For years, Employment Practices Liability insurance (“EPL”) has sat slightly awkwardly in the UK management liability landscape. It is undoubtedly one of the most useful products a company can buy—because employment claims, meritorious or not, are almost inevitable for companies — but it is also one of the most difficult to underwrite sustainably. Coverage is often bolted on to D&O programmes or Management Liability Packages, handled by non-specialists, and characterised by “hard market” wordings.

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The Employment Rights Act 2025, which received Royal Assent on 18 December 2025, and the creation of the Fair Work Agency (“FWA”), may be the catalyst that finally forces a structural rethink of EPL coverage in the UK.

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We looked at what the Employment Rights Bill might forhold for the market exactly a year ago in April 2025. (You can read that article here). Now the FWA has started work – it began operations on 7th April 2026 – I’m taking a look at why this Agency matters so much for those managing employment-related risks, and where existing EPL wordings may need some fresh thinking to remain relevant. With its Policy Statement now published, we have a much better understanding of how it will work and what the implications for the insurance market might be.

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What has the Employment Rights Act changed?

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At a high level, the Employment Rights Act is very likely to expand both the frequency and severity of civil employment claims. Changes such as:

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• The extension of tribunal limitation periods from three to six months later this year;

• Reduction of qualifying periods for ordinary unfair dismissal from 2 years to 6 months (from 2027); 

• The addition of new “dayone” statutory rights (no qualifying period) – in force now; and

• Enhanced harassment obligations (including harassment by third parties):

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A. whistleblowing sexual harassment in the workplace has become a protected disclosure – in force now; 

B. duty to “take all reasonable steps” to prevent sexual harassment – comes in later this year; and

C. employer liability for harassment by clients and trading partners – comes in later this year; 

 

will almost inevitably increase civil claim volumes – hopefully the tribunals are equipped to deal with that! 

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From an insurance perspective, the more profound issue for practitioners to grapple with is how the nature of claims will change. The Fair Work Agency introduces:

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• Investigations of and penalties for both entities and individuals;

• The right for it to bring Employment Tribunal claims on behalf of employees;

• civil penalties, not just compensatory awards; and

• Regulatory scrutiny of governance and systems, not isolated acts.

 

These exposures do not currently sit comfortably within traditional EPL or D&O insurance frameworks. Indeed, they quite conceivably could create scenarios that either fall into gaps between traditional D&O and EPL products or even trigger potential ‘contribution’ or aggregation situations with both policies being exposed to some degree.

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From private enforcement to collective regulation

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Historically, UK employment law has relied heavily on private enforcement of employment rights through civil claims brought by employees, often with union backing to help finance the costs and provide expert advice. The state has largely stood back. While regulators existed—the Gangmasters and Labour Abuse Authority, HMRC National Minimum Wage Enforcement teams and others—the system was fragmented, uncoordinated and reactive.

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The FWA changes that model fundamentally. It consolidates the functions of four existing bodies into a single enforcement authority with a broad mandate to investigate, enforce and penalise non-compliance across employment law. 

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Most importantly for the market, the FWA is set up to act proactively. It does not need to wait for civil litigation by a claimant. It can act on its own initiative or following a tip-off. The FWA may:

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• Issue warning letters

• Open civil or criminal investigations;

• Require production of documents and explanations;

• Bring claims on behalf of groups of workers;

• Levy civil penalties for underpayment and non-compliance; 

• Revoke or modify licences;

• Issue prohibition notice orders; 

• “Name and shame” certain offenders eg in relation to minimum wage violations; and

• Refer criminal matters to the Crown Prosecution Service.

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This represents a material shift in exposures. EPL has traditionally been about reacting to civil claims. The FWA introduces a world in which systemic employment practices can be scrutinised and challenged by a regulator with time, persistence and statutory backing. It is a scenario that those involved with D&O risks will understand.

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Main enforcement areas of the Fair Work Agency

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The FWA won’t be getting involved in all aspects of EPL at least initially, although looking forward a more expanded role cannot be ruled out. The main areas of focus will be:

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1. National Minimum Wage and National Living Wage
   Investigation of underpayment, recordkeeping failures and enforcement through arrears recovery and civil penalties. 

2. Statutory Sick Pay (SSP)
   Enforcement of entitlement, payment errors and compliance following SSP’s expansion under ERA 2025. 

3. Holiday entitlement and holiday pay
   State enforcement of statutory holiday pay (including rolledup holiday pay) and related sixyear recordkeeping obligations. 

4. Employment agency and employment business regulation
   Oversight of agency worker protections and compliance with the Employment Agencies Act framework. 

5. Gangmasters licensing and labour provider standards
   Enforcement of gangmaster licence requirements and licence conditions. 

6. Serious labour exploitation and modern slavery (within labour market enforcement)
   Investigation and enforcement relating to labour exploitation and modern slavery offences within the FWA’s statutory remit. 

7. Enforcement of unpaid Employment Tribunal awards and COT3 settlements
   Use of financial penalties and enforcement powers where tribunal ordered sums are not paid. 

8. Labour market criminal offences linked to employment compliance
   Use of civil and criminal enforcement tools (including undertakings and enforcement orders) for serious noncompliance. 

9. Investigation of systemic payrelated and compliance breaches across workplaces
   Including workplace inspections, document production and coordinated investigations across the above regimes. 

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EPL Investigations: the coverage gap exposed

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One of the clearest pressure points will be investigations coverage. An investigation will normally be regarded as commencing when an FWA Enforcement Officer first contacts a business or individual to make enquiries in relation to suspected non-compliance.

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Most EPL policies provide little or no cover for regulatory investigations. D&O policies, by contrast, have investigations at their core — but for individuals, not entities. 

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This creates an awkward mismatch:

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• The FWA’s first move is likely to be an entity investigation with a letter.

• No individual may be accused of wrongdoing at that stage.

• Investigation costs may be significant and frontloaded.

• Neither an existing EPL nor D&O product may clearly respond.

 

As matters stand, entity investigations are the “elephant in the room” of UK management liability insurance. Providing entity investigation cover under D&O has always been conceptually strained. D&O exists to protect directors and officers, not to act as a general regulatory fund for the cost of doing regulated business.

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If entity investigation cover is to exist for employmentrelated matters, the logical home for it is EPL, not D&O. The launch of the Fair Work Agency now makes that question hard to avoid for D&O and EPL market practitioners.

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Civil enforcement and penalties: what is insurable?

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The FWA has powers to issue civil penalties, particularly in relation to wage underpayment. These can reach up to 200% of the underpayment, capped at £20,000 per worker, with a lookback period of up to six years. For a large employer, the exposure could be significant. The action started under different legislation, but the long-running equal pay dispute brought by Asda employees is exactly the type of situation that would now see the FWA taking a lead role.

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From a coverage perspective, several immediate issues arise:

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1. Will under-payment of wages be insured? Short answer – no. Where the FWA orders “back pay” to be paid by the employer this is never covered under EPL – on the basis the company should not collect under insurance what it was always liable to pay (but failed).

2. Are civil penalties insurable? As ever, civil penalties are generally only insurable where permitted by law. That position is unlikely to change. There are no express prohibitions in the new law that we could see, so the conduct giving rise to the penalty will be the key. 

3. What about defence costs? Even where penalties themselves may be uninsurable, the costs of defending enforcement action may be substantial. With the PR implications of an enforcement action, defence strategy could have a significant bearing on costs exposures too.

4. Early payment discounts and remediation If penalties are reduced for early settlement, as the new law permits, does that affect insurability? Almost certainly not, because there will still be a regulatory determination. But it will affect claims strategy.

5. Aggregation Regulatory investigations running alongside civil claims are likely to aggregate as a “single claim” because they will have the same originating cause. 

6. Name and Shame protection? How can policies provide support to companies fearing a PR disaster around a FWA investigation? Some EPL policies already offer “reputational risk” cover for the costs of using PR consultants but this should perhaps be a core feature going forwards.

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EPL wordings will need to be explicit about how these scenarios are treated. 

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Criminal offences and obstruction risks

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The Employment Rights Act has also introduced certain criminal offences, including offences relating to false documentation and obstruction of investigations. This raises uncomfortable but necessary questions for the management liability market:

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• Criminal proceedings against the entity are usually not covered under EPL policies, but should defence costs for criminal investigations / prosecutions now be offered as standard?

• Is it time to revisit conduct exclusions in EPL? Some policies don’t have one at all!

• Where does EPL stop and D&O begin where both entity and individuals are involved?

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There is of course also the potential overlap with D&O where directors or senior managers are accused of allowing systemic noncompliance to persist. This has always been a D&O exposure. Clear demarcation between policies—or consciously blended solutions—will be essential.

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Collective claims and “cat risk” in EPL

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Another significant development is the likelihood of collective employment claims being brought or supported by the FWA.  Before you get excited this is not going to be a US style opt-out process! 

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Group actions are not new in UK employment law, but regulator backed claims change the dynamics:

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• Settlement leverage shifts when the claim is not union-backed or supported by a legal-expenses insurance policy.

• Litigation may be pursued for policy or political reasons, not commercial ones. The FWA Policy Statement does commit to proportionality, accountability, consistency and transparency, but it is easy to see how a targeted firm might feel the decision was based on wider interests.

• Claims may be harder to close quietly.

• Defence costs are likely to increase exponentially.

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For the market, this raises the prospect of more frequent catastrophic EPL losses, rather than the traditional EPL attritional “high frequency low severity” loss pattern. 

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Existing EPL wordings, with single limits and uniform retentions, may be ill suited to this risk. There is a case for:

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• Separate sublimits for different types of new employment risk (the market tends to go for sub-limited cover when trying out something new to gauge and manage loss deterioration);

• Large retentions to prevent capacity erosion before the cat cover kicks in; and

• Clear aggregation language across limits and deductibles to ensure multiple related claims aggregate as expected.

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This is where EPL as a product may begin to resemble cyber insurance’s journey—from a niche addon to an essential technically sophisticated standalone product that addresses client-based demand driven by a real recognition - and understanding - of the exposures.

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Remedial and compliance costs, and self-correction: drawing the line

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A more controversial issue is likely to be around remedial costs and loss prevention. 

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Where an employer is required to correct systemic underpayment or non compliance, the costs of doing so should not be insured. These are the costs of complying with the law. EPL policies almost always already exclude things like this. 

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But what about:

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• Legal costs incurred in designing remediation programmes?

• Costs of internal investigations to identify the scope of issues?

• Professional fees associated with selfreporting and cooperation?

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My sense is the EPL market will need to get a lot softer before any of these things attract any standard cover – but they may have their place as an optional extra when the assessed risk justifies it. 

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An interesting, and under-discussed, question is whether EPL insurance should respond where an employer identifies non-compliance before enforcement action and seeks to self-correct.

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From a risk management perspective, this is desirable behaviour. From an insurance perspective, covering the costs of identifying and managing self-correction risks turns EPL into a compliance subsidy: another cost of doing business that the insured should shoulder. But giving some limited cover may encourage early action and decrease ultimate loss severity. As with remedial compliance, this kind of thing is already generally not covered as it is the insured’s obligation to mitigate its known exposures. 

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There may be scope for carefully limited, optional conditional cover in this area—through sublimits and tightly defined “mitigation” triggers.

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Employment agencies – a case study in existential risk

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The Act raises specific issues for employment agencies, where the ultimate sanction may be prohibition from operating. This is not just an underlying liability risk; it is an existential one for the organisation. Traditional EPL wordings are unlikely to contemplate such outcomes. Insurers underwriting this sector will need to think carefully about:

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• Defence cost exposure;

• Regulatory investigation cover;

• Overlap with professional indemnity and D&O.

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Niche cover for employment agencies is already available. I said earlier that there will probably need to be more nuanced cover for certain risks and employment agencies sit at the top of the list of firms that will require very specifically tailored coverage.

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Where next for EPL?

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Taken together, the Employment Rights Act and the Fair Work Agency point to a simple conclusion: a half-hearted “one size fits all” EPL offering is no longer likely to be fit for purpose (and won’t be bought by companies who are “up” on the exposures). Insurers, brokers and risk managers should be asking:

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• Should EPL now complete its move out from under the wings of D&O, as cyber once did from professional liability?

• Is there a need for more granular insuring clauses tailored to modern EPL risks?

• Should limits and retentions be used in a more sophisticated way to enable product innovation?

• How should EPL and D&O interact in regulatory scenarios?

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Management Liability Packages may still work for smaller, organisations. But for larger employers, or those in high risk sectors, a more bespoke approach is likely to be required.

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Take-away

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The Fair Work Agency is not just another regulator. It represents a structural shift in how employment law is enforced in the UK. For EPL insurers, it requires practitioners to question longstanding norms in coverage design—particularly around investigations, collective claims and systemic risk.

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There is opportunity here, but also risk. Practitioners who engage thoughtfully with these changes may help shape the next generation of EPL products. Risk Managers who fail to recognise the shifts in exposure may find themselves facing claims of a nature not anticipated by their existing insurance programmes. As ever, brokers sit in the middle seeking to find sensible common ground! Those who fail to adapt may find themselves providing cover they never intended, or with exposures that are not adequately addressed by existing wordings.

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Either way, EPL may be about to come of age. 

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