New regulations concerning damages-based agreements came into force on April the 8th. These regulations are intended to help ensure that claimants using this form of payment scheme are fully aware of their rights and prevent abuse of the system by unscrupulous representatives.

A damages-based agreement allows representatives of tribunal claimants to claim a percentage of any damages that are awarded to the claimant if their claim is successful. This makes them different from conditional fee arrangements (CFAs), which are typically used in court proceedings and which incorporate a success fee or “uplift” over and above the representative’s usual fee.

Damages-based agreements have proved controversial in the past. Employment law is one of the few legal domains in which their use is permitted, and, in recent years, some legal representatives acting on behalf of large groups of employees have been able to amass huge profits through their use.

The Courts and Legal Services Act 1990 s.58AA renders damages-based agreements unenforceable in employment proceedings unless certain conditions are met. These regulations stipulate the detail of the conditions, and set a limit on the maximum fee that can be charged in each case.

The regulations were subsequently revised, with the main modification being that the fee limit was raised from 25% to 35% (including VAT) of the compensation won by a successful claimant.

The regulations were then amended further, with the most significant change being to Regulation 6. Regulation 6 (5) had previously specified that the law on misrepresentation applied to questions of termination.

Under this latest revision, the scope for misrepresentation has been widened, with the new regulations simply stating that nothing in the regulations prejudices the parties’ rights to terminate “under the general law of contract”.

The intention of these modifications is to introduce more transparency into the system, and to prevent claimants who are ignorant of the rules surrounding damages-based agreements from being overcharged by their legal representatives.

Technorati Tags: Compensation, Employment Law