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UK Employment Law and the Importance of EPL Insurance

Understand how proposed UK employment law changes impact businesses and learn how EPL insurance can protect against rising employment claims and legal costs.

09/06/2025 · 5 minute read

Introduction

Proposed changes to UK employment law will have considerable impacts on many businesses. However, employment practices liability (EPL) insurance can provide protection for both individuals and employers.

Employment claims in England and Wales — the current position

While some employment claims are brought in the civil courts, most employment claims in England and Wales are brought in the Employment Tribunal (ET), which hears tens of thousands of claims a year. The ET can hear claims related to unfair dismissal, redundancy, pay, discrimination, and whistleblowing but the most common claims are for unfair dismissal and discrimination, which are summarised below.

  • Unfair dismissal
    • There are legal and fair reasons to dismiss someone, including for misconduct, poor performance, or “some other substantial reason”. However, employers need to follow a fair process. 
    • Currently, a claim of unfair dismissal can only be brought by employees with two years’ continuous service.
    • Financial awards for unfair dismissal are capped.
  • Discrimination
    • It is unlawful to directly or indirectly discriminate against, harass, or victimise an employee or potential employee because of a protected characteristic.
    • Employers can be held vicariously liable for one employee discriminating against another employee.
    • Protected characteristics include age, sex, race, sexual orientation, religion, or beliefs (including philosophical beliefs).
    • Claims are still brought by the individual alleging discrimination but financial awards are uncapped, and there is no requirement to have been working for two years.

Some claims settle before reaching trial, but many will be heard in full and ET rulings can be appealed, meaning the whole process can take months or even years. Inevitably, this can lead to unwanted publicity for a business, even if it is ultimately successful, as well as substantial legal costs, which each party will generally have to bear themselves, whatever the outcome.

Summary of proposed changes to UK employment law

The UK government has recently proposed significant changes to employment law, primarily through the Employment Rights Bill. The Bill is currently passing through parliament so may change before it becomes law. It currently includes:

  1. Creating the Fair Work Agency, a new government regulatory authority with the power to investigate and enforce breaches of employment law, and to bring claims in the ET on an employee’s behalf if they chose not to bring a claim. The Fair Work Agency will have a wide remit, ranging from underpayment of holiday pay to modern slavery, and will have the power to issue financial penalties. 
  2. Making unfair dismissal a day one right, removing the requirement for two years’ consecutive service and thereby broadening the number of people who can bring this claim.
  3. Ending or restricting the use of exploitative practices such as zero-hours contracts, the use of agency workers to avoid employment law, and the controversial “fire and rehire” process used by some employers.
  4. Parental and bereavement leave to be now available from day one of employment, and the right to request flexible working from day one has also been strengthened. This means employees will have access to these rights immediately upon starting their job, rather than after a qualifying period.
  5. Removing the lower earnings limit for statutory sick pay making more employees eligible.
  6. Strengthening the recently introduced proactive duty on employers to take “reasonable steps” to prevent sexual harassment of their employees (as a result of the Worker Protection Act 2023, which came into force on 26 October 2024), by requiring them to take “all” reasonable steps. Regulations will, in time, set out what steps are “reasonable” in the eyes of the government.
  7. Requiring employers to have action plans in place to address the gender pay gap and provide support for employees going through the menopause.

These updates are part of a broader effort to improve employment conditions and ensure that workers have access to essential rights and protections from the outset of their employment.

However, they also increase the burden on employers to ensure that their employment practices are fair and defensible, and their policies are up to date and compliant with the new rules. This, in turn, increases the risk of a breach, which could lead to employment claims or regulatory action.

Employment practices liability (EPL) insurance — coverage and current state of the market

In the London market, EPL is perhaps a less popular line of insurance for companies to purchase, unlike in the US, where its use is widespread. However, the risk of employment claims is likely to increase for UK companies as a result of the changes proposed, meaning more companies are now considering EPL to protect their business. 

EPL protects individuals as well as the company itself against losses arising from employment claims. Cover is likely to include the following:

  • Defence costs incurred by the company or its employees in defending an employment claim before the ET or in civil court.
  • Damages awards arising out of an employment claim that is found against the insured.
  • Civil fines and penalties for individuals (where insurable at law).
  • Settlements paid in connection with employment claims, for example as a result of an Advisory, Conciliation and Arbitration Service (ACAS)-mediated resolution to a claim.
  • An individual’s legal fees incurred in responding to an internal investigation related to actual or alleged employment violations.
  • The costs of responding to a regulatory investigation into actual or alleged employment violations.
  • The cost of hiring public relations consultants to mitigate reputational damage.

Note that there will likely be an exclusion for contractual liabilities, so for example, the obligation to pay a salary or benefits under an employment contract. Usually, though, you can still seek cover for defence costs incurred in disputing such contractual liabilities.

There is also likely to be an exclusion for trade union activity, including strikes. This is because insurers consider that these arise out of commercial decisions rather than individual wrongful acts, so it is not for insurers to carry those commercial risks.

Other common exclusions include the standard exclusion for criminal conduct, established at final adjudication, and claims related to physical injury or property damage that more properly belong under a general, employer, public, or products liability policy.

Directors and officers (D&O) liability cover

There may be occasions when the same set of circumstances could trigger cover under both an EPL policy and a D&O policy, and a notification should be made to both policies.

A D&O policy should be notified if there are allegations that a director, officer, or senior manager has acted inappropriately. It should be noted that D&O policies will typically only cover individual directors and officers for EPL claims and there will not be cover for the company itself for EPL claims under a D&O policy. The majority of EPL claims are against the Company (or include the company as a respondent) so this is another reason to consider EPL insurance.

Common pitfalls

One of the most common problems we see with clients claiming under an EPL policy is delay in notifying the claims. EPL is a ‘claims made’ policy, meaning cover is provided for claims made during the policy period and notification of a claim should be made as soon as reasonably practicable after a responsible person becomes aware of the claim.

The nature of employment claims is such that they may initially appear minor and Human Resources (HR) might reasonably believe that they will settle below the policy excess, or might even be unaware that their employer holds EPL policy. Unfortunately, by the time the claim has become sizeable enough to breach the excess and the employer wants to make an EPL claim, insurers might be able to argue that it should have been notified to a previous policy year when a written demand was first received, or that notice was not made within a reasonable time.

EPL claims are often notified on a “bordereau basis”, meaning asking Human Resources to provide a list of all open employment claims they are dealing with. This list should be sent to insurers in good time before the end of each policy period. The bordereau conditions will often be stipulated in the EPL policy itself and sometimes there is a monetary threshold, only requiring notification of claims above a certain amount. If this is the case, it is best to err on the side of caution to avoid omitting any claims that may exceed the retention, allowing insurers to argue late notification.

Conclusion

The new Employment Rights Act will be the biggest upgrade to employment rights for a generation. Changes to UK employment law have the potential to increase the number of claims that employers and their employees are exposed to, whether by creating new rights to be enforced, a new regulator to enforce them, or increasing uncertainty around what is and is not permissible under the new regime. 

Businesses need to review their employment policies to ensure that they are still fit for purpose in the current environment. Mercer is on hand to support businesses in identifying and implementing any necessary changes, offering practical advice and actionable solutions.

EPL insurance provides valuable risk transfer, covering costs, damages and fines in the event of an employment claim. Speak to your Marsh advisor to find out more.

Marsh Delta: EPL Insurance solution

Marsh supports clients to respond to rising levels of employment-related regulation

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Our people

Zelda Pitman

Zelda Pitman

Senior Client Executive, Management Liability

  • United Kingdom

Becky Beasley

Becky Beasley

Client Executive (Management Liability) and Product Development Specialist, FINPRO

  • United Kingdom

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Bianca Hill

Client Executive and EPL Co-Lead, Management Liability, FINPRO

  • United Kingdom

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