Defending against the fallout following restructures and redundancies

Selena Kearvell, Senior Vice President, North & Scotland

Amidst the economic downturn, UK businesses are facing challenging times. While employees are calling for increases in wages to deal with the cost of living crisis, some business owners may be facing the prospect of implementing cost-saving initiatives to limit labour costs and survive the challenging economic climate. According to recent research, more than two-fifths (44%) of employers could be looking at restructuring or redundancies to cut costs in the next 12 months.¹

Initiating restructures and redundancies is an incredibly difficult decision and is never pleasant. There are strict rules on consulting staff facing redundancy. Employers must follow the letter of the law in this area or they may be subject to an employment practices liability (EPL) claim(s) related to unfair dismissal. Which can lead to a costly, time consuming and disruptive legal process, as well as negative publicity, particularly on social media.

Risks associated with restructures and redundancy

Employment and workplace relations are governed by complex and rapidly changing laws and regulations. Standard policies, procedures and training are not always enough to protect employers from employment-related litigation. The removal of Employment Tribunal fees in 2017 has also made it much easier for employees to bring a claim and there has been a sharp escalation of claims against employers ever since.²

Businesses of any size can find themselves entangled in an employment-related claim; every business with employees has an exposure. Directors, senior executives and can also find themselves exposed to potential litigation from staff following redundancy.

Defending against claims of unfair dismissal

Many SMEs in particular do not have the same breadth or depth in terms of resources available to larger companies. While HR departments often specialise in dealing with redundancy matters; there's a limit to the intervention and support they can offer. If we are to see an increase in the number of claims relating to unfair dismissal in 2023, such an environment means that insurance solutions will become imperative.

Does directors and officers insurance protect you from claims of unfair dismissal?

Directors and Officers (“D&O”) insurance policies may include cover for employment-related claims, however this cover will usually only be provided for an “insured person” and not the company itself. 

As the vast majority of EPL claims are brought against the company, it’s important to review any EPL cover provided as an extension of D&O cover or under the umbrella of management liability insurance.³

Employment practice liability (“EPL”), which can also be purchased as a standalone policy, provides cover to employers for a range of claims made by employees arising from alleged wrongdoing related to their employment.

What does employment practice liability (EPL) insurance cover?

EPL cover varies but typically covers allegations of:⁴

• Discrimination
• Harassment (sexual or otherwise)
• Failure to provide equal opportunity of employment
• Wrongful termination
• Retaliation
• Failure to employ or promote
• Negligent evaluation
• Libel, slander, or humiliation
• Infliction of emotional distress
• Wrongful failure to provide or enforce corporate policies
• Violation of an employee’s civil rights.

The policy covers costs incurred in any settlement or judgment as well as investigation costs and legal costs associated with defending claims.

EPL should not be confused with Employers Liability (EL) cover; EL insurance is compulsory in the UK whereas EPL is an optional cover. EL provides cover for injury or illness caused at work by employer negligence; with employee slips, trips and falls being the most common accidents at work.5 EPL policies usually have a bodily injury exclusion so it’s clear no EL liabilities are included in the cover.

Key takeaway

Employees are one of the most important assets a business has, but they also pose one of the greatest sources of risk.

The question for any business, whether small or large is not whether it will face an employment practice liability (EPL) claim, but rather, when it will, how much it will cost, and what damage it might cause to reputation and brand image.

Standard policies, procedures, and supervisory training are no longer enough to protect companies from the high costs of employment litigation and so a transfer of this risk to insurance should be considered.

Here to help

To understand your insurable exposures when it comes to restructure and redundancy. Or to discuss employment practices liability insurance as an extension to an existing policy. Speak to your usual Marsh Commercial adviser or contact Selena Kearvell.

If you’re looking to learn more about restructures and redundancy, we recommend you visit the government’s website or speak to an employment law expert.

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^{*The information contained herein is based on sources we believe reliable and should be understood to be general insurance and risk management information only. The information is not intended to be taken as advice and cannot be relied upon as such. Statements concerning legal, tax or accounting matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal, tax or accounting advice, which we are not authorised to provide.}