangement employment advocates have with employees that they represent.  

Despite comments from one unnamed Judge to our firm’s Mr Farr that he was bringing up some “ancient English law”, and a recommendation from the law commission that the torts be abolished, our country’s Supreme Court has held it remains good law.  Her Honour, the Chief Justice Sian Elias, as she then was, commented in the case of PricewaterhouseCoopers v Walker, that the torts still exist in New Zealand, albeit their application is subject to public policy considerations.

Our view is that for attempts through employment advocates to pursue claims with no merit, there is no good public policy basis to deny an employer the opportunity to recover costs, in full, directly from these employment advocates.  So, if as an employer you find yourself in this situation, you might have a weapon of your own.

If you need advice on any employment issues, contact one of our lawyers.