Employment Practices Liability: Is there really a need for labour dispute insurance?
Employment Practices Liability defined: “Employment Practices Liability (EPL) provides insurance for employers against allegations of unfair dismissal and unfair labour practices (including sexual harassment and discrimination) brought by a past, present or even future employee.”
Employment Practices Liability Insurance (EPLI) was introduced in South Africa in 1998, two years after the formation of the Commission for Conciliation, Mediation and Arbitration (CCMA). As the CCMA caseload grew, more corporate and large employers sought out this then niche insurance. These employers typically had a workforce exceeding 500 and immediately recognised the benefits of being able to transfer the risk of CCMA and Labour Court awards.
Large and frequent losses
The maximum amount that can be awarded by the Labour Court for an Automatically Unfair Dismissal is 24 months salary. At a middle management salary of R30 000 per month, the award could reach R720 000. The larger employers were also faced with another problem: the frequency of losses due to labour disputes could be likened to the frequency of accidents in the motor fleet. In fact, the ratio of accidents to motor vehicles on South African roads is actually far lower than the ratio of CCMA cases to employers.
In the last financial year, there were over 160 000 labour disputes heard by the CCMA and Bargaining Councils in South Africa, excluding strikes, this from a gradually reducing pool of employers of around 350 000. That’s almost one in two employers landing up at the CCMA each year. Conversely, there are fewer than 10 000 000 vehicles on our roads, generating a number of road incidents of around 900 000 annually. That’s almost one in 10, or as has been quoted by an industry source: “That means there’s not much chance you’ll be involved in a road accident while driving to the CCMA!”
Smaller employers
More than 90% of the small-to-medium sized employment sector is uninsured, despite the fact that it is those smaller businesses that make up the majority of the 50% of employers that are unsuccessful in their CCMA defences. It is also those smaller businesses which can least afford the often crippling awards handed down by the CCMA and Bargaining Councils.
Smaller businesses are still of the opinion that they will deal with labour issues when the problem presents itself. There is also a misconception that belonging to an employers’ organization, or having an attorney on retainer, offers protection. Only insurance will reimburse the employer should the case be lost and can ensure that the employer is not left with an open ended labour problem that could see the demise of the business.
Beyond insurance
The CCMA caseload increases exponentially every year and business pressures mean that there is less time for employers to focus on HR issues. Brokers should encourage clients to take out EPLI that also includes outsourced industrial relations services. The employer would be able to use the services of the experts provided by the underwriters, instead of employing their own HR team, and have the benefit of wide insurance that covers the legal fees and awards associated with labour problems. Labour advice call centres, on-site disciplinary services and representation at the CCMA should all form a part of a standard package.
The majority of EPLI policies for small businesses cost far less than the other insurance lines. Premiums lower than R500 a month are still available in the specialist end of the liability insurance market – a small price considering the possibility of a potential R720 000 award!
