The case of a transexual awarded £77,000 after being overlooked for a job interview is, arguably, a distinctly modern legal event. Far from being an example of rarefied workplace folklore dressed up conveniently for sensationalist tabloid scandal, this true example of an award raises the issue of employment practices liability, and prompts questions about the amount of cover that many companies feel is sufficient.

The answer may not be as comforting as they like to think. Since the employers' liability compulsory insurance act came into force in 1972, many companies have felt confident in the insurance policies they have in force to protect their business. Certainly, the volume of claims and size of awards have increased since that time and the compulsory insurance limits have changed. But the underlying sense has been one of reassurance that as long as a company had an employers liability policy, existing cover would encapsulate changes in legislation.

But the employment landscape has changed immeasurably over the past 28 years, resulting in a workplace that would be unrecognisable to those drafting the 1972 act. The employer who is not up to speed with early 21st-century thinking could end up counting the cost in more ways than one. For example, employment practices liability is beginning to find itself increasingly at the forefront of company planning, due to numerous high-profile cases.

The case of Air Foyle, which lost the transexual case, is typical. The allegation was that Air Foyle had refused to interview an individual simply on the grounds of that individual's change of sex. The subsequent tribunal hearing ruled that there was nothing in the claimant's previous career that would have made her unsuitable for interview, and that she had been given less favourable treatment because of her sex change. The claimant was awarded £62,000, plus £15,000 for injury to feelings.

Unfair dismissal

It could be argued that sex-based arguments form the majority of EPL issues, but the basis of this idea is grounded more in the desire for salacious details than anything else.

We should all be familiar with the case of Kay Swinburne, employee of Deutsche Bank, who successfully claimed for sexual discrimination, breach of contract and constructive dismissal when a senior DB manager publicly accused her of sleeping with a male client. But we should also be familiar with cases such as McClaughlan v London Borough of Southwark, in which a female employee, given less important posts than her male colleagues before eventually being made redundant, was awarded £222,000.

Issues of disability and race can also result in litigation. Mr Kirker, a visually-impaired chemist, was made redundant by British Sugar, and a tribunal deemed the decision to have been based on disability alone. He was awarded £103,146, which included an amount to reflect the difficulty he would have in securing future employment.

Certain awards carry certain limits and controls that need to be satisfied before a claim can be made, but these are far from set in stone. Employers should pause in their mantra of “one year's continuous service before an employee can claim unfair dismissal”, because everything changes if a breach of their statutory rights can be shown. D'Souza v London Borough of Lambeth produced an award of £358,288 for a senior employee in the computer services department, after it was held that he had suffered discrimination on numerous occasions, culminating in his dismissal.

This case was soon eclipsed by Yeboah v London Borough of Hackney, with an award of £380,000. Both this and the D'Souza case could have been brought for unfair dismissal, but with the award limit at the time standing at £8,925, the removal of limits for sex and race claims had a tremendous effect. On the subject of unfair dismissal, the employment relations act 1999 increased the limit for UD claims to £50,000.

Society, its manners and mores have been developing and changing constantly over the last 28 years, and the area of employment practices liability has changed and developed with it. In the main, legislation is brought on to the statute books to reflect this. Since the original act in 1972, the following changes to legislation will all have had an effect on its implementation and breadth of cover: sex discrimination (1975), race relations (1976), disability discrimination (1995), protection from harrassment (1997), human rights, working time regulations, public interest disclosure (all 1998), part-time workers (2000). All this legislation will impact on a company's employers liability policy, so much so that the “new” type of cover, employment practices liability, is being considered by many businesses.

It is here that some confusion sets in. The UK market for EPL is still relatively small, due primarily to the fact that so few insurance companies offer such cover. And in any case, the question often arises as to whether a breakdown of companies' existing cover would reveal such a change to be necessary.

So what should a standard policy cover? First, we should look at employers liability. This is designed to ensure that any company has in place sufficient “protection” to provide payment for damages for injury or illness sustained in the workplace.

At present, there is an on-going debate as to the precise extent of the expression “injury”. Aside from the obvious physical definitions, there are grey areas; it could be said to include: wrongful/unfair dismissal, discrimination against race, sex, disability or age, harrassment, wrongful disciplinary action, negligent evaluation, “whistleblower” retaliation, failure to employ or promote, wrongful deprivation of career opportunity, misrepresentation, defamation, wrongful infliction of emotional distress, or injury to feelings.

Need for clarification

There is a possibility that some damages awarded at an industrial tribunal could be picked up under an EL policy, but this is by no means certain, and claims for unfair dismissal are never covered under an EL policy. Insurers are lobbying for a degree of clarity to be introduced, something that would be against the best interests of insurers, brokers, employers and employees.

Public liability could again sustain debate about definitions of “injury, loss or damage”, but the more fundamental exclusion of employees from this class – they are covered by law under an EL policy – means that this cover would not be useful with regard to an EPL claim.

Legal expenses would be of the most use in an EPL claim, despite the fact that some covers exclude employment disputes, unless an additional premium is paid. Some covers only pay for legal costs – which are a substantial proportion of the overall expense – but some others also include any compensation awards.

The problem for businesses is that relying on legal expenses cover is, first, that the cover will generally have quite low limits. Second, in any potential situation where this cover could conceivably be brought into play, the conditions of cover must be strictly adhered to for any cover to become active.

Obviously, for all employers, the aim is not to need this type of insurance cover, because their workplace set-up is such that societal developments will merge seamlessly into their existing organic organisation. However, the questions about employment practices liability are in the marketplace, and the wise employer will consult with his or her broker to ensure that all the relevant cover is in place to facilitate the physical, emotional and psychological security of the 21st century shop floor.

  • David William is the casualty insurance manager for Axa Insurance

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