Are you protected against a rise in employment tribunals?

Are you protected against a rise in employment tribunals?
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Analysis provided by AIG and Michael Lea, Head of Management Liability, Lockton Companies LLP.

The number of UK employment tribunal claims is rising considerably, indicate the most recent figures from the Ministry of Justice.

This increase would seem to be connected with the scrapping of tribunal fees last year, which removed a significant barrier, at least for some employees, to making claims against employers.

An increase in claims against employers could continue for the foreseeable future, so companies should review the robustness of their internal policies and procedures and also ensure they have suitable insurance to cover the cost of any claims.

What happened

In 2013, the Government introduced tribunal fees as a precondition for individuals being permitted to bring claims before the employment tribunal in the vast majority of cases. It had previously always been free to pursue a claim in the tribunal.

The number of employment tribunal claims being made reduced by between 60% and 70% after the introduction of fees, according to figures produced by the Ministry of Justice.

On 26 July 2017, however, the Supreme Court held that tribunal fees (at least in their current guise) were unlawful and set at a prohibitively high level. This judgment came after the trade union Unison challenged the lawfulness of the fees.

Implications 

As a result of the Supreme Court ruling, tribunal fees are no longer payable for claims and all fees paid since 29 July 2013 must be reimbursed by the Government.

During the quarter immediately following the scrapping of tribunal fees, single employment tribunal claims increased by 64%, show the Ministry of Justice’s figures. To take the specific example of unfair dismissal, there were 1,016 claims made in June 2017, but in September the number had increased to 1,594.

As well as a possible spike in fresh claims, employers could also face a high number of applications for permission to serve employment tribunal claims, with respect to individuals who were previously prevented from bringing a claim because they could not afford the fee. 

Companies could also face claims that were previously struck out due to non-payment of the fee. It is currently unclear whether such claims would be allowed to proceed.

Guidance for businesses 

With employment tribunal claims likely to increase, businesses should ensure that they follow good employment practice, and have comprehensive policies and procedures in place to mitigate the risk of employment claims being made.

They should also conduct an audit of any claims against them that were struck out for non-payment of fees since 2013, and ensure that all relevant documents are preserved, in case individuals apply to have their claims reinstated.

Companies should also ensure that grievance and disciplinary files from the past four years are preserved, if they have not already been destroyed, in case late claims are made.

Insurance options 

Businesses may also wish to review their insurance to cover the potential cost of such claims – specifically whether they have Employment Practices Liability (EPL) insurance. 

EPL insurance provides coverage to employers against claims made by employees alleging discrimination (based on sex, race, age or disability, for example), wrongful termination, harassment and other employment-related issues, such as failure to promote. 

In addition to paying claims, EPL insurance provides the policyholder with legal advice in relation to possible claims. This can help companies to manage and respond to incidents more sure-footedly at the pre and post-claim stage.

Large companies often have substantial EPL insurance and are prepared to deal with just about any employment lawsuit. These companies should review whether they are comfortable with their level of coverage. For instance, are the limits adequate? And do they know how the policy would respond in the event of a claim?

Small or new businesses may also wish to consider the merits of EPL insurance. Such companies are often the most vulnerable to employment claims because they usually lack a legal department or established policies and procedures in relation to recruitment, diversity, discipline and the termination of employment. 

EPL insurance has often been of more interest to UK companies that have a significant workforce overseas, in regions typically regarded as more litigious (for example, the US).  The apparent increase in UK claims could change this, with such cover being bought more regularly by companies with a UK-centric workforce.

In short, recent developments mean that now would be a good time for entities of all sizes to consider, or revisit, the subject of EPL insurance to ensure that they are adequately protected.

 

For more information, please contact Michael Lea on:

michael.lea@uk.lockton.com