You Can Win an Employment Tribunal and Still Lose: The Uncomfortable Reality for SMEs

There is a phrase I use regularly in my job that I have come to dislike: “It’s a commercial decision.”  I dislike saying it, and I dislike hearing it.  I understand exactly what it means. I understand the mathematics behind it. I have advised employers to make that decision many times over the years.  But I also understand why, for the person who owns the business, it can stick in the back of your throat.

Because sometimes a “commercial decision” means paying money when you genuinely believe you have done nothing wrong. It means compromising when every instinct tells you to stand your ground, simply because the alternative will cost your business more.

And sometimes that goes against every principle you have.

You can win and still lose.

One of the hardest things about Employment Tribunal litigation is that winning and losing aren’t always as straightforward as they sound.

An employer can successfully defend a claim and still walk away thousands of pounds worse off.

There are legal fees, witness statements, documents to review, managers preparing evidence and potentially days spent at a final hearing. Alongside the professional costs is the management time lost to the business.

And after all of that, the Tribunal may decide that the employer did nothing wrong.

That’s a legal victory.

But commercially, did they really win?

This is where the uncomfortable conversation begins, and the reality is, there are no winners.

An employer might have the opportunity to settle a claim for £5,000 but believe it has a perfectly credible defence.

The instinctive reaction is often: “Why should I pay £5,000 when we haven’t done anything wrong?”

Then you discover that taking the claim through witness statements, preparation and a final hearing could cost £15,000 or £20,000.

Suddenly the question isn’t:

“Who is right?”

It soon becomes a question of “How much are you prepared to spend proving that you are right?” and that feels profoundly unfair.

As advisers, we can become accustomed to talking about prospects of success, compensation, settlement ranges and legal costs before concluding that, commercially, settlement makes sense.

But there is a human being sitting on the other side of that advice.

Often that person owns the business. They may have spent decades building it. They may have supported the employee (often going above and beyond), taken professional advice, followed a fair process and genuinely tried to do the right thing.

Now they are being told to write a cheque, and that sticks in your throat.

Sometimes you desperately want to say “No. Enough. We will take our chances at Tribunal.” and I understand that feeling.

But understanding it doesn’t make the commercial reality disappear.

Settlement doesn’t mean you were wrong.

Settlement is not necessarily an admission that an employer has done something wrong.

Sometimes you are buying certainty. You are avoiding further legal costs, getting management time back, removing litigation risk and allowing everyone to get back to running the business.

But there is another reason I often encourage employers to consider settlement, and it isn’t just about legal costs. Employment Tribunal claims can become all-consuming. They take up management time, but they also take up headspace. They sit in the background while you are trying to run your business, manage your people and plan for the future. Sometimes settlement is about drawing a line under something that has already consumed enough of your time and energy, allowing you to move on and put your focus back where it belongs – on your business.

That is very different from admitting that you did something wrong.

The economics also inevitably form part of settlement negotiations.

As a hearing approaches, both sides know that witness statements need preparing, bundles need finalising, witnesses need preparing, and further legal costs are about to be incurred.

An employer can therefore find itself thinking  “We are only considering paying this because it will cost us more to argue about it.” Sometimes that is exactly the calculation.

It doesn’t necessarily mean the claim has become stronger.  It means the economics have changed.

But sometimes the employer doesn’t even get to make that choice.

There is another side to this that I am seeing too.  Sometimes an employer is willing to settle. They may have made a reasonable offer despite believing they have a good defence because they want to bring the matter to an end, to give them that headspace and allow them to focus on their business rather than the dispute.

But the Claimant wants their day in Tribunal.

That is their right. Settlement requires two willing parties and nobody should be criticised simply for exercising their legal right to have a genuine dispute determined by a Tribunal.

But we also need to acknowledge what that means for the employer.

If settlement isn’t possible, the business has little choice but to defend itself.

The legal bills continue. Witness statements still need preparing. Managers are pulled away from their jobs. Solicitors and potentially barristers need to be paid.

And an employer shouldn’t assume that successfully defending the claim means recovering those costs. Costs awards can be made in Employment Tribunal proceedings, but the usual position is that each side bears its own costs.

For an uninsured business, that money is coming directly out of the business.

In most cases, an SME doesn’t choose litigation. It simply has no choice but to defend it.

There ARE genuine claims, and those employers should be accountable.  I want to be very clear about something.  There are genuine Employment Tribunal claims.

There are employees who have been discriminated against, unfairly dismissed, harassed or otherwise treated badly at work. There are employers who get things wrong and, occasionally, employers who behave appallingly.

Those employees deserve access to justice.

Employers should be accountable when they breach employment law, and I would never argue otherwise.

The Employment Tribunal system serves an incredibly important purpose.

My concern is about the balance.

Is it right that a business with a good defence can face spending tens of thousands of pounds simply to establish that it acted lawfully?

Is it right that the cost of defending a claim can make settlement commercially sensible regardless of how strongly the employer believes in its case?

And does that create circumstances where the economics of litigation can sometimes become almost as important as the merits?

I think those are legitimate questions because access to justice matters on both sides.

An employee should be able to challenge an employer who has unlawfully treated them. Still, an employer should also be able to defend itself without the cost of doing so becoming the very thing that determines the outcome.

Right now, I’m not convinced we have that balance quite right.

And is this about to become an even bigger issue?

From January 2027, the qualifying period for ordinary unfair dismissal will reduce from two years to six months.

That means millions more employees will gain access to unfair dismissal protection. The Government’s own analysis anticipates an increase in ACAS cases and Employment Tribunal claims.

That doesn’t mean millions of employees will suddenly start bringing claims, nor do I think we should describe people exercising new statutory rights as opportunistic. Still, inevitably, when substantially more people acquire a legal right, there will be more opportunities for disputes about whether that right has been breached.

For SMEs, good HR practice is more important than ever.

Probation periods need to mean something. Performance and conduct concerns need to be addressed early. Managers need to document conversations and decisions. Processes need to be fair. Advice should be sought before dismissal, rather than after the ET1 is served.

What difference can insurance make?

This also makes Employment Disputes Insurance increasingly worth considering for SMEs.

An uninsured employer facing a Tribunal claim may suddenly be funding thousands of pounds of legal fees directly from the business.

Appropriate insurance can provide an important layer of protection against that exposure, subject of course to the terms of the policy and the insurer’s assessment of the claim.

It doesn’t remove the stress or disruption, and where an insurer is funding the defence, the insurer will understandably have a say in commercial decisions about settlement.

But there is a considerable difference between facing a £30,000 legal bill yourself and having appropriate insurance protection behind you.

Insurance isn’t a substitute for good HR.

Good HR is the first line of defence. Insurance is the safety net.

For SMEs, I increasingly think both deserve serious consideration.

Final thoughts

I think we need to talk more honestly about Employment Tribunal litigation.  Sometimes settling a claim feels awful.

You can know intellectually that it is absolutely the right commercial decision while emotionally every part of you wants to refuse.  It can stick in the back of your throat because it goes against your principles.

At other times, you may desperately want to settle, but the person on the other side wants their day in Tribunal, leaving you with little choice but to keep spending money defending the business.

Neither necessarily tells us who is right or wrong.

There are genuine claims and employers who absolutely should be held accountable.

But there are also employers who have acted reasonably and nevertheless find themselves facing a very uncomfortable question: “How much can we afford to spend proving it?”

There is no prize for spending £30,000 proving that you didn’t owe someone £5,000.

I know how difficult that sentence can be to swallow.

But with unfair dismissal protection extending to millions more employees from January 2027, we need a serious conversation about whether we have the balance right.

Employees need meaningful access to justice.

But SMEs need meaningful access to a defence too.

Surely a fair system needs to provide both.