THE Federation of Small Business has welcomed news that employment tribunal applications have fallen by 25 per cent in July.

But it has warned that the figures masked the number of employers who were settling out of court rather than going through a system that is increasingly costly and complex.

The Employment Tribunal Service annual report shows that where the employer successfully defends a claim costs cover legal expenses in only 0.75 per cent of cases.

Because out-of-court settlements are confidential the report does not contain information on the number who settle, which FSB research in 2004 suggested was running at 44 per cent.

FSB Kent chairman Roger House said: "Small employers face large legal bills on top of any awards they may be required to pay and are particularly frustrated that costs are only awarded against the litigant in a tiny minority of cases.

"Costs need to be awarded more often against vexatious applicants and should take into account the huge increase in legal fees."

The FSB provides insurance and a 24-hour legal advice line for members to protect their business activities against employment disputes.

Murray Fairclough, who runs the legal advice line said: "Tribunals are no longer quick and relatively straightforward.

"'The huge volume and complexity of legislation means that most employers seek legal advice before attending a tribunal, increasing costs.

"'For many small employers these costs have become prohibitively expensive and the fact remains that in less then one per cent of cases do businesses recover their true legal costs of defending their position."