Brokers must review employers’ liability policies ahead of ‘revolution of employment rights’

A “revolution of employment rights” coming out of the UK legal system means that brokers and underwriters need to “tool up” and review employers’ liability policies for commercial clients, to ensure these are “fit for purpose” amid “game-changing” regulatory reform.

Speaking at a breakfast briefing event hosted by law firm Browne Jacobson and MGA Rising Edge on 19 November 2024, Raymond Silverstein – partner and head of the employment practice at Browne Jacobson – told attendees that the Employment Rights Bill, which was introduced to parliament on 10 October 2024, marked the biggest change to employment law in a generation, with 28 proposed reforms to current practices.

Describing the legislation as a “really big deal”, Silverstein noted that the government plans to consult on the bill next year, with the agreed changes formally coming into effect from 2026.

For him, there are five key sections of the bill that could cause problems for employers and, therefore, impact on their purchased employers’ liability or directors’ and officers’ (D&O) cover.

These include day one protection from ordinary unfair dismissal – as opposed to the current protection that kicks in after two years of service – abolishing ‘fire and rehire’ practices, which typically see larger employers offer staff the choice of a less beneficial contract or exiting the firm, and repealing the Trade Union Act 2016 to reset industrial relations.

The bill also proposes changes to collective redundancy rights. Currently, employers only need to conduct a collective consultation on redundancy if 20 or more staff working from the same base of operation are being made redundant.

The Employment Rights Bill, however, seeks to amend this so that a collective consultation is carried out when 20 or more staff from across the entire organisation – which could be across numerous operational sites – are being made redundant. Silverstein described this as a “major change”.

Another factor Silverstein believes will have a large impact is the proposed protection from any type of third party harassment, rather that existing rules which centre solely on sexual harassment.

When compiling the bill, the government conducted an impact assessment, Silverstein explained. This found that the proposed changes could cost UK employers £5bn a year “to deal with in terms of implementing, education, dealing with”. The assessment also estimated a 15% uptick in employment tribunal cases.

He continued: “In monetary terms, the maximum basic award for unfair dismissal is currently £21,000, it goes up every year. The maximum compensatory award for unfair dismissal is £115,115 or 52 weeks’ pay, whichever is lower.

“These can be chunky claims. These are not insignificant claims.”

‘Prevention is better than cure’

For Silverstein, the proposed changes under the Employment Rights Bill raise possible challenges for employers.

As an example, he cited research referencing that staff often do not remain in the same job role for longer than one year – this means that current rules around unfair dismissal have not usually been activated, so employers could be rusty on these procedures.

He flagged the importance of audit trails, reviewing recruitment practices and better managing probationary periods as key steps employers will have to take moving forward if they want to reduce their risk of employment liability or D&O claims.

He continued: “There’s a lot coming down the road. There is, effectively, a revolution of employment rights – some of it is here now, a lot of it is coming down the track. [Brokers] need to tool up. [They] need to educate [themselves] and be ready – that will reduce [clients’] risk, it will reduce premiums, it will reduce the disruption.

“What is often forgotten with these cases is it takes an awful lot of energy out of an organisation to deal with a claim.

“They have to spend time with lawyers, they have to write a witness statement, they’ve got to deal with disclosure, they’ve got to turn up to hearings. It’s a massive distraction. Prevention is always better than cure. It’s about educating employers. [They] need to prepare.”

Fit for purpose

Owen Dacey, head of claims and general counsel at Rising Edge, told attendees that now is the ideal time for brokers to review employment liability policy wordings to ensure they are “fit for purpose” ahead of the incoming regulatory changes.

He predicted changes in the claims environment for this line of business as a result of the Employment Rights Bill, such as increased disputes and tribunal claims, increased severity of claims associated with uncapped compensation cases and potential award uplifts and a broader range of allegations made per claim as well.

Nuances of policy wordings that Dacey believes must be updated includes adding investigation costs cover, ensuring that the definition of employees and their workplace are broad enough to encompass all potential allegations and that organisational entities and individuals – such as directors – are both insured against possible claims.

Furthermore, policies must be clear on whether award uplifts and fines are included in the purchased cover alongside the existing provision for compensation, as well as insure against third party discrimination claims, where a non-employee could make an allegation against a company or a member of staff.

Dacey added that brokers must also help clients to assess whether policy limits are sufficient.

“While these changes [mentioned in the Employment Rights Bill] are not in law yet, our experience has been that even before these things become law, people see them as rights already, so you might see these types of allegations coming in now, in advance. They might not be successful, but you might see them coming in,” he added.

Expansive cover

Practicing what he preaches, Dacey confirmed that Rising Edge has launched a new endorsement for its employment practices liability insurance (EPLI) proposition, in reaction to the incoming bill.

This has been “designed to provide UK employers the comfort that their EPLI will continue to respond to the exposures, new and old, that they are facing”, the MGA said in a separate statement.

Commenting on the endorsement, Philippe Gouraud, chief executive at Rising Edge, said: “To make sure our EPLI policy fully responds to the new legal context, we are issuing an endorsement that affirms the coverage where needed and introduces coverage expansion where required.”