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Tribunal insurance. Comfort blanket, or furry handcuffs?!

Small employers are often tempted by ‘HR insurance’ offerings providing employment tribunal protection cover. It’s not hard to see why, employment is complex, legal advice is expensive and headline-grabbing tribunal awards are not uncommon.

It would appear on the surface that a monthly payment to an insurance provider is far more appealing than dealing with the fallout of an employee taking the business to tribunal. A good thing then, but are we seeing the whole picture?

In reality high awards are usually reserved for large or public sector employers and, of the 3,000 or so compensation awards made in 2012 – 13 (from 29m employees), the average was less than £5,000. If you employ 10 people it’s statistically unlikely you’ll be on the losing side of a tribunal claim in a century of trading! But there are other implications too. Consider the following simple facts:

  1. Insurers are unlikely to ever sanction any action that is likely to increase their (the insurer’s) risk)
  2. Employment related actions are never without some risk, however small it might be

Considering this pair of facts together, we can start to see the real problem with employment litigation insurance. It’s not so much that the policy will probably never be called upon, the more worrying thing is the detrimental implications of over-cautious advice. Like it or not, disruptive employees damage business, and while there might be some risk in dealing with them, there’s an awful lot more risk in not – other employee’s behaviour, strain on the team, lost custom, not to mention stress for the business owner.

If insurance comes as part of an outsourced HR service, the terms of the policy usually mean that the slightest deviance from their helpline advice will invalidate the policy, and so, advised by a risk averse insurer, the employer simply doesn’t take action to deal with an issue in the first place, and the rot sets in.

The following are real examples raised by our customers based on advice received from their previous HR insurance providers:

  • An employee turned up to his place of work (a care home) obviously drunk. HR Helpline advice: No absolute evidence, no action (Our advice: Reasonable belief will suffice, investigate, dismiss.)
  • Employee caught by manager rifling through manager’s private files. HR Helpline advice: No proven intent, no action other than informal. (Our advice: investigate, potential gross misconduct.)
  • Employee with 3 months service, poor attitude and sickness absence. Legal helpline advice: Potential disability, no action advised. (Our advice: no grounds to suspect disability, dismiss and re-look at recruitment procedures)

The reality of employing workers is that many decisions carry a degree of risk and while a claim might be possible, the consequences of not dealing with issues guarantees problems for the employer. Rather than avoid risk employers should evaluate it (this is where good quality HR advice can help) and decide on the best course of action for the business, not just for the insurer. This kind of advice comes best from having a personal relationship with an HR Advisor who knows your business and can help you make informed decisions.

Reputable HR companies for their own part should be covered by professional indemnity insurance, in myhrdept’s case for up to £1m in any one claim.

Speak to us about how we can help you develop excellent people practices and how our services will help your business develop. Have an issue now? We also offer one-off fixed price support. Call us on 01628 820515

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