Elite. Employment practices liability insurance

Transcription

1 Elite Employment practices liability insurance

2 The last few years have been extraordinarily active in shaping workplace law and this looks set to continue with employee rights strengthening. In addition, an increasing number of employees are much more aware of their rights, leading to a huge number of employment-related claims. 2

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4 Clearly the need for companies to limit their exposure to potential claims from employees has never been greater. More and more we hear tales of employment disputes. Every day company directors and management make decisions that impact workers personally and collectively. The exposures created by these decisions are universal and companies of all sizes face liabilities that are expanding. Small to midsize companies are particularly at risk, as they may not have the resources to pull together extensive and up to date employment compliance procedures. While the risks can be mitigated through the adoption of correct policies and procedures it is impossible to eliminate them entirely. Large volumes of complex employment legislation have bombarded employers recently, increasing their exposure to employment tribunal claims and making compliance a time consuming duty that impedes business progress. The Survey of Employment Tribunal Applications, carried out by the DTI, found that 57% of employers had dealt with tribunal applications in the past. These concerns were echoed by the Federation of Small Businesses in their 2004 survey. This revealed that 66% of members responding perceived the volume of employment legislation were major obstacles to growth, whilst 59% felt it was the complexity and 56% felt it was the rate of change of legislation that were the main barriers for growth. The cost as well as the frequency of employment related claims has increased dramatically. In addition to the 4

5 hidden costs of defending claims, the amount of compensation awarded is also rising. For certain types of discrimination there is no limit to the amount of compensation awarded. Clearly the need for companies to limit their exposure to potential claims from employees has never been greater and it has highlighted the use of Employment Practices Liability (EPL) insurance as an essential risk management tool. Evolving law equals evolving exposure With over 40 pieces of employment legislation enacted since 1999 and 70 different types of employment complaint over which tribunals have the power to make decisions, keeping procedures current and up to date is very difficult. And the evolution of employment liabilities continues. Key overall developments for employers concerned about their employment liability exposure include: p new categories of individuals acquiring workplace rights; p increase in the number of laws prohibiting discrimination encompassing new categories; p updating of existing unlawful discrimination laws providing more causes of action for claimants. The laws bring with them a range of new or freshly defined causes of action adding indirect discrimination, victimisation and harassment to the already familiar concept of direct discrimination; and p creation of greater exposure from existing laws through the interpretation of courts and tribunals. The Prevention of Less Favourable Treatment regulations for fixed-term and part-time employees came into force in October 2002 and July 2000 respectively. These regulations create the potential for 6 million part-time and 1.3 million fixed-term (DTI estimates) claimant workers in search of compensatory awards to equalise their pay and other terms of employment with their full time colleagues. In addition, together with the Flexible Working Regulations of 2002, these laws create new worker rights as well as demands on employers to implement procedures whereby they can effectively hear and consider employee requests. Still more recently, the 2003 employment equality regulations are important new laws against discrimination. These regulations have added religion, belief and sexual orientation to the already protected categories of sex, race and disability. It is noteworthy as it delves into areas that are traditionally private matters and creates unforeseen liabilities. Companies 5

6 It is of foremost importance that companies keep up to date not only with the legislation but also their employment policies and procedures. may find it difficult to monitor diversity and effectively prevent inadvertent discriminatory acts. On the horizon loom several significant laws and expansion of existing laws, including: p Age discrimination laws, coming into force in October 2006, will give workers both young and old the opportunity to pursue claims for unlimited compensation; p Sex Discrimination Act 1975 is expanding to incorporate new concepts of indirect discrimination and sexual harassment as well as a stand-alone provision prohibiting discrimination on grounds of pregnancy or maternity leave; p Disability Discrimination Act 2005 expands the definition of mental illness as a type of disability and hence enlarges the number of workers who might use this as part of a complaint. It also adds new rules against discriminatory job advertisements; p The draft EU Directive on working conditions for temporary workers will extend the protection to agency workers; p Threats emerging from the European Parliament to the opt out provision that currently allows employers to exceed average minimum working week limits. How can claims be generated? There are many and varied ways that employers may find themselves facing claims. Even companies with exemplary employment practices who feel they have well managed their direct actions risk should ensure that they are equally aware of their indirect and vicarious exposures from which it is more difficult to reduce risk. It is clearly of foremost importance that companies keep up to date not only with the legislation but also their employment policies and procedures. The main types of employment claim that a company may face can broadly be categorised into: Direct actions with adverse impacts on workers Unfair dismissal the most common claim. The burden of proof is on the employer to show that the reason for dismissal is neither reasonably nor substantially unfair. There is a wide and growing range of circumstances in which a worker acquires additional protection from dismissal including: p when making protected disclosures (or whistle blowing ) covered by the Public Interest Disclosure Act 1998; p the sale or other transfer of a business; p selection for redundancy; p application for flexible working arrangements; or, 6

7 Failure to act in prevention of an unlawful action can produce some of the most costly claims as well as involve multiple claimants p in general, asserting any of their statutory rights including those relating to union membership or activities. In such circumstances a dismissal can be deemed automatically unfair in which case the tribunal will be able to ignore any employer defences based on reasons or procedure and proceed straight to calculation of awards. Wrongful dismissal refers to the breach of a contract of employment by an employer that is connected with either the actual or constructive dismissal of an employee. The most common claims are where an employer has dismissed a worker without giving the notice required by contract but wrongful dismissal can equally occur when it is alleged that an employer has breached a significant term of the contract of employment, leading the worker to resign and claim damages for wrongful constructive dismissal. A full six years are allowed for bringing this type of claim before a court. Direct discrimination where a company makes an employment decision based upon a worker s protected status. In such a claim the company can be found liable to pay compensation for financial losses suffered by the worker as well as compensation for injury to feelings and personal injury caused by the unlawful act of discrimination. Indirect actions or failure to act in prevention of an unlawful action This category of claim is less well understood and yet can produce some of the most costly claims as well as involve multiple claimants. The concept of indirect discrimination has been redefined to apply much more broadly to informal as well as formal workplace practices. For example, exclusion from a regular social gathering could now be a source of claims as much as exclusion from a performance review process. The true extent of what can be construed as indirect discrimination is still evolving, however, the crux of this complicated exposure to employers is that acts undertaken for normal business purposes 7

8 anything done by a person in the course of his employment shall be treated as done by his employer as well as by him, whether or not it was done with the employer s knowledge or approval Employment Equality (Sexual Orientation) Regulations 2003 can have consequences that are unlawfully discriminatory and can even indirectly impact whole groups of employees at once. Examples could include: p an employer that links pay increases to length of unbroken service. This could be found to be indirectly sex discriminatory if it did not make allowances for maternity leave; p an employer who selects for redundancy a category of workers, such as part-timers, for seemingly fair reasons. This may create a disparate impact on one protected category because a greater percentage of parttimers may be women; p an employer s failure to review and monitor systems of pay. The Equal Pay Act 1970 applies to more than just workers wages. It also applies to other employment benefits such as holidays, discounts and subsidies. Vicarious liability for the action of its workers and agents Within this category, employers face unknown and potentially very costly exposures as they become natural targets for claimants who, rather than pursue claims directly against the individuals giving rise to the grievance, seek those with the resources to pay unlimited compensation awards. Vicarious liability can, in certain circumstances, flow not just from the acts of a company s workers but also from those of its agents. There are a variety of ways in which claimants can seek to establish vicarious liability of an employer, including: Statutory rules under discrimination law, in their modern format the antidiscrimination laws contain statutory rules concerning vicarious liability which are broader than the normal common law rules (under which the key concept is whether the offending act was authorised by the employer). To quote directly from the Employment Equality (Sexual Orientation) Regulations 2003 anything done by a person in the course of his employment shall be treated as done by his employer as well as by him, whether or not it was done with the employer s knowledge or approval. The effect is that the employer, faced with such a discrimination claim, does not have the defence that they were unaware of the activities or did not expressly authorise them. The Protection From Harassment Act 1997, while enacted to provide protection more generally where existing torts such as nuisance or trespass to the person were proven inadequate shields, has recently been put to the test as respects bullying in the workplace. In a 2005 Court of Appeal ruling, an audit co-ordinator who 8

9 New laws and consequent new risks bring new claims claimed that the behaviour of his line manager was harassing and humiliating successfully pursued a claim against his employer because the actions complained of were closely connected with his employment. New exposures bring new claims The new laws, and consequent new risks, are increasingly being used by claimants with new or long standing grievances against their employers. The following examples are provided for illustrative purposes and are not a guarantee of coverage by ACE s Elite Employment Practices Liability insurance. Cover is determined on a case-by-case basis in accordance with policy terms and conditions. Equal pay A tribunal ruling that an employer failed to review and monitor systems of pay has produced settlements amounting to approx 100 million in a multiple claimant action. Indirect Race / Religion Discrimination An employment tribunal held that a Muslim employee who put his hand in a bucket containing sausages as part of a motivational exercise was subjected to indirect race discrimination. A company whose more desirable jobs were on one site but whose larger proportion of ethnic minority staff were on the other site operated a policy of advertising vacancies internally at the site in which the vacancies were located. An employee successfully showed that the policy was indirectly discriminatory. The case is an important reminder of the potential for policies and practices to have a disproportionate impact on employees of particular races and ethnic backgrounds. Sexual Orientation Discrimination A banker is suing his employer for 5 million claiming discrimination on the grounds of sexual orientation. Legal experts have warned that his case could have widespread ramifications. This case highlights the importance of the new sexual discrimination laws and demonstrates that individuals are prepared to use them. Sex Discrimination A female store manager was awarded 180,000 compensation by an employment tribunal that concluded, in the absence of any satisfactory explanation for disparities in treatment, she was the subject of sex discrimination and that her dismissal was unfair. 9

10 A share analyst successfully sued her employer for unfair dismissal and sex discrimination resulting in a 1.4 million compensatory award. A female area sales manager was awarded 120,000 compensation by a tribunal which found that she was sexually harassed by a senior manager, sexually discriminated against and constructively unfairly dismissed. An employer who failed to take steps to protect an employee from harassment by a work colleague was found liable for that harassment by an employment tribunal. Indirect Sex Discrimination A man has claimed indirect sex discrimination because a company refused to employ him on account of his height, despite initially offering him a trainee position. Risk assessments on display screen equipment and the workstation, which could not be adapted for taller people, indicated that the man would have difficulty because of the length of his legs and that there would be health and safety issues. So, what protection is available? Employment Practices Liability (EPL) insurance can protect companies against the financial impact of a claim. Elite EPL provides cover for: p damages (including injury to feelings), judgments, settlements, defence costs, and awards of claimant s costs as well as pre- or post- judgment interest; p legal representation costs for employment investigations. This coverage also adds an additional defined limit of liability dedicated to such costs, which is above and beyond the basic limits available, leaving full policy resources for other claims during the period, including further claims that may follow from such investigations; p cost of paying wages from date of purported dismissal to date of judgment in the event that the company is ordered to re-instate or reengage worker; p punitive and exemplary damages where insurable by law; p acts committed prior to inception of the policy; and p acts worldwide (except USA which can be added by endorsement) Who is covered? Elite EPL provides cover for: p the company; p its subsidiaries, including automatic cover to subsidiaries acquired or created during the term of the policy that increases the total number of workers up to 20%; 10

11 p past, present and future directors and officers; p spouses, estates, heirs and legal representatives of directors and officers; p past, present and future workers; and p individuals who are not ordinarily considered workers (including independent contractors, agency workers or secondees) can be covered by extension to the standard policy. Why choose ACE? ACE has earned its leading position in the financial lines marketplace by consistently providing superior service, exceptional expertise and a commitment to its clients. In particular, we pride ourselves on our: Stability ACE Europe is a leading provider of insurance and reinsurance in Europe. Headquartered in London with a network of offices across 14 European countries, ACE Europe is part of The ACE Group of Companies, one of the world s largest providers of property and casualty insurance, reinsurance and financial services. Established in 1985, the ACE Group has grown rapidly by building long-term partnerships with our brokers and clients in each of the world s major insurance markets. Innovation ACE is one of the most innovative providers of insurance products and services in today s global marketplace. We pride ourselves on the quality and experience of our staff, who are specialists in their individual fields. Using this experience, we focus on products and services in market segments where this specialised knowledge creates a natural alliance with customers. In addition, we tailor our products and services to support the key business goals of those select segments. Experience and expertise ACE Europe has a highly respected underwriting team holding a significant degree of knowledge on employment practices liability. We work with brokers and clients to provide quality cover and a claims service, which meet the needs of employers in a rapidly changing environment. 11

12 ACE European Group Limited ACE Building 100 Leadenhall Street London EC3A 3BP +44 (0) tel +44 (0) fax Authorised and Regulated by the Financial Services Authority Registered in England No Published April 2011