Contingency Fee Agreements – final regulations unveiled

The use of contingency fees (where the representative charges a proportion of the amount recovered) in employment tribunal claims is now on a statutory footing, and is regulated. From 6th April 2010 the Damages-Based Agreements Regulations 2010 (which can be found at this link) will enforce certain requirements.

Requirements of the agreement

  • The agreement must be in writing;
  • The claim or proceedings must be identified;
  • The maximum percentage of damages which can be specified as fees is 35% including VAT;
  • The circumstances must be set out by which any amounts become payable as fees must be identified – this will include provisions, for example, as to whether the percentage includes counsel’s fees, and the circumstances in which other fees become payable. This might include where the client refuses reasonable offers of settlement, or the representative is forced by the client’s conduct to terminate the retainer.
  • The agreement must state the reasons for setting the percentage recovery at that level – this may be a moot point, as many representative firms will apply a blanket 35%. This does provide an area where representatives can compete with one another.

In addition, the following information must be given in writing (this will usually form part of the client care letter:

  • Everything stated above;
  • How the client might seek a review of the costs, fees and expenses incurred, and the circumstances in which they can do so;
  • The services provided by ACAS;
  • Whether other methods of funding are available, such as legal aid (unlikely), legal expenses insurance, pro bono representation or trade union representation. A solicitor would normally be under a duty to explore funding methods with the client in any case. I would say anecdotally that the legal expenses insurance policies that many of us have as part of our home insurance are underused, many people never think to enquire if their employment claim will be covered.
  • The regulations state that where the agreement is terminated, the representative can charge costs and expenses, but that the agreement may not be terminated:
  • by the client – if liability has been admitted, settlement has been agreed, or it is less than seven days before the tribunal hearing;
  • by the representative – at all, unless the client has behaved or is behaving unreasonably.

The former seems sensible, as it prevents a client taking advantage of an admission of liability, good settlement offer, or the preparation work undertaken for a tribunal if he realises that he will pay less if charged on an hourly basis rather than as a percentage.

The latter seems to contain a glaring omission, which is that the representative must surely be able to terminate the agreement if it is under a professional duty to do so. There are a range of circumstances in which the solicitor is under a duty to stop acting which would not be attributable to unreasonable behaviour (such as a conflict of interest which had gone undiscovered), and the contractual position that would result is now unclear. Could frustration be argued?

These regulations do not enable contingency fees to be charged in “contentious” proceedings, such as personal injury claims or, interestingly, the Employment Appeal Tribunal. Barristers are, of course, still prevented by their professional rules from charging a contingency fee on any type of work. This may change in the future.

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