New compensation limits for employment tribunals mean that firms are exposed to increasing claims costs, Allianz Cornhill has warned.
David Vine, of Allianz Cornhill Legal Protection, said: "Rising compensation and rising litigation pose a threat to businesses, especially smaller firms who may not have the reserves to absorb the costs."
The higher limits, introduced on 1 February (2007) under the Employment Rights Order 2006, are:
* A week's pay will now be £310, an increase from the previous £290
* The maximum compensatory award at a tribunal has risen from £58,400 to £60,600
* The minimum basic award for defined dismissals has increased from £4,000 to £4,200.
"Keeping abreast of current employment legislation is vital but companies also need to review their legal expenses cover in light of these increased limits," said Vine.
Despite the potential for costly legal action, many businesses remained uninsured, said Allianz Cornhill. Fewer than half of SMEs were believed to have cover.
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