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Article | FINEX Observer

Employment practices liability trends across the globe

Financial, Executive and Professional Risks (FINEX)
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By Tom Pemberton , Samuel Trost and Amber O'Brien | November 1, 2019

While employment-related claims are more prevalent in the United States (U.S.) than in any other country, trends are certainly developing in other global jurisdictions. In this article, we touch on emerging employment-related claim trends in the United Kingdom (U.K.), Switzerland and Australia.

United Kingdom

In the U.K., there has been an uptick in employment practice liability (EPL) claims over the past few years. According to Willis Towers Watson claims data, U.K. EPL claims have increased year on year since 2015.

No. of UK EPL claims notified by Willis Towers Watson to insurance carriers
No. of UK EPL claims notified by Willis Towers Watson to insurance carriers

This uptick in claims may be due, at least in part, to the public spotlight on the #MeToo movement, which has exposed the prevalence of sexual assault and harassment/gender discrimination, particularly in the workplace. The #MeToo movement has created an environment that encourages individuals to speak out about workplace sexual harassment/discrimination and bring claims that they might not have brought in the past. In addition, in August 2017, the Supreme Court in the U.K. removed a potential obstacle for employees looking to take action by ruling that employment tribunal fees imposed on claimants were unlawfuli, which has created, in effect, a no costs jurisdiction for EPL claims. This represents a significant shift and is also likely to have contributed to the rise in claims being brought by employees against their employers.

Another potential factor for a continuing rise in U.K. EPL claims is the Financial Conduct Authority (FCA) showing increased interest in holding senior individuals accountable for poor personal misconduct (including allegations of sexual misconduct) through the implementation of the Senior Managers & Certification Regime (SM&CR). As of December 9, 2019, the SM&CR will apply to all FCA regulated firms (it is already in effect for banks, building societies and insurers) and is designed to strengthen individual accountability of senior individuals through increased powers of approval and enforcement for the regulators. Consequently, non-financial misconduct can also have regulatory implications for senior individuals.

Under the SM&CR, firms are also required to appoint a senior manager as their "whistle-blower's champion," to put in place internal whistleblowing arrangements to handle disclosures and to inform U.K.-based employees about the FCA and PRA whistleblowing services. With the knowledge that the FCA is more focused on the conduct of senior individuals, employees may feel further empowered to speak out against misconduct, including sexual misconduct, in the workplace.

Businesses are coming under intense scrutiny to ensure they can demonstrate a work culture where sexual harassment/misconduct is not tolerated and that employers are doing all they can to heighten awareness and ensure appropriate policy and practices are in place.

As well as having appropriate EPL insurance protection, firms should, first and foremost, put in place suitable procedures and protocols to combat and prevent sexual harassment in the workplace. In July 2018, the Women & Equalities Committee (a new select committee appointed to examine the U.K. government's performance on equalities issues) published a report on sexual harassmentii recommending a Code of Practice for employers, setting out good practice guidance, which includes having proper reporting systems and procedures in place (including guidance on anonymous reporting), support for victims, and targeted training and inductions.

Switzerland

Privacy breaches leading to EPL claims

As technology becomes more advanced and data breaches become more frequent, the potential for employee claims increases. While issues concerning privacy breaches in their narrow definition are more a matter for a cyber risk policy than an EPL insurance policy, there has been an uptick in "privacy related" EPL cases. Such claims regularly emerge from a pure privacy breach claim brought by an employee who includes further claims against the employer, such as damages for grievance and distress.

Notably, in a recent case, a Swiss-based international organization inadvertently placed sensitive, personal information of its employee on a shared drive accessible to his colleagues. Initially, the employee brought a claim against the employer under the Privacy Act (that was not covered under the EPL insurance policy) as well as significant claims for grievance and distress damages in excess of USD 100,000. The EPL policy responded under "employment practice violation" and covered the employer's defense costs and settlement amount.

With increasing awareness and regulatory scrutiny all over the world to better protect privacy interests (e.g., GDPR in Europe, California Privacy Act), Willis Towers Watson anticipates EPL claims to continue to rise that involve breach of privacy issues.

What is important to consider?

While pure privacy issues do not find cover under current EPL insurance policies, modern conditions have developed over time, including language to also cover "invasion of privacy" or employment-related breach of applicable data privacy legislation. It is noteworthy being aware that the pure privacy incident could develop into claims against the employer, for which the EPL policy should be notified at an early stage in line with policy obligations. Also, as typical EPL insurance policies are silent on "privacy-related" matters (while some matters are excluded, such as breach of legislation relating to collective redundancies or ERISA claims in the U.S.), it is important to review the exclusions sections under the policy, especially in this context, if "bodily injury" is excluded, that it contains a carve-back allowing emotional distress under the policy.

Australia

Australia continues to see annual increases in the number of EPL claims. The Australian employment practices landscape is complex; it is made up of a number of different forums for bringing claims, including the Fair Work Commission, unfair dismissal and general protections claims in the Federal Court, discrimination claims before the Australian Human Rights Commission and various other state courts and regulators. According to the Fair Work Commission, 17,712 claims were made for unfair dismissal against Australian businesses in the last financial year. Most claims are settled before getting to court, but if not properly managed, legal costs of an employment dispute can quickly outstrip claim value, stymieing resolution.

Until recently, it was relatively uncommon in Australia for workers or employees to bring class actions against employers. However, there is a recent, developing trend in Australia relative to EPL class actions; there are currently four (funded) class actions in the Federal Court (and a number of others in the pipeline and/or being contemplated by litigation funders), which allege sham contracting arrangements and underpayment of employee entitlements. One such class action was recently successfully defeated by the defendant employer; the Federal Court found that the class failed to establish that they fell within the scope of the enterprise agreement. The Court's ruling was fatal to the action proceeding and represents an important win for employers.

There is a well-documented proliferation of wage-and-hour class actions in the U.S. Based on the similarities between the Fair Labour Standards Act in the U.S. and the Fair Work Act in Australia, similar class actions may become more common in Australian courts and, indeed, workplace class actions are already on the rise. Employment practices liability is a no-costs jurisdiction in Australia. However, it remains to be seen whether the Australian courts will entertain cost recovery direct from a litigation funder notwithstanding the non-costs jurisdiction. Such an approach may cause litigation funders to reconsider their funding model for workplace class actions and have a significant impact on the EPL class action activity in Australia.

Final Thoughts

In summary, what this article demonstrates is that other jurisdictions outside the U.S., be it through developing regulations or class actions and generally as a result of the empowerment of the employee, are likely to see an increased prominence of employment-related claims. Employers globally need to take note and do all they can to ensure a positive work culture with appropriate policies and practices in place. Having effective and appropriate EPL insurance cover is also important for companies should they still face claims against them, and in order to benefit from such insurance coverage, companies will need to demonstrate that they have such policies and practices in place.


i R (on the application of UNISON) v Lord Chancellor [2017] UKSC 51
ii https://publications.parliament.uk/pa/cm201719/cmselect/cmwomeq/725/725.pdf

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