This blog has been written following the discussion currently on going in the forums – Are Employment Laws stopping Small Businesses Growing?
On average in the UK we are seeing 15 changes in Employment Legislation each year and we are about to see more from the 1st October 2010 with updates to equality in the workplace and increases in minimum pay.
Employment Practice Liability Insurance (EPLI) provides protection in respect of legal costs incurred in defending any claim along with court compensation awards for a wide range of Employment Practices. The insurance is also not limited to claims where the insured is at fault and will pay for costly defence claims where the court decided liability does not lie with the company. The typical claims that arise and that are covered by an EPLI policy are unfair dismissal and discrimination on the grounds of sex, race, religion, disability, belief or sexual harassment amongst others. The insurance is designed to make payments for the awards and legal costs where the insured has unknowingly or unintentionally breached employment legislation. It is not enough to wait for a potential or actual claim to arise and then ask and insurer to put a policy in place because if it gets to this stage it is too late, you will be footing the bill yourself. Organisations need to look at their risk management and decide if it is worth taking the risk in not having such a policy.
So who buys EPLI cover? Well it all originated for the US and is relatively new in the UK with insurers only writing the policy for the last 10 years as a call for such insurance was seen when the blame culture made its way across the Atlantic to our shores. Traditionally it has been large organisations with volumes of employees and big turnovers that buy the cover and see most claims, however this is beginning to change as the profile or the claimant begins to change. In 2001 the Employment Tribunals in the UK reported claims of 218,101 and in 2008 this had risen to 296,963. A lot of these claims resulted from multiple claimants for a single event (i.e. an airline making 100 employees redundant, and all the employees pursuing a claim against the airline) but this is beginning to shift and now single claimants are becoming more brave as legislation moves more favourably to protect them. Not all of the mentioned claims for the 2001 and 2008 years were successful and a lot of them were either settled before reaching court or thrown out of court once they got there. However the costs in just defending the claims and that damage caused to reputation if not handled properly can be immense.
So if large organisations are seeing claims arising when you would expect them to have dedicated HR departments and sound employment guidelines then surely the exposure for small organisations is just as high if not more so as they lack resources, training opportunities and inadequate compliance procedures and time to meet the constantly changing Employment legislation.
So here are some real claim examples that have taken place where the company would have benefitted from having an EPLI policy in place;
Unfair redundancy selection
A telecommunications company agreed to pay £50,000 in compensation to the parents of a former employee whose claim for unfair dismissal was successful at an Employment Tribunal two years after his death. In the landmark ruling, the tribunal heard the employee had been made redundant after taking time off for dialysis sessions. He was selected for redundancy on the grounds of an appraisal, which criticised his performance and attendance in a previous job. He died after contracting a flu virus but his parents continued with his claim of unfair dismissal.
The former manager of a bowling alley brought a successful action at tribunal on the grounds of sex discrimination, claiming that she had been dismissed for becoming pregnant. The company settled the case out-of-court for £11,000. Later it refused to provide a reference for her. She brought a second action claiming that this refusal was in retaliation for her earlier action. This was upheld at tribunal, which awarded her £195,000.
An EPLI policy can start from as little as £250 a year, but will depend upon a completed proposal form in which the insurer would look to find out about your current employment and HR procedures before deciding whether or not to accept the risk.
If you would like to discuss this further please do get in touch.