Employers' liability and employment law protection insurance
Charities are under enough financial pressures as it is without suddenly finding themselves having to shoulder the burden of paying an employees for illness or injury, or, in a quite different scenario, having to pay an employee in an industrial relations situation. While these are indeed very different matters they both relate to the charity's vulnerability to being financially at risk due to its role as an employer.
This is why I want to talk about employers' liability insurance and employment law protection insurance for charities.
Employers’ liability Insurance is essential for charities which are looking to protect themselves from claims made by employees. This should be the first cover any employing organisation should ensure that that it has and anyway it is a legal responsibility. The law says you must have cover with a minimum £5 million indemnity limit. So charity employers, there is no getting away from this.
However, in more recent times, one is seeing significant increases in employee claims against charities in other areas. This is due, in the main, to the growth of employment law protection legislation. The role of charities as employers is becoming increasingly challenging in relation to legal liability, quite apart from the increasing pressures on personnel management skills which come with the growing work demands on charity front line workers.
So now more than ever, it is essential that you have the right employers' insurance cover in place for your charity, and this should include employment law protection insurance.
WHAT IS EMPLOYERS' LIABILITY INSURANCE AND HOW DOES IT COME? If you employ staff, or if you control or oversee the way someone works, you need to have employers’ liability insurance. Employers' liability Insurance protects your charity against the cost of compensation claims arising from employee illness or injury, sustained because of their work for you.
Employers’ liability insurance for charities can be obtained either in an overall insurance package policy for charities or indeed the care sector if this includes the charity, or through a similar combination of separate policies. Moving away from this, it can also be obtained in conjunction with public liability insurance in a combined liability policy. It is rare to be offered employers’ liability insurance in isolation. There are specifically charity-friendly insurance arrangements around and it makes sense to look for these.
EXACTLY HOW MUCH COVER DOES A CHARITY EMPLOYER NEED? The law says that employers’ liability insurance should have a minimum indemnity limit of £5 million. However, what you will find is that for most sectors, including charities, the indemnity limit is £10 million. This figure will cover your legal liability for any employees (including volunteers under your direct control) who are injured whilst they are in your employment.
The indemnity limit works on an any one claim basis. What this means is that, in theory, you could have several claims of up to £10 million in any one policy period.
There are several extensions that are generally automatically provided with this type of cover. These are principally legal costs and expenses that may arise from defending criminal proceedings, brought forward for a breach of the Health and Safety at Work Act. Your employers’ liability insurance will have a built-in limit for this extension (a maximum £250,000 inclusive of limit).
WHY DOES A CHARITY NEED EMPLOYMENT LAW PROTECTION INSURANCE (ALSO KNOWN AS EMPLOYMENT PRACTICES LIABILITY INSURANCE)? Like any organisation which employs people, charities are exposed to the risk of a former or disgruntled employee seeking compensation.
This may involve a tribunal appearance and in many cases, it will involve the Advisory, Conciliation and Arbitration Service (ACAS). Unfortunately, it is well known and is a matter of record that charities, as a sector, are one of the main participants in industrial tribunals
Common areas of industrial tribunals will include allegations of:
- Constructive dismissal.
- Unfair dismissal.
- Redundancy issues.
- TUPE (Transfer of employment) issues.
- Racial, religious, disability, or sex discrimination.
But it is not only employees who may instigate a claim. As a charity, you could face allegations from:
- The Health & Safety Executive.
- Regulatory bodies and similar organisations.
WHAT SORT OF AREAS SHOULD YOU SEEK TO BE COVERED FOR AS A CHARITY EMPLOYER? Whether you are looking at your current insurance cover, a policy renewal or your first policy, you need to look for, as a minimum, cover for:
- Employment disputes.
- Employer helpline and guides.
Examples of exclusions
As with any insurance policy certain risks or events will be excluded, some examples being:
- Dishonest or fraudulent conduct by the insured.
- Deliberate acts.
- Voluntary assumption of liability.
- Circumstances known at inception (in relation to when the period of insurance actually began).
- Injury/property damage.
- Takeover, merger or liquidation.
- Policy excess (the level at which the insurer pays out will vary from insurer to insurer).
Charities, by their very nature, are there to help their service users. This is their prime function, and can often mean that the trustees, management or staff don’t have the necessary expertise needed, in the areas of human resources, and health and safety. Neither would they have an adequate in-house legal capability to deal with these contentious and ever more litigious areas.
Consequently, it can be difficult for a charity to keep up with the growing body of legislation and the frequent changes. This may be particularly relevant to smaller and even medium sized charities.
You may already have a conventional commercial legal expenses policy. However, a policy of this type will only provide cover where the insured party has a good chance of winning a case. Employment law protection insurance will provide cover regardless of the chance of success.
In addition, it is general practice that the insured’s legal costs and additional expenses are covered, in respect of them having to attend employment tribunals, or health and safety investigations (subject to the policy terms and conditions).
It is therefore advisable, in this current climate, that charities have in place relevant and adequate employment law protection Insurance to cover them, should the worse happen.
HERE ARE SOME EXAMPLES OF RECENT CLAIMS. COULD ANY OF THESE HAPPEN TO YOUR CHARITY?
• Allegation of unfair dismissal and disability discrimination. In this case, the claimant requested a new position with fewer hours and less responsibility at another of her employer's sites, or she would resign. The allegation posed was that she was overburdened with work in her current position. There were no other positions available and a claim for unfair dismissal and disability discrimination followed, costing in the region of £15,000.
• Allegation of constructive dismissal. A community support worker claimed constructive dismissal because the charity allegedly failed to deal with his concerns about his working arrangements. He claimed that his working arrangements made it impossible for him to continue working. One allegation stated that he had not received training on working with paranoid schizophrenics. This claim cost in the region of £3,000.
• Under-performance leads to dismissal. The chief executive of a charity had concerns in relation to its marketing director’s performance. As a result, the charity pursued the matter through its capability procedure. The outcome was that the claimant was dismissed on grounds of insufficient capability. This claim cost in the region of £66,000.
Insurers which provide employment law protection insurance cover will also provide a legal helpline, so that at the first sign of a potential dispute advice can be sought to ensure that the correct procedures are put in place and followed. (Insurers will generally make this a condition of cover.)
HOW DOES A CHARITY OBTAIN EMPLOYMENT LAW PROTECTION INSURANCE? There are two recommended routes to obtaining employment law protection cover:
AN EXTENSION UNDER AN EXISTING CHARITY OR CARE SECTOR POLICY OR A CHARITY COMBINED PACKAGE POLICY. This would generally be the simplest way of obtaining this cover, if your current insurer provides this cover option, and that the cover offered meets your requirements. If the cover offered doesn’t meet your charity's requirements, it may be prudent to move to a suitable alternative insurer which can provide the cover, generally at your next renewal date.
A MANAGEMENT LIABILITY PROTECTION POLICY (MLP). This can be an attractive option, as you will generally get a selection of additional covers included, examples being: directors' and officers' liability; trustees' indemnity; social media crisis and public relations costs; bolt on dedicated legal human resources health and safety assistance
At the top end of the market you will get unlimited free additional services such as: HSE analysis; human resources and employment advice; taxation and finance issues; environmental impact issues; compliance; corporate governance; risk management advice.
You can also obtain employment law protection insurance as a stand-alone policy. However, this is not always suitable for charities.
WHAT IF CHARITIES HAVE VOLUNTEERS? ARE THEY COVERED? When looking at your current insurance policy or if you are considering a new one you may be wondering if your volunteers will be covered. You can rest assured that volunteers are covered under employers liability insurance. A common insurance definition of an employee is likely to include the following.
Definition of employee
An employee means any person (other than a director of your charity) who is or was, or who may become at some time in the future:
- Under a contract of service or apprenticeship with you.
- Under a work experience or similar scheme, or supplied to you.
- Hired in or borrowed by you.
- A self-employed person.
- A volunteer who is working for you under your direct control, relating to your business, and they are normally resident in the United Kingdom.
However, if your volunteer is on your premises but is not actually volunteering at that time, they would then be treated as a member of the public.
When it comes to volunteers, employment law protection is not relevant as this covers issues arising out of a contract of employment, which a volunteer would not have. Therefore, a volunteer cannot claim for unfair dismissal, nor can they make any other claims which would fall under employment law protection.
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