The future of European employment practices liability?

At one time action against organisations alleging discrimination, harassment and unfair dismissal was thought to be a US only issue. With the recent transposition of European anti-discrimination directives, increasing media attention and rocketing awards this is no longer the case. But to what extent is this really an issue for European employers and how much of it is a marketing bubble?

In the UK, figures recently released by the Employment Tribunal Service (ETS) show that the number of claims brought to employment tribunal in 2006-07 soared by 15%.

Jeanne Spinks, chief operating officer of the ETS, said: "The significant reason for the increase in employment tribunal cases in 2006-07 is a 155% increase in equal pay claims.”

The UK’s new age discrimination law also spurred some 972 claims. The single highest award was £250,470 in an unfair dismissal claim.

Comenting on employment practice liability, Gary Head, professions underwriting director at Hiscox, said: “The potential cost from employee lawsuits is huge and could even result in bankruptcy for a small business, not to mention untold reputational damage. It is essential that businesses review and revise their workplace practices and consider taking adequate insurance protection in the event that the worst happens.”

“The European directives have had a limited impact in Germany because there is already strong legal protection under existing anti-dismissal law

Mark Zimmer, employment partner German liability at Baker & McKenzie

The situation, however, is not mirrored across Europe.

A new anti-discrimination law in Germany, which is in line with European directives, has had only a limited impact.

In 2006 (the year the law came into effect) in the German state of Baden-Württemberg—home to one eighth of the population of Germany—only 0.3% of all labour claims were discrimination claims under the new law.

“The European directives have had a limited impact in Germany because there is already strong legal protection under existing anti-dismissal law,” says Mark Zimmer, employment partner German liability at Baker & McKenzie.

Differences in culture too have sometimes discouraged employees from making claims. Philippe Thomas, a partner with Lovells based in Paris, said: “In France it’s actually quite common to ask people their age and marital status when they apply for a job. That’s info that employees are willing to give.”

“The potential cost from employee lawsuits is huge and could even result in bankruptcy for a small business, not to mention untold reputational damage.

Gary Head, professions underwriting director at Hiscox

The situation could be set to change. This year marks the European year of equal opportunities for all, aimed at raising people’s awareness of their rights to equal treatment and promoting a broad debate of diversity to society.

Trade unions, social groups and equal opportunity bodies are all helping to raise the agenda, promoting equality and helping workers bring claims against their employers. The EU trade union confederation recently agreed to assist workers with work-based harassment claims

In the future, employers could also be looking at heftier fines. Michael Thyssen, European EPL product manager with Chubb, warned that the language used in the European directives specifies that compensation awarded must be effective, proportionate and dissuasive. “We’ll have to see how the European courts choose to interpret that,” he said. “But it could leave the door open to punitive damages.”

What remains clear is that employers need to be increasingly vigilant about what they say to existing or potential staff, and ensure that all staff within the company are compliant with the laws. Paying awards post-tribunals can become a costly business

A EUROPEAN SPECIAL REPORT ON EMPLOYMENT PRACTICES LIABILITY WILL BE AVAILABLE IN OCTOBER’S ISSUE OF STRATEGICRISK.