Practical Considerations in Settling an Unfair Dismissal Claim

Published 04 January 2019 by Donovan & Ho Advocates and Solicitors

After a complaint for unfair dismissal is filed to the Industrial Relations Department, more often than not, parties would face two processes known as conciliation and mediation. Both these processes are exercised to provide an opportunity for parties in dispute to seek an out-of-court amicable win-win settlement.

conciliation meeting takes place in the office of the Industrial Relations Department and is a mandatory step that is taken once an unfair dismissal complaint is filed. If conciliation is unsuccessful and the case is referred to the Industrial Court, parties may be required to undergo mediation before a Chairman of the Industrial Court, acting as the mediator. While conciliation meetings before the Industrial Relations Department are statutorily required, a mediation would depend on, among other things, whether parties agree to undergo mediation.

Ultimately, parties in dispute cannot be forced to settle an unfair dismissal dispute if they do not want to. However, sometimes, an amicable settlement can be considered as a way to resolve the dispute. Here are some factors that both parties (employers and employees) should take into account when deciding whether to settle their claim. The factors below are just illustrative and are not meant to be exhaustive:

The Nature of the Dismissal

The nature of the dismissal may affect whether an out of court settlement is even on the table. For example, where an employee is terminated for gross misconduct, an employer may not wish to settle the claim on principle and to set an example for other employees.  In contrast, an employer may be more open to settlement if the employee was say, terminated on medical grounds. Other background facts that led to the dismissal may also influence settlement discussions, for example the employer’s financial situation which resulted in retrenchment.

Time

An important factor when considering to settle an unfair dismissal dispute is time. While the Industrial Court has a charter that all claims are to be resolved within 9 months from reference, this is rarely achieved in practice. An unfair dismissal claim, if fully litigated, could take years, including the time it takes for the Industrial Court to deliver its written award. This is also assuming that there are no interlocutory applications filed, and does not take into account the possibility of the losing party applying for judicial review.  A settlement at the early stage of proceedings would save time for all parties, but since a settlement is a compromise, this would usually come at the expense of getting the “best” outcome that a party could have received if they had attempted to litigate this fully.

Costs / Expenses

If an unfair dismissal dispute goes all the way to trial, there are two main components of expenditure that may be incurred: (a) legal fees; and (b) the award amount (payable by the employer in the event they lose the unfair dismissal claim).  Each party bears their own legal fees in an unfair dismissal claim, regardless of outcome. This means that even if you “win”, you still have to incur some out of pocket expenditure to cover your own legal fees as the Industrial Court will not direct the losing party to cover your legal fees.  For employers, they will also have to weigh the possibility that they will lose the unfair dismissal claim, and factor in the potential award sum as part of their settlement considerations.

Settlement Sum

The key component in any settlement of an unfair dismissal claim is the settlement sum. Many out of court settlements involve the employer making payment of a settlement sum to the employee, without any admission as to liability, in order for the employee to withdraw the claim. While some settlements may also involve reinstatement, this is in practice quite rare.  This settlement sum is usually therefore the main term of settlement that parties will think about.

For employees, they will need to assess what sum they would be comfortable to accept, after considering factors like: (a) their current employment situation; (b) their financial commitments and cost of living; (c) reparation for any perceived wrongdoing by the Company; (d) the possibility that they may lose the unfair dismissal claim and be awarded nothing after many years.

For employers, relevant factors to be considered usually include: (a) legal fees to be incurred if the matter is litigated to a full trial; (b) possible award sum payable to the employee if the employer loses the unfair dismissal claim; (c) the current financial situation of the Company; (d) the Company’s principles and concerns about “setting an example” for other employees; (e) other legal obligations that the Company may have that may impede a settlement.

Parties must understand that an amicable settlement involves a compromise. For example, it is not reasonable for an employee to make a settlement proposal for the maximum amount that they would have received if they were successful in their unfair dismissal claim – if such an offer was made, a properly advised employer would likely reject the proposal and rather try their luck at trial. An unreasonable and unrealistic proposal may also set the yardstick too far apart and may discourage the other party from even attempting to negotiate.           

Merits of the Case

Before deciding to go for full trial, parties should always obtain legal advice to assess the strengths and weaknesses of their case. The strength of a case will turn on factors such as volume of documentary evidence available, the availability and credibility of witnesses, and procedural compliance with legal requirements and industrial relations practice. Being confident of having a strong case will give you better bargaining power in a settlement. On the contrary, knowing that you have a weak case would mean that a settlement may be an effective way to cut your losses and mitigate your risk.  The Industrial Court has an option for parties to undergo an “early evaluation” process, whereby parties can have their claim evaluated by a different Chairman of the Industrial Court, who will provide a neutral and unbiased assessment of each party’s strengths and weakness.