While interactions between the industrial and workplace relations sphere and insurance have traditionally been focused on workers' compensation or common law work injury damages claims, the last decade has seen a rise in Employer Practices Liability (EPL) insurance.
EPL insurance originated as a way to fill in the gaps of standard general liability policies, and now covers employers in the event of claims brought by past, present or prospective employees alleging employment-related wrongful acts. This can range from unfair dismissal claims to sexual harassment matters, to insuring employers for work health and safety breaches.
As employees have become more aware of their legal rights, so too have employers increasingly sought to protect themselves against the monetary costs of legal claims through EPL insurance. The employment relationship is, and has always been, fraught with risk, as was evidenced in two cases handed down by the Federal Circuit Court and Federal Court in 2014, where two employers – one a small photography business and the other one of the world's largest IT companies – were found to have discriminated against their employees. In both cases, the employee in question was awarded over $100,000 in damages.
While the rise of EPL policies has been a positive development for insurers and their insured employers, who are afforded a degree of peace of mind in relation to claims made by disgruntled employees, difficulties can sometimes arise in EPL policies where the insured employer and their insurer have conflicting desires in relation to management of potential legal claims.
Due to the often emotionally-charged nature of workplace disputes, insured employers, particularly those in small-tomedium sized enterprises, can have a higher degree of personal investment in these matters. For example, an employer who has terminated an employee for serious misconduct for stealing from their till would be reluctant to offer any monetary settlement when confronted with an unfair dismissal claim from this employee. The insured may remain of this view even if it would be much more cost effective to reach an informal settlement agreement with the employee as opposed to defending the proceedings to the fullest extent.
It is therefore often the case that these employers can understandably find it difficult to separate matters of principle from the prospect of resolving potential legal claims by employees in the most commercial manner.
As lawyers instructed to act in these matters, it is our role to represent the interests of both the insured and the insurer to achieve the most commercial outcome in the circumstances. Reaching a point of resolution in these matters commonly takes into account the legal risks associated with any potential claim by the employee in question, together with non-legal factors, such as reputational harm to the insured employer.
In cases of conflicting desires of insurers and insured employers in relation to management of potential legal claims – for example, where an employer wishes to contest a matter but the insurer sees the value in negotiating an early, commercial settlement – it is therefore our approach to facilitate dialogue between the insured employer and the insurer to re-align their interests.
While the insured's principles are important and should be recognised, the burden legal matters can place on businesses in terms of reputational harm and the disruption associated with litigation – for example, requiring members of the business to be available to give evidence in hearings that can sometimes stretch for weeks – are significant. Insurers are well versed in these difficulties, however, such challenges are often unknown to insured employers who are faced with their first legal claim from an employee. The costs of litigating a disputed matter, while sometimes justified, are well known.
It is our experience that opening up such a dialogue between the insurer and the insured usually resolves these difficulties, and encourages the adoption of a "middle ground approach" between recognising an insured employer's matters of principle, and achieving the best commercial resolution of the employee's claim while minimising associated costs.
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