What is employment tribunal insurance and do I need it?
Author
Rob Birley
Updated
If you’ve contacted any of the large HR call centre providers, they’ll no doubt have mentioned employment tribunal insurance. Sounds like a great perk! But what is tribunal insurance and do you actually need it? We look at the pros and cons in this blog.
What is tribunal insurance?
Put simply, tribunal insurance will cover your costs if you are taken to an employee tribunal. This could involve the legal costs to defend a claim (which is usually upwards of £10k) and any compensatory award. Employment Law is complex and there are many potential pitfalls. So if you are a SME owner, why wouldn’t you want to take it out? After all you’ll have Employers Liability Insurance and maybe Professional Indemnity etc. So isn’t tribunal insurance another sensible addition to this? Before you make that decision, its important to understand what having tribunal insurance will do to the running of your business.
Why would you need tribunal insurance?
The first question to ask yourself is why would you need it? There were 18,000 tribunal claims logged in Q3 of 2022, compared to a total number of 32.8 million employed. That is an annualised figure of 0.02% of the workforce bringing a claim. So if you have 10 people working for you, you would average a claim every 50 years. Ok so the stats aren’t foolproof, but this gives you an idea of how likely it is you will have an employment tribunal claim made against you. If you are in a stable industry with long serving employees and you treat people well, chances are you won’t need it.
As the old adage says, prevention is better than a cure. So by training your managers to deal with employee issues fairly and consistently, you can avoid going to employment tribunal in the first place. Engaging a good HR consultant is a better investment than taking tribunal insurance.
Employment Tribunal Insurance
What are the unintended consequences of taking tribunal insurance?
Insurance is risk free, right? Well not exactly. In order to pay out, you must engage with your HR advisor at every step of the process. That’s not hard is it? Well, consider this: you are often calling a HR helpline, you are speaking to someone who doesn’t know you and your business. Rather than walking with you and feeling your pain, they advise based on a standard policy. However, forget to call them after any incident or miss issuing a letter and you may invalidate your insurance.
Whilst legally sound, this causes you all sorts of problems getting work done. Other team members are affected and may leave or become disillusioned as they see an issue remain seemingly untackled. Having tribunal insurance can lead to a lack of commerciality in the advice you are given. That affects you, your team and the ability for your small business to deliver what it is set up to do. If the sole purpose of the insurance is to deal with the worst case scenario, do you want to build your business around that negative mindset?
What are the alternatives to taking tribunal insurance?
As I said earlier in the article, prevention is better than a cure. If you engage with a good HR Consultant, they can help you with the following:
- Recruiting the right people for your business
- Inducting them and setting them up for success
- Training and supporting their development
- Dealing with performance or other issues early before they become a big issue
- Where things aren’t working out, helping you to manage terminations fairly in a way that avoids the potential for tribunal claims.
Bear in mind that insurance policies don’t always pay out. So by investing in your team you not only drive better business performance but you are also avoiding the very issue you were insuring yourself against.