Ways of working, and the risks that businesses face, have arguably changed more in the past two years than they had over many decades before.

Ways of working, and the risks that businesses face, have arguably changed more in the past two years than they had over many decades before. One particular emerging risk that many directors cite is a growing concern is rising litigation from employees. In fact, according to research commissioned by Gallagher amongst 1,000 senior decision makers, leaders believe the chance of facing a law suit from employees has increased by 40% compared to before the pandemic1.

There are a number of reasons why this is seen as an increasing risk - changing ways of working such as employees desiring different working patterns, or the right to work remotely and the conflict this can bring, an increase in employee awareness of their rights and the visibility of ‘no win no fee’ legal arrangements.

In this article we outline common types of claims and how businesses can protect themselves from costly legal fees and potential pay-outs.

Leaders are right to have these sorts of clams on their radars as businesses’ own employees are a common source of a liability claim. If employees feel they have been mistreated during their employment, they can bring their concerns to the management team and if they feel that their concerns have not been addressed in a sufficient manner, they may seek legal action as a means of rectifying their grievances.

As an employer, businesses must have employers’ liability insurance in place, as it is a legal obligation. Businesses must buy employers' liability insurance as soon as they take on their first employee and the policy must cover the firm for at least £5 million. This type of insurance will help pay compensation if an employee is injured or becomes ill because of the work they do. Businesses can be fined £2,500 every day if they are not properly insured and can also be fined £1,000 if they do not display their employers’ liability certificate, or refuse to make it available to inspectors when they ask2.

But what this insurance does not do is to cover the cost of any compensation or legal costs if an employee or worker takes the firm to an employment tribunal. If faced with an employment tribunal, there can be significant costs involved – regardless of whether the firm wins or loses3. Claims typically relate to unfair and wrongful dismissals, discrimination, equal pay, and deductions from wage deductions4.

Although many cases are dropped or settled out of court, businesses often have to pay for ongoing legal advice until the dispute is settled and in some cases, costs can turn out to be substantial. Even if a business wins a case, there is no guarantee that your costs will be paid. The judge may order both parties (the claimant and the defendant) to pay their own costs.

Example case one

An employee was sent home by her employer because she refused to remove a visible Christian cross, which contravened the company’s uniform policy prohibiting wearing of any visible item or adornment around the neck (such as jewellery). The only exceptions to this rule were religious items regarded as a ‘mandatory scriptural requirement’, which could not be concealed.

The employee claimed indirect discrimination on the basis that the rule put Christians at a particular disadvantage. However, since she was unable to demonstrate that wearing a cross was a scriptural requirement for Christians, her claim was unsuccessful in the employment tribunal, the Employment Appeal Tribunal and the Court of Appeal5.

Example case two

This case involves an individual who worked as a postman. As he had graduate and post-graduate qualifications in information systems, he wanted to work in the IT department and made a large number of applications for jobs, none of which were successful. He brought claims of direct race discrimination, amongst other things. His direct discrimination claims failed because the tribunal found that he had not proved facts from which it could conclude that race played a part in the employer's decisions. It was relevant that his CV was generic and not tailored to the jobs for which he had applied and that external recruiters had been involved in a number of the applications. Further, there was no evidence before the tribunal about the race or qualifications of the successful candidates and he had not asked the company to disclose this information6.

Example case three

An employee was dismissed for poor performance during her probationary period. Following her dismissal, she raised a grievance which referred to her disabilities (mental health and dyslexia) and stated that these had contributed to errors contained in her work. The grievance was rejected, as was a grievance appeal. She brought a claim alleging that her dismissal was discriminatory but importantly did not complain about the grievance and appeal outcomes.

The employment tribunal held that the employer did not know and could not reasonably have been expected to know about the disability when dismissing the employee and therefore her claims were dismissed. The employer only became aware of her disabilities when they were raised in the grievance. As the grievance and appeal process were not in dispute, the tribunal only considered whether the dismissal itself was discriminatory.

She appealed the decision and this was dismissed by the employment appeal tribunal on the basis that the case revolved purely around the claimant’s dismissal and not what occurred afterwards. The grievance and appeal were not a part of her case and therefore her employer’s knowledge or constructive knowledge of her disabilities acquired after the case could not assist her7.

Managing the risk

Leaders concerned about these exposures can protect their business with employment practices liability insurance which provides businesses which offers peace of mind if the firm is taken to an employment tribunal, the legal costs, together with most types of tribunal awards, can be covered, subject to the limit of indemnity chosen. Speak to your broker to find out the different options available.


This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. You should not act upon information in this bulletin nor determine not to act, without first seeking specific legal and/or specialist advice. Our advice to our clients is as an insurance broker and is provided subject to specific terms and conditions, the terms of which take precedence over any representations in this document. No third party to whom this is passed can rely on it. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to fullest extent permitted by law. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual contact at Gallagher.