Running for cover

first_imgRelated posts:No related photos. Previous Article Next Article Running for coverOn 1 Jun 2000 in Personnel Today Comments are closed. Evenbest-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 HoareItwas recently reported in Personnel Today that employers are rushing to buyinsurance against employment tribunal awards. The reasons for this are notdifficult to find. In recent months HR professionals and those who advise themin the UK have come to realise the possible impact on the company’s bottom lineof the Government’s recent reforms of unfair dismissal law. Thestatistics recording the number of claims made to tribunals – a 14 per centrise for the year to September 1999, before the reforms had time to have asignificant effect – indicate that workers are becoming ever more litigious.Lawyershave realised that as compensation awards have risen it is now viable for themto offer to represent tribunal claimants on a no-win, no-fee basis. The tradeunions have renewed self-confidence and legal assistance with tribunal claimsis one of the benefits of membership. Claimants will be better represented thanever.Tocap it all, the impact of recent case law has been to make it more difficultfor employers to defend claims successfully and to make the outcome of tribunalcases even more uncertain than at present. Unfair dismissal law is in a stateof turmoil. The former president of the Employment Appeal Tribunal, Mr JusticeMorrison, left as a parting gift before handing on the presidency the decisionin Haddon v Van den Bergh Foods, which was soon afterwards followed by theScots EAT in Wilson v Ethicon.Theparticular significance of Haddon lay in its rejection of the “range ofreasonable responses” approach to the all-important question of whether anemployer has acted reasonably or unreasonably in treating a reason fordismissal as sufficient and, therefore, fair within section 98(4) of theEmployment Rights Act 1996. Mr Justice Morrison regarded it as a mantra (nodoubt dreamt up by wicked lawyers) which obscured the true purpose of theunfair dismissal legislation and which had led in practice to applicantsfinding it too difficult to win at tribunal. Theycould do so only by persuading the tribunal that the employer had actedperversely in deciding to dismiss them. Not only were tribunals entitled tosubstitute their own views of the matter for those of the employer, they wereunder a duty to do so.TheHaddon decision was heavily criticised. It seemed to ignore the fact that therange 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 theirexperiences it had made it difficult for applicants to win their cases. Itallows for the reality that an employer can be torn between two possibledecisions – to dismiss, or to issue a warning, for example  -which are finely balanced and notnecessarily unreasonable. InMidland Bank v Madden the new EAT president, Mr Justice Lindsay, has acceptedthat until the Court of Appeal can consider the issue again the range ofreasonable responses test must be applied, albeit without falling into the trapof treating it as a test of perversity. TheCourt of Appeal is expected to give guidance later this year but meanwhile theresults of unfair dismissal cases are bound to become even more unpredictable.Rather than continue to carry the risk themselves, and to attempt the difficulttask of budgeting accurately for the likely costs in the year ahead, it may bemore attractive for employers to pay a fixed sum to an insurer to take on therisk and provide support and assistance if and when claims are made. Someemployers 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. Whyincur the expense of an insurance policy? But that approach is risky andpossibly complacent. Even the best employers face claims from time to time.Even weak and/or frivolous claims are costly to deal with, and employmenttribunals are increasingly unpredictable. Surprise results are not uncommon.Therehave been at least 10 new products launched in the last year alone, with morein 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) itis relatively new to the UK. HR professionals may need guidance as to how to goabout choosing the policy which best suits their own circumstances and whichprovides the best value.Indeciding what policy to buy, HR professionals should consider not only theamount of the premium which is being charged but also what the policy will andwill not cover; the quality of support which the insurer will provide whenclaims are received; and the support which an insurer will provide to helpprevent claims arising at all. GaryFreer is a partner at law firm Barlow Lyde & Gilbert and head of itsemployment law team. Angela Howe is an account executive with Aon Risk Servicesspecialising in employment practices liability Howinsurers deal with claimsSomeinsurers are better than others at supporting businesses when claims come in.This will be particularly important to HR professionals – these sorts of claimsoften require delicate and difficult decisions to be made. Important businessfactors may influence the decision whether to fight or settle, so look for aninsurer with a reputation for being sympathetic. Theinsurer should also make available lawyers of high quality with experience ofemployment law to help you deal with claims promptly, efficiently andsympathetically. Make sure that the law firm being nominated has theexperience, expertise and depth of resources you need – and the number, qualityand experience of the assistants is often just as important as that of thepartner or partners who “front” the operation. Someinsurers insist that claims may only be handled and presented at the tribunalhearing by their own in-house advisers and, in some cases, may refuse toprovide cover at all unless their advice was asked for and followed before thedismissal took place. Others are more flexible and will not include suchonerous conditions. Someinsurers will help you prevent claims arising in the first place by includingas part of the package access to advice helplines, seminars and trainingsessions, and on-line legal advice which in price and quality will often morethan match the services offered by consultants.   ThePolicyWhatsort of claims should it cover?Whilethe terms and conditions of different policies on offer will differ, almost allwill pay awards of compensation and settlements of claims for unfair dismissaland discrimination, and many other employment related claims, however they maybe described in different countries throughout the world. For example, in theUS many forms of legal wrong such as the intentional infliction of emotionaldistressŒ have been developed by the courts and will usually be covered so longas they relate to employment. Theywill usually not pay sums to which the employee was contractually entitled,although they may pay the costs of defending breach of contract and othercontractual disputes. Arethere limits on the amounts the insurer will pay?Mostpolicies have an overall limit on the amount the insurers will pay out in anysingle year. There may sometimes be a limit on the amount which will be paid inrespect of each individual claim.  It isimportant that these limits are not set at too low a level for the size andnature of the organisation. If employees are well paid, the potential claimsmay be more substantial and the limit per claim should take this intoaccount.  Therewill usually be an excess which the customer must pay. It is important thatthis should not be too high, particularly in the event of several relativelysmall claims being made in the course of the year, as may occur if the employerhas a large number of employees.  Willthe policy cover exposures to claims from outside the UK?Notall policies will do so, but many will provide cover worldwide. Some providecover to cater for those European countries in which an employer may be forcedto reinstate an unfairly dismissed employee – the insurer may meet the cost ofback pay for the period between the dismissal and the date of reinstatement. Itshould be possible to buy a policy tailored to the countries in which thebusiness operates. last_img read more