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Tribunal claims – to insure or not to insure?

Insurance is a bit like Marmite – you either love it or hate it. We discuss the pros and cons of taking it out, as well as consider a compromise solution, that allows you to have the best of both worlds.

Fans of employment tribunal insurance like the fact that it allows them to proactively manage the risk of legal costs and awards, if a claim is made. Usually, for cover to be granted, there is a requirement for you to take legal advice. From the insurer’s point of view, this is an additional risk management step that should assist you in following the correct process and minimise the risk of the insurer having to pay out, if a claim is made. Failure to take and follow legal advice is likely to lead to cover being denied. Standard practice is to pay an insurance premium and agree a retainer for the legal advice.

Those not keen on employment tribunal insurance, dislike the fact that there is the requirement to take legal advice and follow it during the dismissal process. Some perceive the legal advice to be ‘by the book’, to minimise the risk of a tribunal claim. If one is made, the advice also reduces the chances of an award being made. Those who are not fans of insurance, don’t consider the risk management benefits as outweighing the freedom to make their own commercial decisions, without recourse to legal advice. Or where they have taken legal advice, the flexibility to depart from it.

Let’s look at an example. You have a poorly performing Sales Director and want to replace him with a new Sales Director, from a competitor. You have insurance in place, which requires you to take and follow legal advice if a dismissal is contemplated. This is not a redundancy situation and to dismiss the Sales Director fairly, you would have to go through a performance management process, which is likely to take several months.

Most businesses will not take a senior employee such as a Sales Director, who is responsible for leading a team of salespeople, through a lengthy performance management process. Your objective here is to act quickly and exit the Sales Director through a settlement agreement. By going down the commercial, but non-legally compliant route, you are not sticking to the terms of the insurance policy that is in place. An added factor is that it is likely to increase future premiums. Having insurance in place is not ideal in this situation.

What if you could achieve a compromise? With HR Protect, you can.

What if you had the option to obtain insurance for certain categories of employees and exclude from coverage a different category of employee? For instance, the insurance does not cover directors, or employees over a certain salary, but would cover the remainder of the workforce? This would give you the benefit of being able to take a commercial approach to senior employees, where it is not always appropriate to go through the full legal process. Meanwhile you retain insurance protection amongst the rest of the workforce, without any adverse effect on future premiums.

The employment tribunal insurance we provide as part of HR Protect gives you the flexibility to choose this type of insurance, as well as providing many additional benefits, including:

  • Bringing or defending civil claims, including restrictive covenants disputes
  • Regulatory matters such as HSE prosecutions
  • Free telephone counselling service for employees, for issues including mental health and debt.

We’ve helped more than 150 SME’s and start-ups fix their employment law and HR spend by using HR Protect. With HR Protect, you’re given access to unlimited legal advice, personally assigned employment solicitors, legally compliant online documentation and optional employment tribunal insurance.

If you would like to understand how HR Protect can help you fix your employment law and HR legal spend, please complete the short form. We will be in touch to provide you with an indicative monthly cost.