A leading human resources adviser has warned that hundreds of franchisees could be paying for legal fees insurance that is largely worthless if they simply renew their policies this year.

Many franchisees have taken out insurance against the costs of fighting claims at employment tribunals, some as standalone policies and some as “add ons” to employer’s liability or other policies. Insurance companies always write these policies on the basis that they will only cover claims that have more than a 51 per cent prospect of being successfully defended – cases where they believe that the employer has acted incorrectly will not be covered.

Premiums for this type of insurance have historically been set to reflect the large number of ill-conceived or totally spurious employment tribunal claims filed by disgruntled employees.

However, the rules for bringing claims to employment tribunals changed in 2013. It is now a requirement for ex-employees to go through Acas Early Conciliation before they can have a claim heard. They must also pay an upfront fee of £250 when they file the claim and a further £950 before there is a hearing. The effect that this has had on the number of claims being lodged has been dramatic – the overall number has fallen by around 80 per cent.

Peter Abraham of human resource compliance advisers HR4UK said:

“No employee is going to put up over £1,000 of their own money for a tribunal hearing unless they believe they have an exceptionally good chance of winning. The claims that are being filed are therefore those where the initial investigation shows the employer has made some error and is likely to lose.

“These are the very cases that are not covered by the insurers under their 51% chance of success clause.

“Is it worth paying for insurance that is unlikely to cover you should there be a claim? I suspect that most employers would say it was not.

“Also, our experience is that premiums are not being reduced and insurers are creaming in profits on this area of business as many small businesses simply renew a policy without reviewing its costs and benefits.”

Until recently, as part of its services, HR4UK included just such an insurance to cover the costs of fighting employment tribunal claims. Due to the changes that have taken place the firm no longer does so because it sees insufficient benefit to its clients

Peter Abraham said: “We no longer see a need for legal expense insurance to fight employment tribunal claims because the misguided and ridiculous claims that flooded the system in the past are simply no longer there. We have therefore substituted a client service guarantee. Simply follow our system and if you receive a claim we will represent you free, in both Acas Early Conciliation negotiations and at employment tribunals, up to £20,000 per claim. There is no test of your chances of winning and you don’t even have to ring us for advice!”