The Employment Appeal Tribunal has recently confirmed that the defence of set-off is available in contract claims in the employment tribunal and that the law of contract, including any defences, is intended to work in the same way before a tribunal as it works before the civil courts.

In the recent case, the employee had a contract claim for loss of pension rights during his notice period. The employer’s counterclaim for overpayment of wages was out of time. In the absence of the defence of set-off, the employer would have been required to pay the pension rights claim in full.

This decision may be helpful for employers due to the relatively short time limit available to bring a counterclaim. However, this does not mean that there is no longer any need for a valid counterclaim. Simply raising the claim as a set-off would leave an employer without a proper remedy where the employee’s contract claim fails on its own merits (leaving the employer with nothing against which to apply the set-off) or where the employee’s claim is significantly less than the employer’s.

Contractual claims in employment tribunals: Employees have the right to bring breach of contract or debt claims against their employers in the employment tribunals where those claims arise or exist at the time their employment is terminated. Employers have no free-standing right to bring contract claims against employees in the tribunals but may do so by way of a counterclaim where the employee has brought a contractual claim against them.

A counterclaim is a claim brought by a defendant against the claimant in response to the claimant’s claim which is included in the same proceedings as the claimant’s claim. An employer’s counterclaim must be brought within 28 days beginning with the day on which it received a copy of the employee’s breach of contract claim.
The amount payable in a contract claim in an employment tribunal cannot exceed £25,000.

Set-off: Where two parties owe each other money, a party may exercise a right of set-off to reduce or eliminate its liability to the other party.

The content of this Business Briefing is for information only and does not constitute legal advice. It states the law as at November 2014. We recommend that specific professional advice is obtained on any particular matter. We do not accept responsibility for any loss arising as a result of the use of the information contained in this briefing.