Many businesses, big and small, like to consider themselves as a family. This is why many employers could never consider that they could be sued by an employee, past, present, or future. However, a study conducted by Trusted Choice shows that over the last 20 years, employee lawsuits have risen 400%, with wrongful termination suits rising 260%. Employee lawsuits are a common form of business-related claims and employment practices liability insurance can help to provide financial protection from a variety of employee claims. Employment practices liability insurance can also aid in defense costs and resources depending on your agency and plan.
Employment practices liability insurance provides protection against many kinds of employee lawsuits, including claims of
- Sexual harassment
- Wrongful termination
- Failure to employ or promote
- Deprivation of career opportunity
- Breach of employment contract
- Wrongful infliction of emotional distress
- Negligent evaluation
Small or new businesses are often the most vulnerable to employment claims. This is because they usually lack a legal department or employee handbook detailing the policies and procedures. However, employers of all types are at risk. Jury awards and settlements can result in hundreds or thousands of dollars and once you add in legal fees, the losses from an employment claim can become very costly.
Most business policies do not cover employee claims. Employment practices liability insurance coverage is usually written on a claim made basis. This means the incident resulting in the claim had to occur during the coverage period. Employment claims can happen months or years after an incident and if your coverage was dropped at all, you could become vulnerable.
The cost to insure your business for employment practices liability insurance coverage depends on many factors such as the number of people you employ, whether you’ve has prior suits lodged against your business, the percentage of employee turnover, and whether you have established rules and practices in place. Depending on the size of your business, employment practices liability insurance can be an endorsement to a business owners policy (BOP) or a general liability policy. A standalone policy can be written in conjunction with a BOP.
You are at risk from the moment you interview a potential employee. For example, if you interview a potential candidate and then choose not to hire them, they could claim some sort of discrimination. You make decisions every day that impact your employees. From hiring to compensation to terminations, each decision that you make can lead to an employee claim if you do not protect yourself and your business.
The following are steps that you can take to protect yourself and your business from employee claims:
- Review potential losses with your insurance agent and look into coverages to protect yourself
- Develop an employee handbook detailing your business’s workplace policies and procedures. This should contain an employment-at-will statement and an equal employment opportunity statement
- Create a job description for each position that clearly defines expectations of skills and performance
- Conduct periodic performance reviews of employees and carefully note that results in each employees file
- Develop a screening and hiring program to weed out unsuitable candidates on paper before calling them to interview in person
- Use an employment application that contains an equal employment opportunity statement along with a statement that if hired employment will be at will
- Conduct background checks on all possible candidates
- Institute a zero-tolerance policy regarding discrimination, substance abuse, and any form of harassment. Make sure to have an open-door policy
- Create an effective record-keeping system to document employee issues as they arise and what the business did to resolve those issues
While it is important to have employment practices liability insurance coverage as well as practices in place to protect your business, it is also important to know the laws that are in place to protect the rights of your employees or potential employees.
Some of the most common laws are as follows and you can get more information about employment laws from the U.S. Equal Employment Opportunity Commission (EEOC).
- Title VII of the Civil Rights Act of 1964, which prohibits discrimination on the basis of race, color, religion, national origin, and sex. It also prohibits sex discrimination on the basis of pregnancy and sexual harassment.
- The Equal Pay Act of 1963, which prohibits employers from paying different wages to men and women who perform essentially the same work under similar working conditions
- The Civil Rights Act of 1966, which prohibits discrimination based on race or ethnic origin
- The Immigration Reform and Control Act of 1986, which prohibits discrimination on the basis of national origin or citizenship of persons who are authorized to work in the United States
- The Americans with Disabilities Act of 1990, which prohibits discrimination against persons with disabilities
- The Bankruptcy Code, which prohibits discrimination against anyone who has declared bankruptcy
- Equal Employment Opportunity Act of 1972, which prohibits discrimination against minorities based on poor credit ratings
- The Age Discrimination in Employment Act, which prohibits discrimination against individuals who are age 40 or older
Every business is at risk of employee claims and it is important to protect yourself and your business from serious and costly losses as the result of an employment lawsuit. Call Gannon Associates Insurance today at 844-GANNONS and speak to an agent to get the discussion started.