The number of legal threats and complaints made against UK businesses has more than doubled over the past two years and increased four-fold since 2016, with businesses more likely than ever to face the risk of legal action.
In the past five years, more than half (56 per cent) of all businesses have faced an accusation, claim or allegation of unlawful behaviour – with consistent year-on-year increases since 2016, according to new research byrisk management and insurance brokerage Gallagher, shared with City A.M. today.
Sectors facing the most litigation include IT (72 per cent) and construction (60 per cent), and amongst these the proportion is even higher.
Employees make up the bulk of the accusations (44 per cent), followed by customers (23 per cent), clients (22 per cent) and suppliers (8 per cent), while public sector bodies make up the remaining 3 per cent.
Most common employee disputes
Wrongful dismissal (17 per cent), discrimination (17 per cent), harassment in the workplace (13 per cent) and constructive dismissal (10 per cent) are the most common disputes, with injury, illness or stress as a result of work also on the rise since 2016.
While the economic environment means that disputes of all kinds are being generated, employment litigation is expected to surge later this year after the furlough scheme ends, the researchers found.
Many organisations are likely to face a high volume of redundancy-related claims, as employers make decisions that the furloughing scheme enabled them to defer.
In the past five years, customers were most likely to make a claim as a result of buying faulty products and services (24 per cent), injuring themselves or damaging their property on business premises (23 per cent), having their data breached (18 per cent), alleged professional negligence (18 per cent) and services not provided on time (18 per cent).
Claims relating to data issues have risen the most over the last five years, and Gallagher warned that companies should prepare for an increase in claims this year.
This is due to heightened cyber risks because of increased levels of remote working, reliance on technology and automation, plus a surge in group claims such as high profile cases involving BA and Virgin Media, where customers with a similar complaint group together, the firm explained to City A.M.
Covid-19 has had a significant impact on companies’ abilities to meet their contractual obligations with many supply chains issues.
Six in 10 (59 per cent) businesses took legal action or threatened to take legal action against another business last year as a result of an alleged contractual breach (29 per cent) or because money was owed (23 per cent).
Meanwhile, intellectual property infringement (22 per cent) was another factor driving disputes.
Out of court disputes and insurance settlements
The majority of claims are settled by businesses directly (17 per cent), settled by insurance prior to going to court (15 per cent), or via mediation or alternative dispute resolution (8 per cent).
For close to one in 20 (businesses all it took was an apology, and around one in every 10 claims are withdrawn. Four in 10 claims make it to the courts of which 69 per cent rule in favour of the complainant.
“Litigation is being fuelled, in part, by supply chains, Covid-19 and Brexit but in addition to this, economic downturns also usually produce a boom in disputes,” said Gary Fletcher, south managing director of Gallagher’s Retail Division.
“The situation has created a perfect storm with 64 per cent of organisations expecting business litigation to either remain at the same volume or increase this year,” he added.