Employment Practice Liability under Management Liability Cover

Employment issues have become a key concern for business owners. This is because employers can be held liable for the decisions they make regarding employment, promotion and dismissal, the procedures they follow and the type of working environment provided for employees.

Mistakes, oversights and miscommunication can happen even in well-run businesses and expose employers to liabilities arising out of their responsibilities to their employees. These matters can be quite costly and time-consuming to sort out.

Employment Practices Liability (EPL) insurance provides cover for actions taken by employees against employers for a range of issues relating to employment including alleged discrimination, unfair dismissal, sexual harassment and bullying.

Claims can be brought by prospective, past or current employees regardless of whether they have been employed on a full-time, part-time or casual basis.

The policy will cover legal defence costs, damages and other costs required to settle the matter, up to the EPL policy sub-limit. However, it should be noted that an EPL or ML policy will not cover losses relating to the underpayment of wages or failure to pay employee benefits (such as redundancy or superannuation) as the employer is legally responsible for these.

It is imperative that potential claims are notified to the insurer as soon as possible as it is a requirement of Employment Practices and/or Management Liability policies that claims be notified during the period of insurance when the allegation is first made. The policy will provide access to law firms who specialise in employment law and can assist with resolving disputes quickly with a minimum of fuss and expense.

The following matters are examples of EPL actions and potential claims:

• A female delivery driver working for a food wholesaler lodged a complaint with the Anti-Discrimination Commission alleging sexual harassment by her fellow employees. The panel lawyer handling the claim formed the view from the evidence provided by the complainant (including text messages) that the allegations had merit and that the employer would be found vicariously liable for the conduct of its employees. The insurer was able to settle the matter for $19,750 including $7,000 in legal costs.
• An employee of an accounting firm alleged unfair dismissal and lodged a formal claim for compensation with Fair Work Australia. Although the Insured firm had strong grounds for dismissal due to gross misconduct the case was settled prior to court proceedings. The settlement was agreed at $15,000 for compensation, and the Insured incurred $40,000 in defence costs, both covered by the policy.
• A senior employee issued proceedings alleging that she was passed over for a promotion, and sued the Insured for $120,000. The matter proceeded to mediation with an agreed settlement of $65,000 (paid to the employee) plus legal costs.
• A 62-year-old site supervisor alleged wrongful termination & age discrimination after his role was made redundant but later filled by a young relative of the business owner. He was awarded $120,000.
• An employee alleged bullying and harassment after returning from maternity leave. The employer failed to address the complaint or comply with its own bullying and harassment policy. The court awarded damages totaling $237,770 to the employee.

Management Liability Insurance (ML) is designed to cover small to medium-sized private companies (SMEs) against the risks and liabilities associated with running and managing a business, including claims arising from employment issues.

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