Employment Practices Liability

This policy covers an employer’s legal expenses and the awards made against it by the CCMA, Bargaining Councils and Labour Court for unfair labour practices such as unfair dismissal, sexual harassment, discrimination and failure to employ.

Question: What is Derivative Misconduct?
Answer:
  • Derivative misconduct (also referred to as residual misconduct) refers to as a situation where an employee possesses information that would enable an employer to identify wrongdoers.
  • When the employee fails to come forward when asked to do so, they violate the trust upon which the employment relationship is founded.
  • Derivative misconduct may justify dismissal in appropriate circumstances. This would be covered.
Question: What is an automatically unfair dismissal?
Answer:
  • Some dismissals are considered to be so serious that they are classified as being automatically unfair.
  • Most dismissals carry a maximum penalty of 12 months, but the court can award a penalty of up to 24 months for an automatically unfair dismissal.
  • A dismissal is automatically unfair if it arises out of:
    • Violating an employee’s right to freedom of association – e.g. dismissal for joining a union.
    • Participating in a protected strike
    • Not doing the work of another who is participating in a protected strike.
    • Refusing to accept a change in working conditions
    • The employee’s pregnancy
    • Unfair discrimination e.g. race or gender
    • The transfer of the business as a going concern
    • A contravention of the Protected Disclosures Act
    • Taking action against the employer in terms of the Labour Relations Act
Question: More about unfair dismissal awards
Answer:
  • The CCMA’s two main reasons for ruling against the employer in an unfair dismissal matter are:
    • Procedural unfairness – the employer did not follow the correct process when dealing with an employee dispute. (E.g. dismissal without a hearing)
    • Substantive unfairness – the employer’s decision had no merit. (E.g. dismissing an employee because he is fat and ugly.)
  • Of the awards made against the employer, approximately:
    • 60% are both procedurally and substantively unfair
    • 25% are only substantively unfair
    • 10% are only procedurally unfair
  • When the CCMA rules against an employer, mostly the award is for compensation but in approximately a quarter of the cases the reinstatement of the dismissed employee is ordered.
  • Mostly procedural unfairness arises because the employer did not hold a hearing before making a decision.
Question: What is the ratio of CCMA awards against employers?
Answer:
  • The CCMA reports that 59% of their awards are in favour of the employee.
  • A typical award could be around 4 months.
  • The CCMA can make awards up to 12 months. Awards up to 24 months can be made by the Labour Court.

 

Question: What type of dispute is mostly referred to the CCMA?
Answer:

Approximately 90% of the CCMA referrals are dismissal related.

Question: Does the CCMA allow legal representation and would the policy pay?
Answer:
  • Generally the CCMA does not allow lawyers, since the intention is to keep the process inexpensive and reasonably informal. However on complex matters lawyers might be allowed.
  • Employers are however allowed to bring representatives of employers organisations to represent them (in much the same way that employees are allowed to have a union representative to represent them).
  • The policy will pay for the costs of the Insured’s legal representation.
Question: What is a Bargaining Council?
Answer:
  • Certain bargaining councils have the status to resolve labour disputes in the same way as the CCMA would.
  • The CCMA does not have jurisdiction to preside over labour disputes in a specific industry if an accredited bargaining council exists.
  • A bargaining council is a body that is established by an employer’s organisation and a union. It must be registered under the LRA for a particular industry. This means that there are restrictions on what kind of dispute a specific bargaining council may hear.
  • Some bargaining councils are only allowed to perform conciliations, others are able to also conduct arbitrations.
Question: What is a default award?
Answer:
  • If one party to the dispute fails to present its arguments, it is common practice to nonetheless proceed with the hearing, usually to their detriment
    • E.g. the employer was absent from the CCMA hearing and as a result an award was made against the employer (despite that the employer may have won had they presented their arguments)
    • A court may award a default judgement against a defendant who fails to submit their arguments countering the allegations made by the plaintiff.
  • Approximately one third of the awards made by the CCMA are default awards.
  • The policy would not cover a default award unless the Insured could show that it did not wilfully ignore the summons or notification.
Question: What is a constructive dismissal?
Answer:
  • A constructive dismissal arises when an employer makes life difficult for the employee to the point where a reasonable employee sees no option but to resign.
  • Although a constructive dismissal is covered, the Insured would need to show that there was no wilful act on his part. (The policy only covers unfair labour practices that were an unintentional mistake.)
Question: Is failure to promote covered? (Advanced answer)
Answer:
  • Yes, if the employee alleges that the Insured failed to promote them because of unfair discrimination, then this would be covered.
  • However the policy only covers punitive damages where they are awarded for an unfair dismissal. This means that if the CCMA, for example, were to draw a distinction between that component of its award which was for punitive damages, as opposed to compensation, then this policy would only pay the compensation portion.
  • It is uncommon for the CCMA, or other arbitrating body to draw such a distinction. For this reason, in most cases, the policy will pay the whole damages award.
Question: Is failure to promote covered? (Quick answer)
Answer:

Yes, if the employee alleges that the Insured failed to promote them because of unfair discrimination, then this would be covered.

Question: EPL on claims-made basis
Answer:

The EPL policy is only available on a claims-made basis and not on a losses-occurring basis. This means that:

  • All events giving rise to a claim must happen on or after the retroactive date and before the end of the period of insurance.
  • The Insured must first become aware of a possible claim during the period of insurance.
Question: Would a D&O policy provide cover for EPL claims?
Answer:
  • A Directors and Officers liability policy provides cover when the directors and managers of the company are sued in their personal capacity.
  • Although a D&O policy does provide cover for unfair labour practices, it does not cover the Insured company, but instead covers the company’s managers and directors for their personal liability.
  • By contrast, the EPL policy provides cover to the insured company.
Question: What are the key exclusions?
Answer:

The following are important exclusions on an EPL policy:

  • Retrenchments. Policy only covers unfair dismissals for misconduct and incapacity.
  • Wilful acts or the failure to follow the labour advisor’s guidance.
  • Salaries/remuneration/taxes etc that would have arisen in the absence of the unfair labour practice.
  • Severance pay which would have been payable had the retrenchment been done properly.
  • Claims arising out of a takeover or merger
  • Claims arising out of industrial action (strikes etc).
  • Costs of modifying property to accommodate disabled persons
  • Professional indemnity. This policy is unsuitable as PI cover if the Insured is a labour law consultant.
Question: What is an Unfair Labour Practice?
Answer:

An unfair labour practice includes:

  • Unfair discrimination based on race, age, pregnancy, gender, language, religion, HIV status, ethnic or social origin, culture, political persuasion, family responsibility, etc
  • Sexual harassment
  • Defamation about an employee’s skills, job performance, qualifications, etc
    • E.g. giving a job reference which an ex-employee disagrees with
  • Unfair dismissal or the refusal to hire
  • Adversely changing an employee’s working conditions
Question: What is Employment Practices Liability insurance? (Overview of cover)
Answer:

An Employment Practices Liability (EPL) policy covers the Insured company against its legal liability for unfair labour practices.

  • It will cover the Insured against awards made by the CCMA, Labour Court, Appeal Court and Bargaining Councils. This includes:
    • Back pay in the event of reinstatement
  • Cover includes legal defence costs which arise from the time the employee notifies the CCMA or Bargaining Council of a dispute.
    • Costs for running the company’s internal disciplinary hearing are not covered.
    • Cover includes the employee’s legal costs should the court make a costs award against the Insured.
  • Cover includes claims by past employees, current employees and job applicants.
  • Includes actions brought by temporary employees and contractors who claim to be employees.
  • Includes cover for out of court settlements (provided the Insurer agrees).