Importance of effective labour dispute insurance

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This is according to Simon Colman, underwriting executive at Stalker Hutchison Admiral (SHA) Specialist Underwriters, who says when the employment relationship is terminated by the employer the onus is on them to ensure that they have established sound substantive reasons for the dismissal and that they follow proper procedure in administering the action. "A failing in either of these could potentially result in the employee being reinstated with back-pay, or a compensatory award being made against the employer."

In general, these awards are in multiples of the employee's salary and are capped at a maximum of 12 months, says Colman. "In rare cases of more serious offences (called automatically unfair dismissals, such as terminating someone's employment whilst on maternity leave) the cap is raised to 24 months."

Free resource

Due to the fact that the CCMA is a free resource to employees, one often finds that a case where the dismissal was more than justified (in a fraud or theft case for instance) is still reported to the CCMA, with the aggrieved employee simply angling for a settlement and hoping the employer will back down because of the inconvenience associated with the process.

"Even an award that does not reach the maximum can deal a severe financial blow to a business, particularly in the small to medium enterprise sector," says Colman.

He says employment practices liability (EPL) is the only form of labour dispute insurance available to employers. "It is designed to respond to labour disputes which are reported to the courts, CCMA or Bargaining Councils by employees who allege that they have been unfairly dismissed, discriminated against or even sexually harassed."

However, it is important to note that EPL cover is not there to enable employers to avoid their obligations under the law, but rather to remove the uncertainty of the decision-making process at the various dispute resolution forums, he says. "The policy does not condone mistreatment of employees and in fact does not respond at all to deliberately malicious acts on the company's part."

Aspects covered

"The EPL policy covers the legal defence costs of the business and in some instances the costs of private arbitration, as well as the awards or settlements. Settlement is the preferred outcome of dispute resolution at the CCMA although it is not always practical, particularly if the employer has not done anything wrong. If an employee is reinstated, then the back-pay from the date of the dismissal to the date of reinstatement is also covered," says Colman.

The main pieces of legislation governing the labour environment are the Labour Relations Act and the Employment Equity Act, which deal with the protection and treatment of employees, he says. "The CCMA and the Labour Court, as well as the various Bargaining Councils, function within this legal framework and are empowered to make awards where there have been transgressions or breaches in the workplace. A well-structured EPL policy can assist the business in complying with legislation and making sure that awards and settlements do not adversely affect the long-term sustainability of the business," he concludes.