Sexual Harassment in the Workplace – New Laws and the Impact on Directors & Officers Liability Insurance

October 26th saw the introduction of new legislation (The Worker Protection (Amendment of Equality Act 20210) Act 2023) which in consequence obliges Employers to actively prohibit sexual harassment in the workplace. This now places the Employer in the position of having to demonstrate they have taken all reasonable steps to prevent Harassment in the workplace prior to the alleged incident.

This is a shift towards what may be described as a “positive prohibition” – the Employer must take steps that reflect they have positively taken such actions that prohibit (or at least attempt to) harassment in the workplace. In the event an Employer doesn’t take positive steps, can this impact upon a Directors & Officers /Management Liability contracts (“D&O” or “MLP”) and lead to a declinature in policy coverage?

To understand this correctly, it is beneficial to initially consider the current laws.

The Equality Act 2010

In order to understand firstly how this could impact, it is necessary to consider the current law, The Equality Act 2010, until October 26th 2024, the relevant law relating to Harassment allegations.

The purpose of the Act is to protect a wide category of people in employment, including Employees and ex-employees and sets out 9 protected characteristics and 6 types of prohibited forms of discriminating behaviour against an employee. For reference, these are provided separately at the end of this article, which has as its focus the matter of Harassment, being one of those six prohibited behaviours.

What constitutes Harassment?

A general definition may be considered that harassment occurs whereby:-

1. Unwanted conduct has
2. As its purpose or effect
3. The violation of an individuals dignity or the creation of:-   An intimidating, hostile, degrading, humiliating or offensive environment

Unwanted Conduct may be considered inter alia the use of spoken or written words, banter, jokes, facial expressions, imagery (inc. mimicry) physical gestures or more widely an act that may be deemed to affect a persons surroundings or physical behaviour towards a person or property. The conduct may be considered as unwelcome or uninvited and an objection need not be raised for it to be considered unwanted. Additionally, the motive of the harasser is in general considered irrelevant.

It is worth taking into account that the unwanted conduct need not be over a prolonged period of time, and therefore it is possible that a “one-off” event or comment be considered Harassment. Additionally, participation on the part of the victim is not considered a defence to unwanted conduct.

The purpose or effect of the harassment is considered by the Courts as to include the perception of the harassed person, which is subjective, alongside the other circumstances that are relevant to the case and finally whether is reasonable for the conduct to have that effect. In relation to Sexual harassment, we can say that in order satisfies the requirements of the Act, the unwanted conduct must relate to a protected characteristic of a sexual nature with the purpose of violating an individual’s dignity or the creation of an intimidating, hostile, degrading, humiliating or offensive environment.

So what constitutes conduct of a “sexual nature”? This extends to a range of behaviours inter alia:-

• Sexual comments or jokes
• Sexual posts or contact via social media
• The dissemination of sexual rumours about an individual, sexually explicit emails or text messages, unwelcome hugging, massaging or kissing
• Propositions and sexual advances
• Promises in return for sexual favours
• Questions that may be considered intrusive about the private or sex life of an individual
• An individual discussing their own sex life
• Suggestive looks, gestures (inc. staring or leering)

 You should also be aware this extends to the fact that the actions do not have to be directed at the victim themselves, the mere fact they have taken place in the vicinity of an individual has been deemed sufficient by the Courts to be considered sexual harassment.

Who is responsible for Harassment within the workplace?

An act undertaken by the harasser “during the course of their employment” is considered as having been committed by the Employer, whom will not be deemed to have a defence to the allegation due to having no knowledge of the incident(s). “During the course of employment” is not only limited to places of work, but extends to journeys by car/van, WhatsApp Groups created by the employer or by an employee where a manager or officer of the company is included within the group or where this is created and known to the employer. As we approach the Festive period, it should be noted this also extends to Christmas parties (including where these may held outside of the working premises).

What costs may be incurred within an allegation?

This may include possible loss of earnings in circumstances where the victim has been absent as a result of the harassment, along with injury to feelings and aggravated damages. This latter element may be awarded where the conduct is considered to have made the distress worse, for example the result of an attempt to cover up the harassment.

Defending Harassment Claims

Typically, three common defences are raised:-

1. The harassment did not take place
2. It is acknowledged the events occurred but isn’t harassment
3. We took all reasonable steps to prevent this form occurring

It is the third and final defence that is of interest for the purpose of this article. As I have mentioned above, an act undertaken by the harasser “during the course of their employment” is considered as having been committed by the Employer unless they are able to demonstrate they took “all reasonable steps” to prevent the harasser from committing those acts alleged. If the Employer cannot demonstrate they took all reasonable steps prior to the alleged act, it is likely this defence would fail.

At this stage, it is vital to consider what would constitute “reasonable steps”. This should include robust and regularly reviewed policies that are communicated to all employees, alongside tailored training and extra specific training for managers and/or Supervisors, actively considering and implementing employee suggestions and a documented procedure for dealing with complaints.

What are the obligations under the new Act?

Effective October 26th 2024, a more preventative responsibility is imposed upon an Employer, whereby they must take all reasonable steps to prevent sexual harassment of employees within the course of employment, extending further to prevent Third Party sexual harassment. These steps must have been taken prior to the allegation or alleged occurrence – it will not be sufficient to rely upon these steps where it is evident they have been undertaken post occurrence. The Equality and Human Rights Commission has the power to investigate, issue notices and impose fines upon Employers but an employee can bring an claim to the Employment Tribunal and have any award increased by 25% if it is substantiated the employer failed to take reasonable steps.

The scope of what steps an employer should take to comply fall outside of realms of an insurance advisor, an employer should consider if failing to take such steps may have consequences under any Directors & Officers Liability policy that is arranged.

Directors & Officers Liability – Employment Claims

Employment related claims may form part of the cover under D&O/MLP contracts, assuming the contract extends to cover by Endorsement where not automatically included within the contact wording provided by the participating Insurer, under a heading such as “Employment Practices Violations” or “Employment Practice Wrongful Act” and is typically contained within the “Definitions” sections of the policy wording.

Additionally, you may also find this is specifically referred to within the definition of “Wrongful Act” which is then again stated within the Insuring Clause itself. For the purposes of this document, I shall not provide commentary on the applicability of coverage for the entity as either joint or sole defendant.

The impact of the new Act on D&O/MLP insurance

As part of the claim notification, Insured parties would be best advised to provide from the outset of notification all necessary documentary evidence that demonstrates those steps taken to prohibit the occurrence of harassment in the working environment. Where no such evidence is available, due to for example this not having been undertaken, it is inevitable the possibility of defending any claim is greatly reduced and therefore leaves the Employer in the position of needing to rely upon the insurance contract arranged for indemnity.

Where an Employer has knowingly or deliberately failed to take preventative steps to minimise their employees to harassment in accordance with the new obligations, Could an insurer decline Liability?

It is unlikely that upon an initial notification an Insurer would decline such a claim, given the contract wording should extend to cover for any actual or alleged harassment where committed intentionally or unintentionally.

However, you should be aware that awards for “emotional distress” or “mental anguish” would not be subject to policy cover given their very definition as “bodily injury” with most insurers – despite this forming part of any potential award made. If an Employer has failed to take reasonable steps it may well find a proportion of any award uninsured, and leaving the Employer to self-fund this element.

Additionally, an Insurer would most likely look at the subsequent renewal to impose some form of Endorsement limiting policy coverage or the imposition of an increased Excess applicable (see below) where an Employer has knowingly failed to take preventive action and having been the subject of a claim previously under the contract.

Going forward, it is possible that insurers may eventually look to include a form of “conduct” clause whereby cover for the deliberate or known failure to comply with the new Act may be limited or excluded altogether. This could be seen as somewhat draconian given the purpose of providing cover for Employment related claims within the contract wording currently, however, should Insurers see increased claims, this may well be a possibility and should not be dismissed.

Regardless, it is inevitable an Excess will apply under the contract for such losses which will impact upon the Employer’s financial position at the outset of the claim notification, and at the second level have a further detrimental impact upon those premiums payable at subsequent renewal dates.

Given the application by Insurers in recent times to increase contributable amounts (Excess’s applicable) due to the increased costs of defending such Claims, although some stability has returned in this respect, it is likely that given the apparent ease of which claims are raised and will now inevitably materialise, a return to sizeable Excesses may re-appear somewhat sooner than an insured party had anticipated.

The placing upon the Employer to actively take reasonable steps does place, inevitably, more responsibility upon Employers, which may incur costs, but compliance with this will help to actively minimise the potential financial impact from awards and from punitive increases in D&O/MLP premiums.

To learn more how our program of active management of your insurance program can benefit your Company, please contact us at:- [email protected] or if you prefer to speak to us, by calling:- 0203 740 8438

Anthony S. Weyell DipEnglaw, CertSocSci
CEO

Useful Links:

Government Press release relating to the new laws:
https://www.gov.uk/government/news/new-protections-from-sexual-harassment-come-into-force

Equality & Human rights Commission – specific to the Sexual harassment and the new Laws:
https://www.equalityhumanrights.com/guidance/sexual-harassment-and-harassment-work-technical-guidance

References:

1. Source: Quarterly Tribunal Statistics April 2023-March 2024 – Ministry of Justice; Publication Date – October 03^rd 2024:
https://data.justice.gov.uk/courts/tribunals#chart-tab-courts-tribunals-employment-single