5 Things you need to know about tribunal indemnity insurance today
Let’s be brutally honest here; employment law can be complex at the best of times and procuring tribunal indemnity insurance is no different.
Sadly, this often means that those selling tribunal indemnity insurance can have a field day with small business owners, at best, making the topic of indemnity insurance yet more complicated and, at worst, scaremongering business owners into buying a policy that won’t actually help them in the way they expect.
For those who may not be aware, tribunal indemnity insurance is a policy that protects businesses from negative financial consequences related to employee disputes and tribunal costs. The scheme aims to cover all issues from redundancy and discrimination, to unfair dismissal and whistleblowing, and can take various forms ranging from a pay out against all legal and compensation costs arising from a tribunal claim, to merely covering the legal costs associated with a claim.
If you’re a busy SME business owner, you’ll need to understand what tribunal indemnity insurance is and most importantly get to grips with what benefits it will bring to your business. This blog will uncover five key things that you will need to consider when it comes to procuring tribunal indemnity insurance for your business, if indeed you still feel it’s necessary by the end. It’s a must read for SMEs and new business owners.
Consideration 1: Do you really need the insurance?
Of course, when it comes to any kind of insurance, it’s always better to prevent the issue happening in the first place. And certainly, if business owners took more of a preventative approach when it came to their people issues, there would be little risk of a tribunal claim, and therefore very little need for any form of insurance policy in the first place. Working with a good HR expert, who can explain all the rules to you, will ensure that not only are your employees treated fairly, but that the needs of your business are also met too.
Equally, if a manager is not capable of handling a performance issue, or there is a persistent problem, such as bullying and harassment in the workplace, then this same HR expert can provide the right training and support. This preventative effect is far longer lasting as your team will be learning how to manage difficult situations and will ensure that your managers won’t be fearful of tricky scenarios. It should also save you a pretty penny too in not having to buy into a policy that you didn’t need in the first place.
Consideration 2: Why are you buying into this policy?
The key here is that you don’t base any of your purchasing decision on fear or because you simply don’t understand the fine print. Frankly, if anyone is selling you their services using fear as their main incentive, you should ask yourself why.
A good HR outsourcing provider can audit your business to make clear and practical recommendations to ensure you are both legally compliant and have good HR practices embedded within your business. This significantly reduces the risk of a successful claim against your business. If in doubt about what you are buying into then ask for advice, you should never feel pushed into doing something that you don’t feel comfortable with.
Consideration 3: What is your risk?
As with buying any insurance policy, the first step is to think about the risk you are insuring against. For instance, it’s an easy decision for an electrical firm with a warehouse near a river to insure against flood damage. If there’s a flood, all of the stock could be wiped out and the business could go bust. The risk is high, and so is the potential cost of the insured event. For business owners, it’s not quite so easy to quantify the risk and potential costs of a HR related tribunal claim. Often this means that many business owners merely buy into a policy just for peace of mind and hope for the best.
The reality is that there are many steps in the journey to an employment tribunal, and an employer who has sensible HR policies and procedures in place has a low risk of losing an employment tribunal claim. Even if the employer loses the claim and has to make a compensation payment, the costs are often nowhere near as high as expected. Knowing this can be of great reassurance to business owners who might be in the dark about what to expect.
Consideration 4: What else is at stake?
If the tribunal claim does go ahead, the business will need to fork out for legal costs. This is of course a money drain, but perhaps more pertinent to business owners is how much of a time drain this can be. Often there will be huge management time lost in the preparation and aftermath of a tribunal, and these costs are not covered by insurance.
The impact on employee motivation, and even on management morale, which ultimately hits the bottom line of the business, simply doesn’t have a price. As such, working along a pragmatic, knowledgeable HR professional to avoid the problem in the first place will always be cheaper than paying a lawyer to fix it. As before, preparation is key.
Consideration 5: Will you actually get a pay out?
We’ve all experienced this scenario when it comes to car or travel insurance haven’t we? The risk that we think we are covered, but then finding out from the insurance firm that there is a reason they won’t pay out; some finer detail in the small print has kiboshed the whole claim. Sadly, the same can be said for tribunal indemnity insurance.
If the insurance is offered as part of an HR service, there will be a big caveat stating that if the employer doesn’t consult the service provider and follow the employment law advice to the letter, the insurance will be invalidated. This also means that the HR service provider is likely to sit on the fence, or tell their client what the law is, without committing to a recommendation, for fear of invalidating the insurance. As a result, the whole process can drag on, which is far from ideal for most SME’s who will need a quick resolution so they can focus on what they do best – growing their business.
Some providers may even boast that they help their clients to make sure their paperwork is correct, so that if a claim goes to tribunal, they will have a ‘bundle’ already prepared, saving time. However, business owners should be wary of this as it often doesn’t save much time for the business owner themselves having to wade through this mass of paperwork. This begs the question as to who is saving time in the first place.
In summary, undoubtedly any kind of HR tribunal claim will have a negative effect on your business, both from a financial point of view and from a time point of view – it could also impact your businesses reputation too. As previously mentioned, tribunal indemnity insurance can alleviate some of those financial effects, but the other two aspects can be hard to substantiate.
The key to protecting your company’s reputation and, indeed your precious time, is to ensure you have a robust HR strategy supported by comprehensive policies and procedures from the start. It also means you are unlikely to be duped into buying something you don’t need for fear of being vulnerable to a people dispute down the line. Putting in the time and energy into this early on and getting the right expert advice can pay dividends long term.