A damages based agreement (DBA) can offer an alternative funding option for employees bringing a claim against their employer, allowing them to pursue a claim without paying legal fees upfront.
Like any funding arrangement, DBAs have both advantages and potential risks and so understanding how they work can help employees decide whether this type of agreement is suitable for their claim.
What is a damages based agreement?
A damages based agreement is a type of "no win, no fee" arrangement between a solicitor and their client. Under a DBA, the solicitor's fees are dependent upon the claim succeeding. The solicitor receives a pre-agreed percentage of the compensation awarded or settlement agreed upon by the two parties.
If the claim is unsuccessful, the employee will generally not have to pay their solicitor's fees for the work carried out under the agreement, this excludes any disbursements.
Advantages of a damages based agreement
No upfront legal fees
One of the biggest benefits of a DBA is that employees can access legal representation without needing to fund expensive legal fees at the outset. This can be especially valuable for employees who have recently lost their job or are experiencing financial uncertainty.
By removing the need for expensive upfront payments, a DBA can make legal advice and representation more accessible.
Reduced financial risk
Employees may be reluctant to pursue a claim because they are concerned about spending money on legal fees with no guarantee of success. A DBA moves much of that financial risk away from the employee, as the solicitor is only paid if the claim succeeds. This can enable employees to focus on achieving a successful outcome rather than worrying about increasing legal fees.
Access to expert legal representation
Employment law can be complex, and so expert legal representation is highly valuable when it comes to bringing a claim. The outcome of a dispute often depends on presenting evidence effectively and understanding the laws involved.
A DBA can give employees access to specialist employment solicitors who can assess the strength of the claim, negotiate settlements and represent them throughout the process.
Shared interests
Because a solicitor's fee is linked to the compensation recovered, there is a shared interest in achieving a successful outcome. Both the employee and solicitor are working towards maximising the value of the claim where appropriate.
Potential risks of a DBA
A percentage of the compensation is paid to the solicitor
While there are no upfront legal fees, a successful claimant will usually need to pay an agreed percentage of their compensation to their solicitor. This means that although the employee receives compensation without having funded the claim themselves, they will not retain the full amount awarded or agreed in settlement. However, the amount that a solicitor can be paid in a damages based agreement is capped at 35% of the compensation or settlement in employment law cases.
Not every case will be eligible
Solicitors will need to assess the merits and potential value of a claim before agreeing to act under a DBA. If the prospects of success are considered too low, or if the likely compensation is relatively low compared to the work involved, a DBA may not be offered. As a result, some employees may need to consider alternative funding arrangements such as conditional fee arrangements and privately funding the case.
Compensation could be lower than expected
If a case settles for less than originally anticipated, the employee's net recovery after the DBA percentage is deducted may be lower than they had hoped. It is therefore important for claimants to understand what percentage will be deducted before entering into an agreement.
Is a DBA right for you?
A damages based agreement can be a helpful way for employees to pursue an employment law claim without paying legal fees upfront. For many it provides access to legal experts that may otherwise be financially out of reach. It is important to weigh the benefits against the potential risks and to understand exactly how the agreement will work.
How Stephensons can help
At Stephensons, our specialist employment law solicitors understand the challenges employees face when considering legal action against their employer. We offer clear, practical advice on funding arrangements, including damages based agreements where appropriate, and can help you understand your options from the outset.
If you believe you may have a claim and would like to discuss whether a DBA could be suitable for you, contact our employment law team for expert advice and guidance by completing our enquiry form.
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