Tribunal Insurance Costs and Cover: What Employers Should Check

Employers considering tribunal insurance should understand exactly what protection is being provided, what costs may be covered and what conditions apply before relying on the cover.

Employment Tribunal claims can require considerable time, preparation and legal support. Insurance may provide useful financial protection, but the value of that protection depends upon the policy terms, exclusions, limits and notification requirements.

For details of the insurance service available through EBS Law, visit our Employment Tribunal Insurance for Employers page.

This guide concentrates on the practical points employers should consider when assessing tribunal insurance cover, including legal costs, compensation, exclusions, notification requirements and insurer approval.

Understanding Tribunal Insurance Costs

One of the main reasons an employer may consider tribunal insurance is the potential cost of defending an Employment Tribunal claim.

Even where an employer believes that it has a strong defence, dealing with proceedings can involve considerable work. This may include reviewing documents, preparing an ET3 response, complying with tribunal directions, preparing witness statements and attending hearings.

Without suitable protection, those costs may have to be met directly by the business.

Insurance can provide greater financial certainty, but employers should understand exactly which costs are included before relying upon the cover.

What Tribunal Insurance Cover May Include

The precise protection available will depend upon the relevant policy or scheme.

Depending upon its terms, cover may include certain legal costs, representation costs or other qualifying expenses associated with defending a tribunal claim.

Employers should not assume that every employment dispute or every associated cost will automatically be covered.

The policy wording should be checked carefully to establish:

• which types of claim are covered;
• which legal costs may be met;
• whether there are financial limits;
• whether particular types of dispute are excluded;
• whether prior approval is required before costs are incurred.

Legal Costs and Tribunal Proceedings

Employment Tribunal proceedings can generate legal costs at several stages.

An employer may require advice when a dispute first develops, assistance during ACAS Early Conciliation, help preparing an ET3 response and representation during preliminary or final hearings.

There may also be substantial work involved in gathering documents, preparing evidence and dealing with correspondence.

Where insurance applies, some of these costs may be covered subject to the relevant terms and approval requirements.

If a claim has already been received, our Employment Tribunal Defence for Employers page explains how EBS Law can assist businesses in responding to and defending tribunal proceedings.

Compensation and Financial Awards

Some tribunal insurance arrangements may provide protection in relation to certain compensation awards, depending upon the terms and conditions of the cover.

This is an important area for employers to check carefully because compensation protection should not be assumed.

Employers should establish:

• whether compensation awards are included;
• whether financial limits apply;
• whether particular claims are excluded;
• whether insurer approval is required before settlement;
• whether the employer must have followed specified procedures or advice.

The precise position will always depend upon the relevant insurance terms.

Policy Exclusions Matter

The headline level of cover does not necessarily tell an employer everything it needs to know.

Exclusions can be just as important as the benefits provided by the policy. Employers should therefore read the wording carefully and understand situations in which protection may not apply.

For example, policies may contain conditions relating to when a dispute first arose, when it was reported, the procedures followed by the employer or the advice obtained before action was taken.

An employer should understand these conditions before relying upon the insurance as part of its employment risk management.

Existing Disputes and Previous Problems

An important question is whether the cover applies only to future disputes or whether an existing workplace problem may also qualify.

Employers should not assume that insurance taken out after a dispute has already developed will provide protection for that matter.

The timing of events can therefore be important. If an employer is already aware of circumstances that could lead to a claim, the position should be checked carefully.

Notification Requirements

Insurance arrangements commonly require employers to notify potential claims or disputes within specified timescales.

Delay in reporting a matter may cause difficulties if the employer has not complied with the conditions of the cover.

Employers should therefore know:

• what events must be reported;
• when notification must take place;
• what documents or information are required;
• who must be contacted;
• what should happen after notification.

If an ET1 claim form or ACAS Early Conciliation notification is received, employers should deal with it promptly and check any applicable insurance requirements.

Insurer Approval and Legal Representation

Some insurance arrangements require approval before an employer incurs legal costs, appoints advisers or takes certain steps in proceedings.

This may affect decisions about legal representation, settlement negotiations and how the claim is defended.

Employers should understand these requirements before committing to expenditure or taking action that could affect the insurance position.

Tribunal Insurance and Settlement Decisions

Not every Employment Tribunal dispute needs to proceed to a final hearing.

There are circumstances where settlement may be commercially sensible, even where an employer believes that it has a strong defence.

Where insurance applies, however, employers should establish whether settlement discussions or offers require prior approval.

Making decisions without considering the insurance conditions could potentially affect the protection available.

Where discussions are taking place before a formal claim is issued, our ACAS Early Conciliation page provides further information for employers.

Insurance Does Not Replace Good Employment Procedures

Tribunal insurance can provide useful financial protection, but it should sit alongside good employment law practice rather than replace it.

Employers still need to deal properly with matters such as:

• disciplinary procedures;
• grievances;
• sickness absence;
• redundancy;
• dismissal;
• discrimination concerns;
• workplace complaints.

Clear contracts, appropriate policies, good records and early professional advice can all help reduce the risk of a workplace problem developing into tribunal proceedings.

When Tribunal Insurance May Be Worth Considering

The value of tribunal insurance will depend upon the circumstances of the individual business.

It may be particularly relevant for employers who want greater certainty over potential legal costs or who do not have extensive internal HR or legal resources.

Factors an employer may wish to consider include:

• the number of employees;
• the nature of the business;
• the potential cost of defending a claim;
• existing employment law support arrangements;
• the level of financial risk the business is prepared to accept.

Price is only one consideration. The extent and reliability of the protection being provided may be more important than simply choosing the lowest-cost option.

Questions Employers Should Ask About Tribunal Insurance

Before relying upon any tribunal insurance arrangement, it is sensible to establish exactly how it works.

Useful questions include:

• What types of Employment Tribunal claim are covered?
• What legal costs are included?
• Are there financial limits?
• Are compensation awards covered?
• What exclusions apply?
• How quickly must a dispute be reported?
• Does the insurer need to approve legal representation?
• Does the insurer need to approve settlement?
• Are existing disputes excluded?
• Are there requirements concerning employment procedures or advice?

Understanding these points before a claim arises can help avoid uncertainty later.

Final Thoughts

Tribunal insurance can help employers manage some of the financial uncertainty associated with Employment Tribunal proceedings, but the details of the protection matter.

Employers should consider the potential legal costs, policy limits, exclusions, notification requirements and approval procedures before relying upon the cover.

Insurance should also form part of a wider approach that includes good employment procedures, appropriate records and timely employment law advice.

For details of the specific insurance service available through EBS Law, visit our Employment Tribunal Insurance for Employers page.