The Blame Game is alive and flourishing in the UK, as employees follow the US trend and become increasingly litigious. Situations which used to be regarded as unfortunate, or accepted as accidents, are now viewed as potential claims. Someone must be to blame. Someone ought to pay.
Being an employer can be a high risk occupation. The influential nature of work on people’s lives and the ever-changing legislation governing the relationship between employers and their staff make organisations key targets for the country’s new compensation culture. For example, one of the issues with the capacity to send ripples of anxiety through human resources departments is stress. Few employers are unaware of the risk that stress presents to their business. Equally few are taking steps to measure and manage the risks.
Not managing risks
In a survey of 800 companies, the Confederation of British Industry (CBI) found that 98% of respondents thought the mental health of employees should be a company concern, yet fewer than one in ten of the same companies had an official policy on mental health. Similarly, the Industrial Society found that, while 74% of respondents named stress as their top health and safety issue for the next two years, only a third of them monitor workplace stress and only 29% have policies covering stress.
In our increasingly litigious society, employees are more likely than ever to pursue a claim for compensation. In fact, Nigel de Gruchy, general secretary of the NASUWT teaching union, says that at any one time the union is dealing with 120 compensation claims relating to stress alone. The costs are also increasing. In December 2000, teacher Janice Howell was awarded a record £250,000 compensation, after ‘intolerable working conditions’ forced her out of the workforce due to ill health. That is an increase of £75,000 since social worker John Walker was awarded £175,000 in 1996.
Tip of the iceberg
Stress is just the tip of the iceberg when it comes to the potential for compensation claims. Discrimination on grounds as wide-ranging as sex, race, disability, equality of pay and unfair dismissal can all leave employers defending their employment practices in court. From the Disability Discrimination Act to the Human Rights Act and Regulation of Investigatory Powers Act, legislation is inexorably bringing the UK closer to the European model of employment practices.
Legislation is also changing at a significant pace. For example, in May 1998, the Department for Trade & Industry (DTI) issued the Fairness at Work White Paper, which quickly became the Employment Relations Act 1999. The Act received Royal Assent in July 1999 and most of its provisions took effect in October 1999, giving employees the right to extended maternity leave, time off for family emergencies and parental leave.
The potential for employers to get bogged down in red tape is huge. In 1999/2000, a year that generated a 32% increase in employment tribunal applications, the Working Time Regulations and National Minimum Wage legislation alone resulted in 7,000 complaints. No wonder the CBI is calling for reform in the tribunal process.
The cost of getting it wrong is also going up. All the indicators point to an increase in the financial compensation awarded to employees who successfully prove their case. In June 1999, there was a significant change to the law on unfair dismissal, when the right to claim unfair dismissal was extended to all employees with one year’s service, rather than two. With that change came an increase in the maximum amount of compensation payable for unfair dismissal, up from £12,000 to £50,000, while the limit in health and safety, or whistle-blowing cases has been removed altogether.
Successful claims under the Human Rights Act may also cost more than was originally envisaged. Compensation awarded under the Human Rights Act in the UK is intended to place the victim in the same position as if their rights had not been violated. So far the average award has been around £15,000. But lawyers are predicting that awards will be higher than used to be the case when claimants pursued their action in the European Court of Human Rights in Strasbourg.
As if that were not enough, the awards made by some employment tribunals rose in February 2001 under a new, index-linked formula. Employers now face a higher bill as the maximum amount of a “week’s pay” (used as the basis for calculating unfair dismissal and redundancy awards) has increased from £230 to £240. The limit on the amount of a compensatory award for unfair dismissal also rose from £50,000 to £51,700.
The boundaries for compensation claims are still being pushed. When Tyneside van driver David Morris was sacked for refusing to sign away his right to work a maximum 48-hour week under the Working Time Regulations, the GMB union argued that, as part of a health and safety initiative by the European Commission, damages awarded under the Working Time Regulations should not be limited. Morris was awarded £32,000.
The Court of Appeal is also considering a landmark case which could result in gay workers being able to sue their employers under the Sex Discrimination Act if they fail to support a victim in the face of discrimination.
Clearly, UK employers face a daily juggling act as they balance maintaining profitability in an increasingly competitive environment, with a responsible approach to managing their staff. While there is little that risk managers can do to stem the tide of compensation claims, they do have a pivotal role to play in protecting their organisation.
The first step is to put processes in place to help prevent compensation cases from arising. The ISO 9000 management systems standard adage that if you can measure something you can manage it, applies equally well to protecting your organisation against claims.
Lastly, having covered off all the foreseeable problems, make sure your organisation is insured for the remaining element of risk. Recently, in response to the increase in employment legislation, insurance has been made available specifically for employment practices, should an employee bring an action alleging unfair dismissal or discrimination. This can be tailored specifically to the needs of the organisation. Look for an insurance partner which will help you manage the risk even further, for staying out of industrial tribunals and not having to make a claim is a key part of maintaining your reputation. Consider other, added value issues too, such as whether you will have access to a legal helpline.
Julian Elms is manager UK & Ireland for ACE Europe’s Directors & Officers, Tel: 020 7560 8216, E-mail: firstname.lastname@example.org
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