New laws to regulate cowboy claims management companies are to be introduced to reduce the number of spurious or misguided legal cases faced by employers.
The Compensation Bill will regulate the so-called ‘claims farm companies’, outlawing hard-sell tactics, inappropriate advertising and the encouragement of frivolous claims.
The Department for Constitutional Affairs, which is responsible for the Bill, said employment disputes would be one of the first areas where the new rules would apply.
Carol Undy, chair of the Federation of Small Businesses (FSB) said the Bill would clamp down on firms that mislead individuals into making unrealistic or fraudulent claims from their employers.
“This should bring some balance to a situation which can greatly damage employment relations and the entrepreneurial efforts of small business, while at the same time protecting the genuine claimant.
“Many of these companies give the impression that large pots of compensation are available for the slightest slip, and we welcome this response from government,” she said.
Under the new rules, claims management firms would need to be authorised by an official regulator and would be required to adhere to a code of practice.
Insurance firm Aon said the proposals did not go far enough and that 86% of UK organisations had been affected by the ‘compensation culture’ in 2004.
Its poll of 200 businesses found that 84% blamed the growth of ‘no-win, no-fee companies’ for current compensation problems. However, Tom Jones, a director at law firm Thompsons, said the compensation culture was a myth and the new rules would tar all claims firms with the same brush.
“All ministers needed to do to curb the excesses of the claims management industry was to introduce simple regulation, which would do just that. Instead, we have a Bill that confuses the law on negligence, introduces a vague notion of a desirable activity, and could have a negative impact on the ability of organisations such as trade unions to provide high-quality legal services.”