Running for cover

best-practice employers are switching on to the benefits of liability cover.
Here’s some advice on how to pick the policy that’s best for your organisation.
By Gary Freer and Angela Hoare

was recently reported in Personnel Today that employers are rushing to buy
insurance against employment tribunal awards. The reasons for this are not
difficult to find. In recent months HR professionals and those who advise them
in the UK have come to realise the possible impact on the company’s bottom line
of the Government’s recent reforms of unfair dismissal law.

statistics recording the number of claims made to tribunals – a 14 per cent
rise for the year to September 1999, before the reforms had time to have a
significant effect – indicate that workers are becoming ever more litigious.

have realised that as compensation awards have risen it is now viable for them
to offer to represent tribunal claimants on a no-win, no-fee basis. The trade
unions have renewed self-confidence and legal assistance with tribunal claims
is one of the benefits of membership. Claimants will be better represented than

cap it all, the impact of recent case law has been to make it more difficult
for employers to defend claims successfully and to make the outcome of tribunal
cases even more uncertain than at present. Unfair dismissal law is in a state
of turmoil. The former president of the Employment Appeal Tribunal, Mr Justice
Morrison, left as a parting gift before handing on the presidency the decision
in Haddon v Van den Bergh Foods, which was soon afterwards followed by the
Scots EAT in Wilson v Ethicon.

particular significance of Haddon lay in its rejection of the "range of
reasonable responses" approach to the all-important question of whether an
employer has acted reasonably or unreasonably in treating a reason for
dismissal as sufficient and, therefore, fair within section 98(4) of the
Employment Rights Act 1996. Mr Justice Morrison regarded it as a mantra (no
doubt dreamt up by wicked lawyers) which obscured the true purpose of the
unfair dismissal legislation and which had led in practice to applicants
finding it too difficult to win at tribunal.

could do so only by persuading the tribunal that the employer had acted
perversely in deciding to dismiss them. Not only were tribunals entitled to
substitute their own views of the matter for those of the employer, they were
under a duty to do so.

Haddon decision was heavily criticised. It seemed to ignore the fact that the
range of reasonable responses test had been approved by the Court of Appeal,
and was binding on the EAT. Many employers would not agree that from their
experiences it had made it difficult for applicants to win their cases. It
allows for the reality that an employer can be torn between two possible
decisions – to dismiss, or to issue a warning, for example  -which are finely balanced and not
necessarily unreasonable.

Midland Bank v Madden the new EAT president, Mr Justice Lindsay, has accepted
that until the Court of Appeal can consider the issue again the range of
reasonable responses test must be applied, albeit without falling into the trap
of treating it as a test of perversity.

Court of Appeal is expected to give guidance later this year but meanwhile the
results of unfair dismissal cases are bound to become even more unpredictable.
Rather than continue to carry the risk themselves, and to attempt the difficult
task of budgeting accurately for the likely costs in the year ahead, it may be
more attractive for employers to pay a fixed sum to an insurer to take on the
risk and provide support and assistance if and when claims are made.

employers may take a view that because they believe their HR practices are sound,
and they are good employers, tribunal claims are unlikely to affect them. Why
incur the expense of an insurance policy? But that approach is risky and
possibly complacent. Even the best employers face claims from time to time.
Even weak and/or frivolous claims are costly to deal with, and employment
tribunals are increasingly unpredictable. Surprise results are not uncommon.

have been at least 10 new products launched in the last year alone, with more
in the pipeline. Although this form of insurance is very widely used in the US
(and many UK businesses with employees there have been buying it for years) it
is relatively new to the UK. HR professionals may need guidance as to how to go
about choosing the policy which best suits their own circumstances and which
provides the best value.

deciding what policy to buy, HR professionals should consider not only the
amount of the premium which is being charged but also what the policy will and
will not cover; the quality of support which the insurer will provide when
claims are received; and the support which an insurer will provide to help
prevent claims arising at all.

Freer is a partner at law firm Barlow Lyde & Gilbert and head of its
employment law team. Angela Howe is an account executive with Aon Risk Services
specialising in employment practices liability

insurers deal with claims

insurers are better than others at supporting businesses when claims come in.
This will be particularly important to HR professionals – these sorts of claims
often require delicate and difficult decisions to be made. Important business
factors may influence the decision whether to fight or settle, so look for an
insurer with a reputation for being sympathetic.

insurer should also make available lawyers of high quality with experience of
employment law to help you deal with claims promptly, efficiently and
sympathetically. Make sure that the law firm being nominated has the
experience, expertise and depth of resources you need – and the number, quality
and experience of the assistants is often just as important as that of the
partner or partners who "front" the operation.

insurers insist that claims may only be handled and presented at the tribunal
hearing by their own in-house advisers and, in some cases, may refuse to
provide cover at all unless their advice was asked for and followed before the
dismissal took place. Others are more flexible and will not include such
onerous conditions.

insurers will help you prevent claims arising in the first place by including
as part of the package access to advice helplines, seminars and training
sessions, and on-line legal advice which in price and quality will often more
than match the services offered by consultants.  


sort of claims should it cover?

the terms and conditions of different policies on offer will differ, almost all
will pay awards of compensation and settlements of claims for unfair dismissal
and discrimination, and many other employment related claims, however they may
be described in different countries throughout the world. For example, in the
US many forms of legal wrong such as the intentional infliction of emotional
distressΠhave been developed by the courts and will usually be covered so long
as they relate to employment.

will usually not pay sums to which the employee was contractually entitled,
although they may pay the costs of defending breach of contract and other
contractual disputes.

there limits on the amounts the insurer will pay?

policies have an overall limit on the amount the insurers will pay out in any
single year. There may sometimes be a limit on the amount which will be paid in
respect of each individual claim.  It is
important that these limits are not set at too low a level for the size and
nature of the organisation. If employees are well paid, the potential claims
may be more substantial and the limit per claim should take this into

will usually be an excess which the customer must pay. It is important that
this should not be too high, particularly in the event of several relatively
small claims being made in the course of the year, as may occur if the employer
has a large number of employees. 

the policy cover exposures to claims from outside the UK?

all policies will do so, but many will provide cover worldwide. Some provide
cover to cater for those European countries in which an employer may be forced
to reinstate an unfairly dismissed employee – the insurer may meet the cost of
back pay for the period between the dismissal and the date of reinstatement. It
should be possible to buy a policy tailored to the countries in which the
business operates.

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