Drawing of insurance policy

As an employer, it’s only natural to think ahead and consider potential scenarios that may affect your business – and we often have clients asking us about employment tribunal indemnity insurance for that very reason.

However, while it’s imperative that you get appropriate cover for your business, we regularly advise against this particular type of insurance, and there are some very good reasons why…

Prevention is better than cure

The thought of being faced with legal action from a disgruntled ex-employee is enough to strike fear into any employer, but the fact remains that there are ways to avoid this happening – or at the very least, to reduce risk to such a low level that even in the event of a claim, the chances of success by the claimant become almost imperceptible.

While some insurance providers will tap into these fears of prosecution and persecution, realistically, if you’re managing your duties as an employer correctly in the first place, the risk of a tribunal is pretty low. Of course you want peace of mind, but while many insurances may be relevant and warranted, this is generally not one of them.

Watertight employment policies

So how can you mitigate risk of a tribunal? Well, it’s a simple matter of ensuring that your guidance, policies and procedures are bang up to date with the relevant employment laws. Legislation can be pretty weighty and difficult to understand – but an HR consultant or employment law specialist will be able to provide the advice you need to meet your obligations and protect yourself (and your employees).

Having someone with the right knowledge to draft all your documentation and keep you notified of any changes that may affect you is all you really need to keep the trauma of tribunals at bay. Even if a dispute arises, your HR advisor can help mediate between you and your employee, finding a resolution that will navigate you away from legal action.

Why tribunal indemnity insurance can cost more than it saves

If you’re considering taking out a policy against possible tribunal action, first you need to balance out the cost Vs value ratio.  How much will the insurance cost you? How likely is it that you’ll need it? What does it actually cover?

This last question is key – because aside from legal costs (less any excess), other financial factors need to be considered. For example, managing the process, your time and the disruption to your business will all come at a price, and this won’t be covered by your policy!

Again, in terms of what the policy will cover, you also need to be aware that successful insurance claims are pretty hard to find – the provider will do everything they can to wriggle out of coughing up the cash. Clause upon clause will be written into your policy, so you better be pretty sure that it’s worth the paper it’s printed on.

A more cost-effective solution

Ultimately, there’s no substitute for setting up your employment paperwork and procedures properly in the first instance. Why pay for insurance that is unlikely to cover you, or worry about legal action and the many costs that it represents, when you can access quality HR and employment law advice and mitigate these concerns at the outset?

Even if the worst happened, average claim amounts are around the £5k mark – even the highest are rarely above 1 year’s wages. If you’re thorough in your defence, you’re unlikely to ever face this kind of attack.

Tribunal indemnity insurance can be more of a hindrance than a help – you’ll spend a crazy amount of admin time just trying to keep everything in line with their claim criteria. It’s much more cost-effective to hire in some HR help and manage your employment responsibilities correctly in the first place – and of course, we’d be happy to offer our advice and more information on this subject, so please feel free to call us!