Why legal cover from HR providers is bad for small businesses

SignatureMany providers of HR services to small businesses offer some kind of legal insurance or guarantee, usually along the lines of guaranteeing to pay your costs at a tribunal or to represent you themselves at no cost.

Sounds great, right? Peace of mind? Or is it a gimmick…?

Here are some of the problems with services that provide this cover and reasons why you should think very carefully before opting for it:

“Don’t do that”

The focus of the service becomes negative and restraining rather than positive and enabling. The measure of successful performance for the provider is avoiding having to pay out on their guarantee, rather than purely about successful resolution of problems for the client. The easiest way of avoiding claims at all costs is to adopt a- you can’t do that’ approach. Great, it means you are very unlikely to be the subject of a claim, but it also means you are not being provided with advice on actually dealing with your problem. Small businesses need quick resolution of their problems as they can represent an enormous drain if allowed to drag on for ages. Money is tight, there is limited room for adjusting duties, redeployment, long sickness absences or reassigning duties elsewhere while the business has to wait for ages to address an absence or performance problem.

“But the cover gives me peace of mind”

Yes it does in a way. But wouldn’t you rather get peace of mind from confidence in your HR provider, a personal relationship with them and the knowledge that their interests are aligned with yours?

Big HR providers using an anonymous helpline have to offer legal cover really, as they don’t have much else to offer that gives peace of mind; no personal relationship and generic advice only. But if you want an HR advisor who knows you and your business, you want someone who doesn’t need to offer legal cover in order to get clients.

You want someone who can demonstrate an excellent track record of successfully resolving difficult employment problems without legal claims, who provides high quality advice, and is confident enough in their own knowledge and abilities to know they can avoid legal claims and help you resolve your issues and develop your business. If your discussions with your HR provider don’t leave you with full peace of mind that you won’t get into trouble; if you feel you need legal cover as well, then you need a new provider.

In any case an independent provider will have professional indemnity insurance meaning that if their advice leads to losses on your part and a legal claim against you, you will be able to claim against them.

Is the advice you are getting truly independent?

If your provider offers legal cover they will have insurance to cover that. But that means they are working for two parties – you as the client and their insurers. Your interests and those of the insurer will almost certain not always be in alignment. Your provider should be free of third party influence and focused purely on helping you address your problem.

“So what happens if I have legal cover and a claim is made against me?”

Yes your legal costs will be covered. But you will lose control over the situation. Your provider will choose the solicitor that will be used, or will do it themselves. They will make the decisions about when/if to settle a claim, and those decisions will be in their interests not necessarily in yours.

“I have legal cover already and I’m scared of changing”

The whole thing becomes a bit of a cycle. You want peace of mind and are aware of looming potential issues so you opt for a provider that offers legal cover. You have a problem so you ring up the helpline. After lots of sucking in of breath in car mechanic style, they tell you you can’t do this you can’t do that or you must take ages doing it. As a result you hesitate to attempt to (for example) dismiss a poor performer, or taking action against excessive sickness absence. You don’t get a legal claim but you still have the problem. When your contract with the provider is up for renewal you still have a problem, are still worried, still feel the need for legal cover so renew with the provider.

But an independent provider offering no legal cover will be free to advise you on different options for resolving your problem, outlining the risks and presenting how to minimise them but leaving the decision on how to proceed entirely up to you. The level of paranoia that often results from time spent with a legal cover provider will lift as your confidence grows that you can actually deal with your problems safely and effectively.

Helpline services

Legal cover often (though not always) comes from a big provider giving advice via a helpline. The staff answering the phone usually know little or nothing about your business. They’ve probably not met you. They have not had several discussions about your problem employee before and therefore do not know all the history. Their goal during the conversation is to answer your query effectively and ensure you are not likely to do anything that may result in their employer having to pay out on its guarantee. They will provide generic advice.

If you think about the same situation if your provider does not offer legal cover, they are usually a small provider where you know your consultant. He or she knows you and understands your business. They’ve probably discussed your problem employee with you before so know all the history. They have the same goal as you which is to resolve your problem quickly and effectively.

Sounds obvious now doesn’t it?