The relationship between employers and employees is changing. Businesses are being held more accountable for their actions in the workplace, and employees are more willing to escalate issues via legal or regulatory avenues across all industry sectors and business sizes in Australia. In this climate it's increasingly important that businesses protect themselves from the cost and reputational fallout from these cases with the appropriate insurance cover.

The grounds for employment practice actions range from the cultural to the personal, and may involve people no longer employed by the business. Management may often be unaware of the trigger events or behaviour that have given rise to the claim. Businesses can be held liable for the actions of its employees, even if managers were unaware of what occurred.

Employment practices legal suits may take the form of a claim for damages or civil, regulatory or criminal proceedings. While legal costs and settlements can be financially expensive, media publicity (including social media), may also cause substantial losses through reputational damage.

Legal actions may be brought by past or current employees who are full time, part time, casual, seasonal, temporary or provided through agencies and may also include volunteers. They can also be brought by third parties, such as regulatory authorities.

How management liability cover can provide employment practices protection

Holding management liability insurance for employment practices can assist with costs involved with investigations, examinations or inquiries, alternative dispute resolution (such as arbitrations, mediations and conciliations) and appeals.

Employment practice actions can encompass

  • oral or written publication of defamatory material or violates an employee's right to privacy
  • wrongful refusal to employ an applicant for employment
  • wrongful failure to promote an employee
  • wrongful demotion, negligent evaluation
  • deprivation of career opportunity
  • failure to promote
  • wrongful disciplinary action
  • wrongful termination, including constructive dismissal
  • discrimination on personal grounds
  • workplace-related bullying
  • sexual harassment
  • breach of employment contract
  • mismanagement of employee benefit plans.

Some key exposures that management liability insurance can cover include

  • refusal to employ a job applicant
  • demotion or failure to promote an employee
  • negligence in employee relations, including assessment
  • wrongful termination, including constructive dismissal
  • publication of material that defames an employee or contravenes their right to privacy
  • workplace harassment or discrimination
  • negligence in disciplinary action against unacceptable behaviours
  • defence costs for bullying claims.

How businesses can protect themselves against employment practices claims

In practical terms businesses can take steps that provide guidelines for (and documentation of) expected standards of employment practices so that employees are clear on what is expected behaviour and what constitutes unacceptable behaviour in the workplace. Illegal behaviour or behaviour that will result in disciplinary action should be clearly identified.

Formalising your business's policies regarding acceptable and unacceptable behaviour can help demonstrate managerial intentions and company culture if a legal claim does arise.

These policies should cover best practice approved procedures for:

  • interviewing for recruitment
  • performance assessment
  • issuing warnings
  • terminations
  • responding to complaints
  • next steps to take in reporting violations.

To assist with formulating guides for avoiding discrimination during the hiring process the Australian Human Rights Commission has created a guide available on its website.

How Gallagher can help with employment practices protection

As your insurance broker we can help to mitigate your risks and minimise what can be a significant financial impact to your business, should an action be taken. If you would like to know more or discuss this further please contact one of our experts.

Disclaimer

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