Business Surgery: Are you covered for a tribunal?

Nick Kennedy of Henderson Insurance. Photo supplied

Nick Kennedy of Henderson Insurance. Photo supplied

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As an employer you will know the risks (and benefits) of employing staff and possibly the biggest risk is the potential for an employment tribunal.

An employment tribunal can arise following allegations made by an employee of unfair dismissal, discrimination and unfair deductions from their pay etc.

The tribunal could order you to pay compensation to the employee if they win their case. Irrespective of the outcome you will still be faced with legal costs.

It is very easy to make an allegation against an employer and you have to defend it otherwise you could be found in default and thus considered liable.

Importance of cover. Many companies go without any form of insurance protection against such an action. Many also rely on a legal expenses policy (with an employment disputes extension) for some form of protection. The problem with relying on a Legal Expenses policy is that this generally carries a condition requiring an employer to refer and follow, to the letter, the advice of the Legal Expenses Insurer. There are many instances where companies have not sought pre-approval for action from their legex insurers only to find that when they claim on the policy they are turned down because of this. This will prove to be very costly even if the employer wins the case due to the legal fees that are incurred.

Did you know, there is an alternative? The alternative to legex cover is Employment Practices Liability insurance (EPL). This is most commonly offered as an option under a Directors & Officers liability policy. One of the major benefits is that pre-approval for any action involving an employee is not required. However, you must still follow proper procedures and not act outside the law.

The policy will respond if an action is brought by an employee and you claim on the policy (subject to the policy wording – they do differ). The cover should be arranged to include protection for the directors/ managers in the company and also extended to include the company itself (as the vast majority of claims are brought against the company).

The policy provides an indemnity for costs and awards made against you. They can be significant and may cause financial difficulties for many companies without insurance protection.

Check the costs of cover for your business.

The cost for this sort of cover is not necessarily cheap however it does offer an employer a good degree of protection against an unexpected tribunal appearance.