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There are many types of HR service on offer but one big difference is the provision of an insurance policy that will cover legal expenses (and possibly awards) if a claim is made to an employment tribunal. This cover is conditional. You must follow the advice that you’ve been given by the HR company.  Alternatively, HR services can provide advice and guidance but do not automatically cover you for the costs of legal defense and awards at tribunal.

So, which system is best for me?

There are pros and cons to both systems. It is up to you as the potential client to decide which suits you best. It’s worth remembering that non-insured advice still provides some element of cover, as any company providing you with HR support should hold an insurance indemnity scheme. If you are taken to an employment tribunal and it turns out that the advice you were given was incorrect, then you can claim for any losses you have incurred as a result of this incorrect advice. In addition, many home insurance policies or company indemnity policies will already have legal expenses cover for employment tribunal claims, so you may be paying for the same product twice.

What’s the risk?

Surprisingly the risk of being taken to an employment tribunal is still very low regardless of which service you purchase. Having your costs covered for a tribunal may seem like a good idea, but you need to consider the business disruption caused by fighting tribunals and the reputational damage that you may face if you lose a case.  If you have a long history of employment tribunal claims against your firm, then insured advice may be less risky. However, if you have a high proportion of staff with less than two years’ service or your company is in a sector where the skills of their employees are in high demand, the chances of you being taken to a tribunal are reduced.

Insured Advice

Pros

  • Legal costs are automatically covered provided you follow the advice you’ve been given by the HR company. With the removal of tribunal fees and the increase in the number of claims being made, you may feel protected when you take action against an employee.
  • As a business, you may wish to create an impression that you will always defend any claims lodged against you. Having an insured policy means you do not have to worry about the cost of this.

Cons

  • You are required to follow the advice you are given by the HR company. This means if you fail to follow the company’s advice it is quite possible that you will no longer be insured.
  • The advice that you will be given will be tailored to protect the insurance policy rather than the commercially most appropriate advice for you as the employer. So, in effect, you are handing over control of how you deal with staff, in return for receiving insurance against any legal costs should you be taken to an employment tribunal.
  • 3 out of 5 claims never actually reach a tribunal hearing, and most insurance policies do not cover you if you settle a case, unless the insurers want to settle it.
  • The cost of the service is usually higher than a non-insured service. Given that in most companies, tribunal claims are rare, the additional cost may not be worth it.

Uninsured Advice

Pros

  • The advice you receive will be based on the needs of your business at that point in time and will not be constrained by the needs of the insurance policy.  For example, if an employee is causing substantial losses to the company, taking time to go through all of the procedures may in fact cause more damage to the company than the actual cost of settling any tribunal claim that is made against you. The advice you receive will recognise this and is able to flex in relation to your commercial realities.
  • The procedures involved in insured advice will often take much longer to deal with than a more assertive approach. Stretching out the termination of the employee over a long period of time often increases the chances of them making a claim to an employment tribunal. Taking more decisive action can have a better commercial impact and avoid the tribunal.  The slogan often referred to is: Hire Slow, Fire Fast.
  • You can always settle – most claims are settled before they ever get to court.

Cons

  • When dealing with an employment issue you constantly have to refer back to commercial considerations. These decisions are often made outside of the management chain and therefore the ability of an individual manager to deal with an issue without interference from elsewhere in the organisation is reduced.
  • Attending an employment tribunal is never a pleasant experience, you may feel more comfortable if you know representation is dealt with before you even start dealing with an issue.

Some insured policies will provide you with legal expenses cover regardless of whether you follow advice or not.

The value of a HR support service depends on the relationship you have with your supplier. We have always found that, if you are on the same “wavelength” as your HR company, the relationship is beneficial to both parties. If you simply do not gel with your supplier, you are wasting your money and they are wasting their time.