Collectively small business lose billions of pounds each year from unpaid bills and the legal costs associated with recovering debts. There was a glimmer of good news for SMEs last month, when the Ministry of Justice-backed LawTechUK initiative announced seed funding for a new online dispute resolution (ODR) service designed to help small businesses recover late payments.
Such a service for SMEs will need to range widely because the people who face the toughest challenges in resolving disputes are not actually small companies but freelance contractors and the self-employed.
Inevitably, there is a power imbalance between sole-traders and the large organisations they engage with. Self-employed workers struggle to recover late payments from clients, fearful of jeopardising the relationship; they battle with HMRC to establish their correct tax status; and increasingly they end up in disputes with their engagers about their employment status and workplace rights, which they often don’t have the time, knowledge or resources to pursue.
Self-employed workers face a justice gap, and therefore need institutional machinery to operate on a fair and level legal playing field when disputes arise.
This is no small issue. In 2019, 15% of workers across the UK were self-employed - nearly a fifth in London – and on average they earn less than employees. The growth of new forms of self-employment and the platform economy has shone a spotlight on the challenges they face. It isn’t just self-employed workers that will benefit though. Rapid and cheap dispute resolution will save time and money for businesses, the courts and ultimately, the economy.
In our recent research we asked self-employed workers and legal experts to tell us what would be required of an ODR service for it to work effectively. We also looked at ODR experiments in other jurisdictions including Canada, the Netherlands, and the USA.
A new service must be readily usable without the support of a lawyer or other professional adviser. This is the only way to widen access and reduce costs. Complainants need a comprehensive stage-by-stage set of solutions, with AI-powered personalised guidance followed by phases of dispute resolution from initial complaint to arbitration. Users would be led through each stage, with each building on the information, evidence and conduct of the one before to make the whole service efficient and straightforward.
When a similar system was trialled in the Netherlands for family law it foundered because it was a peripheral alternative track, compared to conventional court-based settlement. To succeed the ODR service needs to be the mainstream choice, and in the context of self-employment we think that means that participation in the process will need to be compulsory for respondents. Otherwise they could simply opt for formal legal proceedings as a way of putting off self-employed complainants.
Our proposed ODR service would incorporate six stages of dispute resolution into one service.
Stage one is personalised advice. Online questionnaires, information databases and decision matrices will identify the legal position and provide advice, for example on employment or tax status. Supporting materials will be generated in advance of making a complaint.
Stage two is to initiate action. The worker would use the ODR portal to notify the other party of the concern. A request for resolution will be issued, for example a change of employment status or payment of a bill. The advice and supporting materials generated in stage one would be used to substantiate the claim. The ODR service will encourage rapid, non-confrontational resolution and the other party will be required to respond.
Stage three is negotiation. If the issue has not been promptly resolved, the process would move to bilateral negotiation between parties. The ODR system could provide the mechanism to make sequenced proposals through its online portal, or parties could negotiate direct and register the outcome through the system.
Stage four is conciliation. If direct negotiation had not succeeded a trained conciliator would facilitate a video conference and propose a resolution which both parties could choose to support. This would be the first point where professional human input would be the norm.
Stage five is arbitration or adjudication. If the issue had not been resolved by conciliation, with the agreement of both parties the ODR service would appoint an independent arbitrator to review all documentation, receive further written and oral evidence and make a legally enforceable decision. Although now a human process, it would still be managed through the digital platform. Alternatively, if one party insisted on it, the complaint could at this stage transfer to the relevant court or tribunal, ideally a digital version of the court, to simplify the process.
The final stage is enforcement. Too often court rulings involving self-employed workers and SMEs go ignored, especially with respect to unpaid bills, so the outcome must be binding, with both sides required to confirm promptly with the online service that an agreement or ruling had been implemented.
An ODR service inspired by these prototype design requirements would be a boost for self-employed workers and SMEs. With virtual courts proving a success during the Covid-19 crisis, it’s time to take the plunge and apply technology to dispute resolution end-to-end. ODR for the self-employed will bring justice to workers who today lack the time, money, confidence, and clout to resolve their legal problems. It is an opportunity to be grasped.
Andrew Harrop is the General Secretary of The Fabian Society
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