he Ministry of Justice has pledged to clamp down on contingency fee arrangements in employment tribunal proceedings in a move that may drive more business to legal expenses insurers.

The government announced its intention to introduce new measures tackling the use of contingency fee arrangements last week as part of the Coroners and Justice Bill. It is set to publish a consultation paper in the coming weeks.

Currently, parties within an employment dispute can instruct a legal representative, with some taking a percentage of a potential pay-off as a means of payment, despite the fact they are intended to be non-contentious.

The government's proposals are expected to include a cap on the percentage of damages that can be recovered by legal representatives. This could see an increase in the number of legal bodies aligning themselves with before-the-event legal expenses insurers.

The MoJ is also proposing that legal representatives provide explicit information on alternative methods of funding, which will include legal expenses insurance.

Peter Smith, First Assist Legal Services managing director, said that the fact that after-the-event insurance could not be used in the area made BTE insurance a potentially popular alternative.

He said: "BTE insurance will include the costs of legal representation to regulate the settlement process. The insurers will cover the cost of the legal fees and with most BTE policies, the client will not have to pay anything further."

The proposals come as Lord Justice Jackson conducts his review into cost of civil litigation.

Alistair Kinley, head of policy development at Berrymans Lace Mawer, said it is important for the proposals to fall in line with the Jackson review.

He added: "The review of contingency fees in employment tribunals may be looking at one piecemeal aspect of the process but there needs a broad solution so that all the behaviours are captured within a balanced system. There has to be only a limited possibility for the system to be exploited."

This article first appeared in Post Magazine 28 May 2009 edition. The article is not a substitute for specific legal advice and should not be relied upon as such.