Employers’ liability insurance is compulsory for almost every UK franchise that employs staff under a contract of service, and the duty to hold it normally sits with the franchisee as the employing legal entity. The policy must meet a minimum cover level set out in Gov. Franchise structures add a twist: in some arrangements, franchisors can share liability if they exercise enough control over how staff are managed.
What employers’ liability insurance is and the statutory UK requirements
Employers’ liability insurance exists to cover compensation claims from staff injured or made ill because of their work. The duty comes from the Employers’ Liability (Compulsory Insurance) Act 1969, which requires most UK employers to hold a valid policy from the moment they take on staff.
GOV.UK states that employers must get cover as soon as they become an employer, and that the policy should provide at least £5 million of cover, a figure confirmed in its employers’ liability insurance guidance. Many insurers offer £10 million as a standard limit rather than the bare minimum, a point the British Business Bank’s insurance guidance also notes when comparing typical commercial policies.
The HSE’s guide to the 1969 Act (HSE40) sets out who counts as an employer, which businesses are exempt (a narrow category, mostly public bodies and certain family businesses), and how the law is enforced. HSE inspectors can ask any employer to produce evidence of cover, and the legislation creates specific offences for failing to insure.
For a franchisee opening a shop, salon or service outlet, the practical requirements are:
- Buy a policy before the first member of staff starts work, not after.
- Confirm the cover limit meets or exceeds the statutory minimum for every site you operate.
- Check the policy covers every class of worker you employ, including part-time and seasonal staff.
Non-compliance is not a theoretical risk. Under section 5 of the 1969 Act, failing to insure when required is a criminal offence, and the legislation allows for both the business and any officer knowingly involved in the failure to be prosecuted and fined.
Who counts as an employee in a franchise: status, agency workers and joint liability
Whether someone needs to be covered under your employers’ liability policy depends on their employment status, not on what their contract calls them. Acas guidance on agency workers makes clear that tribunals and enforcement bodies look at the reality of the working relationship rather than the label attached to it.
The main tests used to decide status include:
- Control: does the franchise dictate how, when and where the work is done, rather than just the outcome?
- Mutuality of obligation: is there an ongoing expectation of work being offered and accepted?
- Substitution: can the worker send someone else to do the job, or must they do it personally?
- PAYE and National Insurance: is the person paid through payroll with tax deducted at source?
- Equipment and tools: does the franchise provide the uniform, till system or vehicle the person uses?
A worker who satisfies most of these points is very likely an employee for employers’ liability purposes, whatever the paperwork says.
Agency and temporary staff add a layer of complexity. HSE guidance on suppliers and end-user businesses explains that day-to-day health and safety responsibility for agency workers usually sits with the business actually directing their work, even though the agency remains their formal employer. In a franchise, that often means the franchisee carries the practical safety duty for supplied staff even without a direct employment contract.
Joint employer liability becomes a live issue where a franchisor sets detailed operational rules, mandates specific staffing ratios, or gets directly involved in hiring and disciplinary decisions at franchisee sites. The closer the franchisor’s control resembles that of a direct employer, the greater the risk that a tribunal or insurer treats both parties as jointly responsible. This is one reason franchise agreements need to state clearly, in writing, which party is the employer for each category of worker.
What employers’ liability policies cover, exclusions and franchise claims to watch
A standard employers’ liability policy responds to claims from current and former staff for injury or illness caused by their work. That includes:
- Physical injuries from accidents, such as slips, falls or equipment incidents on franchise premises.
- Industrial disease claims, including conditions like hearing loss or repetitive strain injury that develop over years.
- Claims brought by ex-employees long after they have left, sometimes a decade or more later.
- Incidents involving temporary, casual or supplied staff working under the franchisee’s direction.
Keeping old certificates matters more than most franchisees expect, because HSE guidance warns that industrial disease claims can surface years after the exposure that caused them, long after a policy has lapsed or been renewed with a different insurer. Without a certificate trail, proving which insurer was on risk at the relevant time becomes difficult.
Exclusions vary by insurer and policy wording, but common gaps include claims arising from uninsured subcontractors, deliberate breaches of safety law, and, in some policies, certain categories of self-employed contractors who later turn out to be employees in practice. Multi-site franchises face a particular risk: a policy taken out for one location may not automatically extend to a newly opened second site unless the insurer is notified. Training incidents, where a new recruit is injured while shadowing an experienced colleague, are a frequent and often underestimated source of claims in retail and hospitality franchises.
How employers’ liability relates to public liability and EPLI
Employers’ liability, public liability and Employment Practices Liability Insurance (EPLI) cover different risks, and confusing them leaves gaps. The British Business Bank’s guidance on business insurance draws a clear line between employers’ liability and EPLI: EL covers physical injury or disease suffered by staff, while EPLI covers the legal defence costs and compensation linked to employment disputes such as unfair dismissal, discrimination or harassment claims.
Public liability sits alongside both, covering injury or damage to members of the public or customers rather than staff. A few examples make the distinction concrete:
- A customer slipping on a wet floor in a franchise outlet is a public liability matter.
- A staff member injuring their back lifting stock is an employers’ liability matter.
- A former employee alleging unfair dismissal or discrimination is an EPLI matter, not an EL one.
Franchisees often assume employers’ liability covers staff-management disputes simply because it involves employees. It does not. Franchises with higher staff turnover, multiple sites or a history of disciplinary issues should treat EPLI as a genuine consideration rather than an optional extra, particularly where a single tribunal claim could otherwise fall entirely on uninsured legal costs.
Practical checklist: buying compliant cover and keeping records
Getting employers’ liability right is less about the insurance market and more about discipline in how you buy and manage the policy.
- Assess your exposure properly: count every worker, including part-time, seasonal and supplied staff, and factor in the nature of the work (manual handling, machinery, customer-facing roles).
- Match cover to every premises: confirm with your insurer that all current and newly opened sites are included, not just the original location.
- Keep the certificate accessible: employers’ liability certificates should be available to any employee who asks to see one, whether displayed on a noticeboard or held digitally where staff can request a copy.
- Retain historic certificates: hold on to expired certificates and policy schedules, since industrial disease claims can surface long after a policy has ended, as HSE guidance on the 1969 Act highlights.
- Notify your insurer of changes: tell your insurer promptly when you take on supplied or agency labour, expand into a new territory, or vary the terms of your franchise agreement, since any of these can shift where liability actually sits.
A simple record-keeping template, such as a PAT testing register, can be adapted to log safety checks and incidents alongside your insurance paperwork, giving you a single evidence trail if a claim ever arises.
Pro Tip: Set a calendar reminder to review your employers’ liability cover every time you sign a new site lease or take on your first supplied or agency worker.
Common mistakes and governance steps that reduce joint liability
Most employers’ liability problems in franchising trace back to a handful of avoidable errors. Misclassifying workers as self-employed contractors when they are functionally employees is the most common, and Acas guidance is explicit that the label in a contract will not protect an employer if the working reality says otherwise. Relying on a franchise agreement’s wording alone, without checking that day-to-day practice matches it, is another frequent gap. So is failing to manage agency or supplied labour properly, leaving it unclear who is actually responsible for their safety and insurance.
Good governance closes these gaps before they become claims:
- Set out in the franchise agreement, in plain terms, which party employs each category of worker and who insures them.
- Include an insurance schedule naming the minimum cover level, the certificate holder, and the process for handling a claim jointly with the franchisor.
- Build a cooperation protocol with any staffing agencies used, clarifying who handles day-to-day safety supervision.
A franchise compliance checklist can help franchisors and franchisees work through these points systematically, and broader guidance on franchise legal compliance covers related obligations that sit alongside employers’ liability, from TUPE to data protection.
Finding a franchise with clearer employer arrangements
Some franchise models carry far less employment complexity than others, and that is worth weighing up before you buy. Some franchise directories let you filter opportunities by industry, investment level and location, which makes it easier to compare models where staffing is light against those built around larger teams and multiple sites.
Browsing trending franchise opportunities or exploring networking franchises for sale gives you a practical sense of how staffing structures differ across sectors, which in turn shapes how much employer liability exposure you are taking on. Our guide to franchising covers the wider legal and financial groundwork alongside insurance. If you are ready to compare options directly, start with our franchise directory search.
This article is general information, not a substitute for advice from a qualified lawyer. Consult a qualified legal professional about your own circumstances before acting on anything here.
FAQ
Is employer liability insurance mandatory in the UK?
Yes, employers’ liability insurance is a legal requirement for almost every UK business that employs staff, under the Employers’ Liability (Compulsory Insurance) Act 1969. GOV.UK guidance confirms cover should meet at least the minimum limit of £5 million, and failing to hold it is a criminal offence.
Are franchises limited liability?
A franchise’s liability depends on how the franchisee structures the business, for example as a limited company, rather than on the franchise relationship itself. A limited company franchisee generally shields the owner’s personal assets from business debts, but employers’ liability obligations and certain joint liability risks with the franchisor still apply regardless of that structure.
How does a franchise work in the UK?
A UK franchise involves a franchisor licensing its brand, systems and support to a franchisee in exchange for fees, while the franchisee typically runs the day-to-day business, including hiring and managing staff. The degree of control a franchisor retains over staffing and operations can affect who is treated as the employer for liability purposes.
What is an employer’s liability?
Employer’s liability refers to the legal responsibility a business has to compensate staff who are injured or made ill because of their work. In the UK, businesses must insure against this liability, and the policy covers claims from current employees, former employees and, in many cases, agency or temporary staff working under their direction.
Sources
- Employers’ liability insurance
- Employers’ Liability (Compulsory Insurance) Act 1969: A guide for employers HSE40
- Business insurance: the basics | British Business Bank
- Working through an agency – Agency workers – Acas
- Employers’ Liability (Compulsory Insurance) Act 1969 — penalty for failure to insure