The true cost of employment tribunals

This article was originally published in People Management.

Employment tribunals – specialised court sessions designed to resolve workplace disputes over employment law issues – are typically judged by their final legal outcome. Success and failure are measured in terms of liability, awards and precedent.

However, this approach overlooks the broader impact that tribunal proceedings can have on both individuals and the businesses involved. The operational and emotional toll can be just as significant, if not more so, than the costs involved. And, crucially, these costs begin to accrue long before any judgment is reached.

While compensation remains the headline risk, the true cost of a tribunal often lies elsewhere: in management time diverted from the business, the strain placed on those involved and the prolonged uncertainty that can affect organisations throughout a process that may last many months.

Understanding these hidden costs has never been more important, particularly as businesses begin to navigate the legislative changes introduced by the Employment Rights Act 2025, changes which are likely to increase both the complexity and volume of tribunal claims.

What happens in an employment tribunal?

Employment tribunals resolve disputes between employees and employers, commonly involving unfair dismissal, discrimination or pay-related claims. Cases are decided through formal hearings in which both sides present evidence and arguments before a judge, who issues a legally binding decision.

Before a claim is submitted to the tribunal, the claimant must engage in early conciliation through the Advisory, Conciliation and Arbitration Service (ACAS) to explore whether the dispute can be resolved. If conciliation is unsuccessful, the case proceeds to a tribunal, although there are opportunities for the conciliatory discussions to take place in advance of a hearing.

In the interim, employers must prepare evidence and identify witnesses. In Scotland, where written witness statements are not used, robust record-keeping and contemporaneous notes are particularly important.

At the main hearing, evidence is tested and witnesses questioned before the tribunal reaches a decision, either dismissing the claim or awarding remedies such as compensation.

Recent changes under the Employment Rights Act 2025 are expected to increase the volume of tribunal claims, at least in the short term while businesses get to grips with the new legislative landscape. Unfair dismissal is one area of upheaval, with employee rights now applying after six months’ service, instead of the previous two-year period, and the time limit for lodging claims being extended to six months, meaning employers may face disputes long after employment has ended. This, alongside the Acas Early Conciliation period being extended from six to 12 weeks in December 2025, means that cases may not be raised for a considerable period after the dismissal, for example, takes place.

The hidden expenses

Even when a claim is successfully defended, businesses frequently emerge surprised by the scale of the financial burden, the emotional impact on those involved and the strain placed on teams having to manage ongoing disruption and operational challenges. These pressures are felt throughout the tribunal proceedings, from beginning to end.

Significant time is required for preparation, in gathering evidence, coordinating witnesses and managing schedules for people expected to give evidence, which often means diverting senior leaders and HR teams away from day-to-day business operations for extended periods.

This is then compounded by the time required for senior staff to attend and participate in hearings and negotiations, which can last for days at a time, translating directly into lost operational time and decreased productivity as attention is taken away from usual business activities.

It can also be an emotionally taxing experience, both for the individual bringing a claim and for those representing the business in its defence.

After a tribunal concludes, organisations must then address any fallout, support affected staff and apply lessons learned to reduce the risk of future disputes. Considerable HR and management time may be required to review, update and implement new or amended policies to ensure ongoing legal compliance.

In addition, a tribunal can have a lasting impact on workplace culture, making it essential for employers to invest time and effort in rebuilding trust and maintaining a positive, engaged working environment.

Prevention is the best cure

Understanding the time and effort involved in preparing for and progressing through an employment tribunal highlights why prevention is often the most effective approach for employers. While disputes cannot always be avoided, many of the risks, and the associated costs, can be significantly reduced through early planning and robust people management practices.

With the Employment Rights Act 2025 introducing changes to unfair dismissal and other workplace practices that are either in effect now, or will be soon, employers must take a proactive stance in reviewing contracts and updating policies to reduce the risk of disputes occurring.

Early advice can also make a decisive difference. Seeking guidance at the first sign of an issue, rather than after a claim has been lodged, allows employers to resolve matters more effectively, prevent escalation and protect both their people and their business.