Charity Insurance Explained - Employment Practice Liability & Donors

Monday, 22 December 2014, Jon Norman

Charity Insurance Explained - Employment Practice Liability & Donors

As a not-for-profit or Social Enterprise business you try to see the good in everyone.  With this in mind, it’s hard to believe that employees or volunteers would take legal action against you.  Sadly, over the past five to ten years, employment practice liability (EPL) has become one of the largest risks faced by Community Interest Companies or Charities.   As such, it is important that your Charity Insurance policy extends to cover such exposures or you could find yourself with a costly legal bill.

Protect The Bottom Line

While these types of claims hurt any firm’s bottom line, they can be especially detrimental to not-for-profits that rely on donations to make up a large portion of their revenue stream. Donors want their money to be used to help your organisation’s cause, not to pay off mistreated employees. In some cases, donors have actually sued not-for-profits over how their donations were used (Management Liability Insurance). To protect your organisation against potential liability, it is important that you minimise EPL claims while accurately documenting the use of donated funds.

Managing Donations

A large number of Social Enterprises rely heavily on donations to support their operation. To continue to receive this kind of support, not-for-profits need to be careful how they spend donated funds, as donors have become more and more scrutinising of the organisations they give to.

Recently, there has been an increasing trend of donors taking legal action against charities for misuse of donations. Not only is the legal aspect of this expensive, but it also can hamper the ability to build relationships with new donors moving forward. It is therefore extremely important that you record how donated funds are used in case your spending practices are ever called into questions.

Accusations and Management Liability

After all, even an accusation will need to be defended, fortunately, with the support of a specialist Charity Insurer, most cases can be nipped in the bud before matters escalate.  Trustees can also be held personally accountable for their actions, all of which makes Trustees Indemnity and Management Liability Insurance even more critical.

Employment Practice Claims Can Increase Management Liability losses

In situations involving EPL claims, donated funds must be properly managed to avoid backlash from donors. It should come as no surprise that donors may not be happy if their donations are used to cover part of a payout that results from your organisations poor internal practices. The last thing you want is for a given employee’s legal action to spark litigation from donors. The problem is, not-for-profits that rely heavily on donations may have no other means to cover damages awarded to an employee.  To avoid these complications, it is important to stop EPL claims with good employee practices before they have the chance to turn into legal actions.

Employment Practices

More and more employees are taking legal action against their employers for what they see as discriminatory practices in the workplace. With the potential costs they may bring, an EPL claim can be incredibly damaging to a not-for-profit organisation; especially a small one. Implementing appropriate employment practice standards to stop harassment and discrimination will reduce the chances that an employee can make a successful claim, while also creating a positive atmosphere throughout your organisation.

Start by outlining the kinds of behaviours that will not be tolerated so they are clear to all employees. Define what will constitute harassment and discrimination so it cannot be left up to interpretation after the fact. The standards you develop should apply to every level of employee no matter what position he or she holds. Equal enforcement means that every employee will be treated the same way, reducing the chance that an individual can claim they were singled out. The programme should also encourage communication.

It is much more common for employees who are having problems to seek legal action simply because they do not know what other route to take. Having a programme in place to handle employee concerns can help rectify a situation before it becomes a legal issue. Most importantly, make sure the guidelines you establish are followed. If they are in place but it is widely known that they are not enforced, they will be less effective in preventing claims.

How Does This Impact Volunteers

It’s important to extend these same policies to any volunteers you have working at your organisation. EPL claims made by volunteers is a grey area legally, largely defined by the extent of the volunteer’s involvement with the organisation. While most of the time volunteers have no legal base for a claim, it is still important to treat them with the same respect as any other employee. This creates a positive working environment for those donating their time, but also protects your organisation as incorrect actions of volunteers can potentially lead to claims by paid employees.

An Eye-For-An-Eye

It is also important to note that retaliation comes into play in more than a quarter of all Employment Liability claims. Retaliation can enter when an employee who has brought a claim against their employer then feels that they have been punished in the workplace for their actions. This could take the form of position reassignment, failure to promote or even dismissal. An employee who originally may not have had a strong case could gain ground by showing that their employer retaliated against their initial claim. The addition of a retaliatory claim can increase not only the potential payout to the employee, but also their chance for success.

To protect yourself from further legal action, you must be very careful when dealing with employees who have filed EPL claims. Do not make any rash decisions regarding the employee’s status in your organisation. If the employee must receive disciplinary action for other work issues that are not related to their EPL claim, make sure to accurately document the reasons for the discipline. It is important you can prove that you were not acting in retaliation for their earlier claim. When in doubt, contact a legal professional so they can help you handle the situation in a way that does not invite additional liability.

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About the Author

Jon Norman

Jon Norman

I’m passionate about family, sport, technology and business.

In fact, I have always been fascinated by business, whether it was running the school tuck-shop or my Saturday job in the local store, I was always looking for ways to improve or view things differently.

I have enjoyed an amazing career fast approaching 25 years in the insurance industry, which has given me real insight into the challenges and opportunities faced by SME businesses in today’s ever-evolving marketplace.

I co-founded Insync Insurance, to offer companies a new way to buy and manage their business insurance. A synergy of digital servicing and personal expertise - utilising the latest technology to enhance relationships, not to replace them.