Insurers must ensure their policyholders have sensible employment practices to combat stress at work

The House of Lords judicial committee has just issued new guidance on stress in the workplace. As the pace of change increases, it is more important than ever for responsible employers to ensure their working practices are fair and sensible. It is equally important that employers' liability (EL) insurers read and assimilate these decisions and ensure that their policyholders do have robust and sensible employment practices.

The House of Lords' decisions earlier this month in Dunnachie v Kingston-upon-Hull City Council, Eastwood & Another v Magnox and McCabe v Cornwall County Council serve to highlight that the issue of stress at work remains a complex one; and one which employers and insurers ignore at their peril. The area of psychiatric damage, in particular, continues to create difficulties about where the line should be drawn and what the employer should or should not be liable for.

The Eastwood case confirms that an employer must act fairly when considering employees for either suspension or dismissal and must follow fair and reasonable procedures. If unfair treatment in the investigation leads to psychiatric illness, a claim against the employer's liability policy could result. These cases illustrate the continuing trend in the overlap between employment practices and EL insurance. In response to Eastwood, their Lordships have called for an urgent review of the scope of industrial tribunal powers in this area by the government.

These cases also underline the importance of insurer involvement at an early stage, to ensure that appropriate evidence is obtained and to avoid, where possible, an adverse finding in the tribunal that could have a knock-on effect in any subsequent stress claim.

The Health and Safety Executive (HSE) continues to research and monitor the issue of stress at work. It recently issued an online consultation document with a view to establishing benchmarks in relation to stress at work. The consultation period ends on 27 August.

In addition, the full impact of the Disability Discrimination Act and the Working Time Regulations has probably not been tested in this area. Insurers need to be alive to this developing area of the law and ensure that they can meet this new challenge. There is no room for complacency. While the case law in relation to stress claims has generally come down in the defendant's favour, the courts have shown they do not regard the door as being firmly shut so far as new claims are concerned.

In stress claims, the demands of work cannot necessarily be viewed in isolation. There are many competing causes of stress in everyday life and individuals react differently to different stresses. It is essential that employers and insurers respond to the HSE consultation paper, to make the case for a balanced approach to the whole issue. Of course there should be proper and well thought out employment practices, but we must steer decisively clear of the slippery slope to a 'nanny' state, which would stifle innovation for fear of litigation.

  • Lord Hunt is senior partner of national law firm Beachcroft Wansbroughs