COVID-19: Management liability

COVID-19: Potential exposures to directors and senior managers

14, May, 2020

Claims culture and worker safety are hitting the headlines with some parts of the UK starting to return to work.   Companies House data in February and March shows the emergence of 45 newly incorporated limited companies that contain the words ‘corona’ or ‘COVID’, with many focusing on compensation.

As a result of COVID-19, business owners have had to be increasingly agile to ensure the continued survival of their businesses, but every decision that you make has the potential to be scrutinised by clients, employees and shareholders.

Employee welfare and perceived dangers

As a director, you will keep the health and safety of your employees at the heart of your decision making.  Understanding risks that are “serious and imminent” would previously have been well-established and documented procedures that would already be in place to reduce potential harm to employee welfare. The emergence of COVID-19, however, requires specific risk management consideration in respect of

The extent to which employees can be expected to bear an increased degree of risk at work because of the pandemic and employers should have to go to protect them from the new danger of COVID-19 is considered in this legal guidance from Gus Baker.

It is important to remember It is the employee’s perception of danger that matters, not the employer’s.

Alteration to contracts of employment

In an effort to ensure business continuity there may be a need to make changes to your employees’ day-to-day work.  This could include.

  • Reducing salaries (furlough or otherwise)
  • Change of work location/hours
  • Change of job role/duties

Before making any decisions, careful consideration is required and the ACAS website will provide invaluable support.

Shareholder and investor relations

The directors and senior management, collectively and individually, could face increased scrutiny in respect of how the business is managed, such as:

  • The government amended the insolvency act to allow businesses to trade insolvently. This is unchartered territory and decision making could be challenged.
  • Shareholders may allege negligence in respect of business continuity planning
  • Investors may argue that disclosures about the impact of the coronavirus on the company were misleading or inadequate

Management Liability (MLP) Insurance

Management Liability is designed to protect directors and senior managers in the event of allegations by employees, shareholders, third parties, and others. It can be extremely costly to defend against allegations, which could put the financial stability of a small business or the personal assets of individual directors at risk.

A Management Liability Insurance package can include cover for the following areas;

  • Directors and Officers Liability. Personal liability for legal costs and awards in defending any civil, criminal, regulatory claim or investigation against directors, officers and senior managers.

and companies in the form of;

  • Employment Practices Liability. Cover for claims from current and former employees alleging a breach of employment law.
  • Corporate Legal Liability. Cover a company’s liability for legal costs and awards in defending any civil, criminal, regulatory claim or investigation.

Claims can be made by suppliers, employees, shareholders, creditors and other stakeholders, so now, more than ever, it is important to have financial protection in place.

If you have any questions or concerns regarding Management Liability, please don’t hesitate to get in touch.

The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of discussions with your own solicitor, accountant and other professional advisors. Information within this publication has been obtained from third-party sources we consider to be reliable, however, we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication.

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