15 November 2024
An Insight into Employment Practices Liability
Employment Practices Liability (EPL) has become a crucial concern for businesses in the UK, reflecting the rising complexity of the employer-employee relationship. EPL refers to the legal responsibility businesses have for claims brought by employees regarding employment-related issues.
From unfair dismissal and discrimination to workplace harassment, EPL encompasses a broad range of disputes, and this liability can pose significant financial and reputational risks for all companies.
Whatever the size of your business, EPL is something it needs to keep in its sights each and every day. In the UK, the EPL landscape is shaped by robust employment legislation, including the Equality Act 2010, Employment Rights Act 1996 and numerous law case precedents. Understanding employment practices liability is essential for employers to mitigate risks, ensure compliance and maintain a positive working environment for everyone who works in the company.
What is Employment Practices Liability?
Employment Practices Liability covers claims that employees (or former employees) may bring against an employer for violations related to employment laws or workplace rights. These can include:Discrimination
Claims based on race, gender, age, religion, sexual orientation or disability discrimination. With the introduction of the Equality Act 2010, discrimination claims have risen sharply. This Act consolidates various anti-discrimination laws, covering protected characteristics such as race, sex, disability, age and more. A common claim involves indirect discrimination, where a policy or practice disproportionately affects a particular group.Wrongful dismissal
Claims related to termination without proper cause or due process. The Employment Rights Act 1996 outlines employees' rights regarding dismissal, and claims arise when an employer terminates an employee's contract without a fair reason or without following proper procedures, such as redundancy, disciplinary processes or capability concerns.Constructive dismissal
This occurs when an employee resigns due to the employer’s behaviour, such as creating intolerable working conditions. A constructive dismissal claim can arise from breaches of the employment contract, bullying or a toxic workplace culture.Harassment
Claims involving inappropriate behaviour or harassment, including sexual harassment. Workplace harassment, particularly sexual harassment, has gained increasing attention, driven by movements like #MeToo. In the UK, employers are required to take reasonable steps to prevent harassment in the workplace, and failure to do so can lead to liability.Retaliation
Claims that an employee was treated unfairly or dismissed after raising a concern or complaint, such as whistleblowing.Failure to promote
Claims that an employer failed to promote or fairly compensate an employee due to discrimination. The financial and reputational implications of such claims can be severe. Even if a company successfully defends against an EPL claim, the costs of legal fees, court time and potential damage to its reputation can be substantial.The importance of Employment Practices Liability Insurance (EPLI)
Employment Practices Liability Insurance (EPLI) offers businesses protection against the costs of defending EPL claims and paying settlements or awards. EPLI is particularly valuable for small and medium-sized enterprises (SMEs), as they often lack the in-house legal resources that larger companies have at their disposal. Key features of EPLI include coverage for legal defence costs, settlements or compensation, plus public relations support to help mitigate reputational damage following a publicised case.Five key steps employers can take to mitigate Employment Practices Liability
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Implement robust policies and procedures
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Provide regular training
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Encourage open communication
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Conduct fair and transparent HR processes
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Obtain Employment Practices Liability Insurance (EPLI)
Five cautionary claims examples
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A water drainage solutions business with a turnover of £140 million
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An employment outsourcing administration business with a turnover of £33 million
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A creative agency with a turnover of £7.9 million
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A hotel operator with a turnover of £14 million
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A leisure goods distributor with a turnover of £10 million
EPL Risks for SMEs
SMEs often face greater challenges in managing EPL risks due to limited human resources and legal support. However, they are not immune to employment disputes, which can have disproportionate effects on smaller businesses. For SMEs, EPLI is particularly vital, as the costs associated with defending a single claim can be crippling. Moreover, SMEs may be less familiar with evolving employment law regulations or may lack the internal mechanisms to deal with disputes effectively. Thus, investing in regular training, proper documentation and third-party legal advice when necessary is essential for smaller businesses. Employment Practices Liability represents a significant risk for UK employers, regardless of their size or industry. By staying informed about evolving employment laws, implementing best practices and investing in EPLI, businesses can better protect themselves from the financial and reputational damage that employment-related claims can bring. Ultimately, creating a fair, inclusive and transparent workplace is not just about avoiding liability—it’s about fostering a positive organisational culture where each and every employee feels valued, safe and respected, every day.Other blogs which may be of interest:
Understanding management liability claims Why you need D&O insurance as a company leaderAny questions? Please don’t hesitate to contact one of our team.
Matthew.collins@ascendbroking.co.uk | Office: 01245 449060
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