I’ve always thought Employment Practices Liability Insurance (“EPLI”) is one of the most useful products a company can buy. Because there are always claims. By the same token therefore it can be a headache for the insurance market to provide, without structuring the terms, limits and retentions right. Also, there are not so many “EPLI specialists” out there – typically EPLI (like PTL and Commercial Crime) is bolted onto the workloads for D&O brokers and underwriters. Being uncertain of how to effectively manage the undoubted exposures is a deterrent to providing the product.

 

Maybe, then, there’s an opportunity to review the market’s understanding of UK EPLI around the corner – a shake-up of employment rights law in the UK under the guise of the Employment Rights Bill 2025 (“the Bill”).

 

The Bill, which is currently working its way through the UK Parliament, is described in the Department for Business & Trade “Factsheet: Employment Rights Bill – Overview” as the “biggest upgrade in employment rights for a generation”, and has the potential to introduce significant shifts in exposure for practitioners of EPLI, D&O, and Management Liability Packages (MLPs) to get to grips with. Whilst this is manifestly a UK shift, it will affect any UK or international insurer underwriting risks that include UK-based employees.

 

Many of its provisions expand private employment rights, but its most far-reaching innovation may lie in the proposed Fair Work Agency—a new regulator designed to address a broad range of employment enforcement issues.

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Employment Rights Enforcement: The Fair Work Agency

 

The new Fair Work Agency is expected to proactively investigate and enforce employment rights—which signals a move away from reliance solely on individual employees asserting private rights through employment tribunals and the civil courts. This is to address a long-standing concern: that existing mechanisms are insufficient to tackle endemic and structural issues in the world of work. An area of focus is likely to be pay and holiday entitlement.

 

Take the Gender Pay Gap. There is currently still a gap between what men and women are paid in the UK. Firms with more than 250 employees have to report their gender pay gap figures to the government and publish them annually on their website. That’s it. Whilst this mechanism provides some incentive for employers to address the issue the gap is still there and has only been reducing slowly.

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A similar system for ethnicity and disability pay gaps is also being considered right now as part of the Equality (Race and Disability) Bill.

 

The Fair Work Agency in the future might decide to look at all this and say – it’s time for quicker progress on pay gaps, and target firms whose figures are persistently sluggish.

 

We have an active “self-report” regime among UK regulators. Will systemic employment failings be subject to this once the Agency is live – so companies will make a self-report of a nature contemplated in D&O policies?

 

Where to find the Investigations Coverage?

Where would coverage for these investigations lie, if any? EPLI products typically provide only limited cover for regulatory investigations, particularly where the company is the sole target. There is usually some cover for individuals. D&O policies will provide investigation coverage for senior individuals in respect of any investigations. Employment practices exposures are usually expressly excluded under other common products such as CLL, PI, EL and PL.

 

If the Fair Work Agency targets senior executives, whether for failure to oversee fair treatment policies or for permitting non-compliant practices, it is D&O policies not EPLI policies that will likely be first responders. Practitioners should consider if this is where they want employment investigations to sit.

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The elephant in the room is of course entity investigations cover.

 

This is not generally provided in D&O or EPLI. It seems to me that providing any entity investigations under a D&O policy is a stretch – the policy is there to protect individuals first and foremost. However, where both entity and individuals are implicated then it makes sense to cover both under one policy, so the question would be: D&O or EPLI? In my view, employment related entity (only) investigations, if anywhere, should be covered firmly under the EPLI.

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What about Regulatory Claims?

In addition to investigations, we would need to look at claims – the Fair Work Agency will of course have enforcement powers.

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It is proposed that the Agency will have the power to investigate a wide range of labour abuse cases, issue penalties and bring cases to an employment tribunal where it considers the affected employees aren’t going to – so the regulator will bring group claims. These latter claims are not “regulatory enforcement” claims as such, just the regulator doing the heavy lifting for individuals. Group actions in employment cases are of course not unknown, but are likely to be more reliably brought and potentially harder to settle when a regulator is behind them. Government agencies are not known for being well-funded, but conversely, they do not have the same commercial pressures as public or privately owned companies.

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For regulatory enforcement claims against individuals, the D&O policy would also be expected to respond (although whether the Agency would bring proceedings against individuals seems very unclear at this point), but against the entity there would be no D&O coverage: the only entity claim coverage in a D&O policy is for securities claims. Regulatory enforcement claims against the company can be covered under EPLI policies, full limit. The frequency of these in the UK is currently very low – for the reasons mentioned above. With the arrival of the new Agency this will need to be rethought.

 

Staying on enforcement, penalties are, in general, only covered where insurable as a matter of law and it seems unlikely the position on this will change.

 

Likely New Employment Protections

Aside from regulatory, there are a lot of other changes to employment rights themselves. They will affect the frequency and severity of claims.

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The Bill introduces a comprehensive package of new protections aimed at strengthening workers' rights, making it easier to bring claims, and reducing the prevalence of workplace exploitation and non-compliance. Claims could be brought by the affected employees or by the Agency. They are likely to include:

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1. Right to predictable working hours

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A statutory right to request a predictable working pattern is likely to be extended to all workers, including those on zero-hours contracts. After a statutory probationary period of service, eligible workers will be entitled to request regular hours, with employers required to consider such requests reasonably and respond within a defined timeframe.

 

2. Strengthened protections against Unfair Dismissal

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The qualifying period for unfair dismissal claims is expected to be reduced from the current two-year period and the cap on unfair dismissal awards removed. This expands the potential claimant pool, may well increase the volume of claims brought before employment tribunals and will likely also increase the average value of awards. The time for bringing a claim is also being increased from three to six months from dismissal, which may increase the volume of claims.

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3. Day-one rights for Statutory Sick Pay and Parental Leave

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The Bill removes the requirement for a minimum earnings threshold and 4-day qualifying period for statutory sick pay (SSP) and introduces day-one eligibility for parental leave entitlements. Employers will have to maintain accurate payroll and absence records to mitigate risks of inadvertent non-compliance.

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4. Enhanced protections against workplace harassment

 

Employers will face a new statutory duty to take “all reasonable steps” to prevent sexual harassment in the workplace, an extension of the protections already provided under existing legislation to take “reasonable steps”. It also proposes an obligation on employers to not permit harassment of their employees by third parties. This is new and may be an opportunity for the insurance practitioner to consider from a product perspective.

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5. Modernised trade union legislation

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Trade unions will be given greater freedoms to organise, represent and negotiate on behalf of their members, with the repeal of certain legislation introduced by previous governments and new rights introduced. At the moment I can’t see a direct EPLI product angle for this.

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So, increased frequency and severity seems to be the order of the day.

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Also, the scope of the legislation is being developed to prevent companies from cynically exploiting territorial loopholes - such as the one infamously deployed by P&O.

 

EPLI Product Considerations

It seems likely the scope for both D&O and EPLI policies to be triggered by employment related matters will be greater once the new law comes in.

 

In the UK market, EPLI cover is typically provided by standalone EPL policies or as part of an MLP. EPLI covers the entity and any individuals caught up in employment claims. However, directors and officers are also covered for employment claims under the D&O policy as such claims are a “Claim for a Wrongful Act”.

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When deciding how to protect companies, insurance practitioners should be thinking about:

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• How the policies respond in cases where both the entity and an individual or just individuals or just the entity are named in civil cases (especially in discrimination or whistleblowing claims);

• Whether any cover is available or explicitly provided for the costs associated with internal employment investigations, which frequently precede external action – currently this cover is not routinely given in EPLI but if the process constitutes a “pre-claim inquiry” involving senior individuals, would be under a D&O policy;

• How mass employment-related claims brought by a regulator may fall across both EPLI and D&O lines (these claims seem more likely to happen after the Bill is passed).

• How employment related self-reports and regulatory investigations should be handled – D&O or EPLI, and who is covered for them.

• Where the Fair Work Agency identifies systemic failings and pursues claims, the interrelationship between D&O and EPLI depending on whether such regulatory claims are essentially civil claims that employees could bring or enforcement actions. For example, defence of directors in allowing such failings to persist would likely fall to D&O, while compensatory elements for affected employees will remain within the EPLI policy.

 

All these questions point to there being a case for a blended product for these scenarios – having the range of coverage features of a D&O policy (and still protecting directors for employment related D&O claims) but tailored for employment related exposures. This would prevent gaps, or overlaps in policies and aggregating limits. The Bill’s focus on systemic employment practice improvements, rather than isolated incidents, may also make it worthwhile to consider a product for “cat claims”, avoiding the attritional losses altogether.

 

The challenge for insurers will be to provide something that’s sustainable which avoids opening a floodgate of cover, particularly for things that insured companies should be addressing themselves.

 

This will require there to be careful controls over the EPLI elements, such as use of sub-limits, and avoiding losses that are inevitable, pre-determined, a cost of complying with the law, pursuant to statute, or deliberate/reckless. Perhaps also a strengthening of the conduct exclusion in the EPLI coverage (if there is one – not all EPLI policies contain a conduct exclusion) to ensure that bad behaviour is not picked up anywhere by insurers.

 

You might say this is already being done – by the MLP. Many private companies purchase MLPs, which are great products. But they are just packaging up existing coverage offerings, not really doing much differently. The Bill is an opportunity to re-think how D&O and EPLI interact given the line between them may be more blurry.

 

Moving Forward

 

The Employment Rights Bill 2025 will probably become law later this year and the Fair Work Agency is likely to land sometime in the latter part of next year.

 

So, there’s still time to think about how you want to approach the changes. In particular the opportunities / challenges will be around:

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• the move towards a more highly regulated approach;

• more collective civil claims, probably by a regulator;

• entity investigations;

• the interaction between D&O and EPLI cover.

 

EPL, D&O, and MLP insurance practitioners – whether based in the UK, or dealing with UK-based employment exposures from overseas – should consider how best to meet these developing exposures. There will be product opportunities (and of course pitfalls) that come with them.

 

If you would like to discuss any aspect of the way your suite of products may respond to the changing legislative environment brought about by the Employment Rights Bill 2025, please do contact Ed Smerdon [click on my name to open up an email to me].

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