Received a costs warning letter?
Usually it is not a reason to drop your claim. In employment tribunals each side normally pays its own legal costs, and a costs order is only made in limited situations, such as unreasonable conduct. Here is what the letter means and how to reply.
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Do you have to pay costs if you lose an employment tribunal?
Usually not. Losing a claim does not by itself mean you pay the other side’s costs. The tribunal can order costs where a party has acted vexatiously, abusively, disruptively or otherwise unreasonably, or where a claim had no reasonable prospect of success. It can also take your ability to pay into account.
What is a wasted costs order in an employment tribunal?
A wasted costs order is made against a paid representative, not against a party. It covers costs caused by the representative’s improper, unreasonable or negligent conduct. If you are representing yourself, it does not apply to you, although an ordinary costs order still could.
Should I respond to the letter?
Yes. A brief, professional response saying you believe your claim has reasonable prospects and intend to proceed. Keep it on record. If it’s a formal deposit order application, you must respond within the tribunal deadline.
The letter names specific weaknesses in my case. Should I worry?
Maybe. If the weaknesses are genuine, address them — amend your claim or gather more evidence. If they’re speculative or misread your case, respond firmly. Don’t assume the letter is right.
What is the difference between a deposit order and a costs order?
A deposit order requires a party to pay up to £1,000 to the tribunal at an early stage as a condition of continuing an allegation that has little reasonable prospect of success. A costs order is made at the end requiring the loser to pay the other side’s legal costs. Both are uncommon.
If I rejected a Calderbank offer and lose, what happens?
Not automatically. In the employment tribunal, rejecting an offer and doing worse does not by itself mean you pay costs. The tribunal can take the rejection into account when deciding whether you acted unreasonably. Get advice before rejecting a formal offer.
Can the employer be ordered to pay my costs if I win?
Rarely. Costs are not normally available to the winning party in tribunals. The tribunal can order the loser to pay your costs only if they acted unreasonably — ignoring orders, making false allegations, or abusing the process.
If I win, can I claim the legal costs I paid?
Not automatically. Tribunals don’t routinely award legal costs to successful claimants. The exception is unreasonable conduct by the employer in the proceedings. Otherwise, your own costs aren’t recoverable.
Received a costs warning letter?
Important: Costs are awarded in under 1% of tribunal cases (MOJ Tribunal Statistics, 2024).
Most claimants who receive costs letters have perfectly viable claims. The letter is designed to make you doubt yourself.
Don't panic or withdraw
The letter is designed to intimidate. Take a breath. Most claimants with costs letters proceed and face no costs order at the end.
Read the letter carefully
Is it a costs application under rule 74, a deposit order application under rule 40, or a "without prejudice save as to costs" Calderbank offer? Each is different. Note the specific allegations or weaknesses cited.
Consider the substance
Does the letter identify a specific aspect of your claim that genuinely has weak prospects? If so, take that seriously. Consider whether to amend or narrow your claim. If the points are generic scare tactics, ignore them.
Respond calmly in writing
A brief, professional reply stating you believe your claim has reasonable prospects and you intend to proceed. Keep this on the record. Don't be aggressive or emotional.
File it and keep going
Continue preparing your case as normal. The letter will only become relevant at the end if you lose and the employer makes a costs application.
What is a rule 74 costs order?
Rule 74 of the Employment Tribunal Procedure Rules 2024 (in force since 6 January 2025) allows a tribunal to order a party to pay the other side's legal costs if that party has "acted vexatiously, abusively, disruptively or otherwise unreasonably" in bringing or conducting the proceedings, or if a claim or response "had no reasonable prospect of success". It applies to either side, not only the claimant.
Key: costs are not ordered simply because the claimant lost. The tribunal must find unreasonable conduct or that the claim was hopeless from the start. Costs can be substantial (£5,000–£50,000+ depending on the legal fees incurred).
For the wider picture, see our guide to employment tribunal costs. If the letter is marked “without prejudice save as to costs”, our without prejudice explainer sets out what that label means.
Types of costs threat
Formal rule 74 application
An application to the tribunal asking the judge to order costs. This happens during proceedings or after judgment. Serious but rare.
"Without prejudice save as to costs" — a settlement offer the other side may show the tribunal later when asking for costs. In the employment tribunal, turning down an offer and doing worse does not by itself lead to a costs order. It is one factor the tribunal can weigh when deciding whether you acted unreasonably.
General threat letter
Solicitors' letter threatening a costs application. Often vague, designed to intimidate. These are most common and often amount to nothing.
What makes a costs order more likely?
- Unreasonable conduct: Ignoring tribunal orders, failing to comply with deadlines, making vexatious claims or allegations
- Ignoring orders: The tribunal has told you to do something and you refuse or delay unreasonably
- Pursuing hopeless points: Points so weak they were hopeless from the start, not just difficult
- Abuse of process: Using the proceedings for ulterior motive (harassment, blackmail)
- Personal conduct: Dishonesty, contempt, disruptive behaviour in person
What does NOT attract costs
- Simply having a case that fails: You lose but you weren't unreasonable in bringing it — no costs
- A case that was arguable but lost: Many cases have weak and strong points. If the case overall was arguable (it had a reasonable prospect of success), no costs even if tribunal finds against you
- Disagreeing with the tribunal's findings: You lose because the tribunal believed the other side — not unreasonable conduct
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Frequently Asked Questions
Do you have to pay costs if you lose an employment tribunal?
What is a wasted costs order in an employment tribunal?
Should I respond to the letter?
Yes. A brief, professional response saying you believe your claim has reasonable prospects and you intend to proceed. Don't be defensive or emotional. Keep it on record in case the matter escalates. If it's a formal deposit order application, you must respond within the tribunal deadline.
The letter names specific weaknesses in my case. Should I worry?
Maybe. If the weaknesses are genuine (a point you actually can't prove, a legal test you fail), address them. Amend your claim, focus your case, gather more evidence. But if the criticisms are speculative or misread your case, respond firmly explaining why you disagree. Don't assume the letter is right.
What is the difference between a deposit order and a costs order?
A deposit order (rule 40) is an order made at an early stage requiring a party to pay up to £1,000 to the tribunal as a condition of continuing an allegation that has little reasonable prospect of success — if that allegation later fails for substantially the same reasons, the deposit goes to the other side. A costs order is made at the end if you lose — you pay the other side's actual legal costs (or part of them). Deposit orders are rare; costs orders rarer still.
If the other side made a Calderbank offer and I rejected it, what happens?
Not automatically. In the employment tribunal, rejecting a Calderbank offer and then doing worse at hearing does not by itself mean you pay the other side's costs. The tribunal can take the rejection into account when deciding whether you acted unreasonably, so an unreasonable refusal of a sensible offer can count against you. Get advice before rejecting a formal offer.
Can the employer be ordered to pay MY costs if I win?
Rarely. Costs are not normally available to the winning party in tribunal cases (unlike courts). The tribunal can order the losing party (the employer) to pay your costs only if they acted unreasonably in the proceedings — for example, by ignoring tribunal orders, making false allegations, or abusing the process. This is uncommon.
If I win, can I claim the legal costs I paid?
Not automatically. Tribunals don't routinely award legal costs to successful claimants (unlike courts). Your compensation covers your losses, but not your legal fees. The only exception: if the employer acted unreasonably in the proceedings (ignoring orders, misconduct), you might claim against them. Otherwise, your own costs are not recoverable.
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Sources: Employment Rights Act 1996 · ACAS guidance · GOV.UK Employment Tribunals