What is an employment tribunal?

If you believe the maxim, ‘prevention is better than a cure’ then read on. To save money, time and the hassle of dealing with a grievance that threatens to go to an employment tribunal, don’t let it occur in the first place. It’s impossible to be completely watertight as any policy you introduce will be open to human error, but if you’ve taken every possible precaution the chances of shelling out for a disgruntled ex-employee will dramatically reduce.

Employment tribunals were set up to provide an informal and accessible forum for resolving industrial disputes. A panel of three adjudicate on cases, which carry legal gravity and the threat of prison if you lose and don't pay up.

The panel is made up of a legally qualified chairperson and two lay members, one representing workers organisations and the other nominated by employers' organisations. But while it was introduced to avoid claims going to the law courts, it has instead become a legal minefield, clogged up with cases as companies leave themselves open to attack and employees assert their rights.

The average payout for an unfair dismissal case is more than £5,000 per successful claim. But this is just the tip of the iceberg. Tribunals can award compensation of up to £52,600 for unfair dismissal where the employee can show financial loss of that amount. And there is no limit on awards for race, sex and disability claims, so it is even more important you don't fall foul on that count.

It is a common misconception among small employers that tribunals are informal places just because the panel doesn't wear starchy wigs and big red gowns, says Sarah Anderson, chief executive of the Mayday Group and member of the Small Business Council and Better Regulation Taskforce. But it is, so don't leave anything to chance, she says.

Why are they important?

Employment tribunals are far more than a mild annoyance. You not only face the threat of a substantial pay-out to the disgruntled ex-employee, which could bankrupt some small businesses, plus legal fees, but you and your management team will have wasted ridiculous amounts of time dealing with the problem.

And aside from time and money, can your business cope with the negative side-effects? Low morale in the office, continued problems with unions and bad PR can hit your business's productivity, add unwanted strife and could also damage a good reputation, not to mention hitting you where it really hurts - your pocket.

Small Business Council chairman and government 'red tape Tsar', William Sargent, says employment tribunals should be the last resort. But as around 20% of workplaces have had a tribunal claim against them in the past five years it a distinct possibility.

Being a good employer is more important than ever before. The slightest misdemeanour could be seized upon. According to CBI figures around 130,000 cases went the distance in 2001, which amounts to 2,500 a week or 500 a day. The estimated cost to industry was £633m, which was a rise of around 50% over the last two years.

If you do end up before the beak, don't fret. Employment tribunals are a fact of business life and chances are you’ve either faced one, are about to face one or will be facing one in future.