Employment Practices Liability for Australian Businesses: Claims from the People Side of the Business

Most business claims do not come from clients – they come from current and former employees. A look at where Employment Practices Liability claims arise in Australian livestock and property businesses, and how Management Liability insurance responds.

Management Liability is often discussed in terms of directors' duties, statutory action and crime cover. In the day-to-day life of an Australian livestock or property business, however, the part of the ML policy that does most of the work is Employment Practices Liability – the cover that responds to claims brought by current, former and prospective employees.

EPL claims are not new, and they are not unusual. They are part of running a business that employs people. The question for an agency is not whether they will occur, but whether the ML policy is set up to respond properly when they do.

The most common claim – unfair dismissal

The most common EPL notification is an unfair dismissal application following the end of an employment relationship. The application is lodged with the Fair Work Commission, the business is required to respond, and the matter typically proceeds to conciliation and, in a meaningful minority of cases, to arbitration.

Most of these matters settle. The settlement amount is usually modest. The defence cost – legal representation, preparation of the response, conciliation attendance and any subsequent hearings – is generally the larger number. EPL is the cover that funds that defence cost, regardless of whether the business ultimately settles or wins outright.

Bullying, discrimination and harassment

A second pattern of claims involves allegations of bullying, discrimination or harassment. These claims can be brought through the Fair Work Commission, through state or federal anti-discrimination commissions, or directly in court depending on the nature of the allegation.

The business's defence is generally about process – what its policies say, how complaints were handled when they were raised, and what training and supervision was in place. EPL responds to the defence cost and, where the matter is settled, the financial component of the settlement. Penalties imposed by a court are generally not insurable, but the defence cost typically is.

“An business does not need to be in the wrong to spend $50,000 defending an unfair dismissal application. The defence cost is the loss, and the policy is what funds it.”

Underpayment and wage compliance

Wage compliance has become one of the more material risks for any business with a meaningful payroll. For businesses, the exposure usually concerns the correct application of the relevant award, the treatment of casual employees, the calculation of allowances and superannuation, and the handling of commission-based remuneration.

EPL policies vary in how they respond to wage and hour claims. Some include cover for the defence cost only; some include defence cost and a defined sub-limit for the loss; some exclude wage and hour matters altogether. This is one of the parts of the ML wording we examine specifically when we review an agency program.

Recruitment, references and restraint of trade

A smaller but recurring set of EPL claims arises from the edges of the employment relationship. Allegations of discrimination in recruitment. Defamation claims arising from a reference given to a prospective employer. Disputes about post-employment restraints, particularly where a senior Agent moves to a competitor. EPL generally responds to the defence of these matters, and the wording around restraint of trade is worth checking specifically in any business with senior fee-earning staff.

The director and the licensee in charge

Where an EPL claim names the business, the directors and the licensee in charge personally – which is increasingly common in bullying and harassment matters – the ML policy needs to respond to all of them, not just the entity. Most modern ML wordings do, but the definition of insured persons is worth reading at renewal rather than assumed.

What we look at when we review the ML policy for an agency

When we review an ML program for an agency, the EPL conversation focuses on a few specific items. Whether the EPL section responds to the full range of forums an agency employee might use – Fair Work Commission, state and federal anti-discrimination bodies, courts. Whether wage and hour claims are covered, and to what extent. Whether the policy includes a meaningful workplace investigations or HR helpline benefit that the business can use before a claim crystallises. Whether the defence-cost arrangements are 'in addition to the limit' or eroding the limit. And whether the limit selected reflects the business's headcount and senior staff salary base, not a default starting figure.

EPL is the part of the ML policy most businesses will use. It deserves to be reviewed with the same care as the directors' liability and statutory liability sections.

If you would like a review of how Employment Practices Liability is currently arranged in your business Management Liability program, we are happy to walk through it with you.