Risky business

Neglecting to protect yourself with insurance to cover potential employment practice lawsuits is the equivalent of skydiving without
health insurance. With no cushion to break your fall, one wrong move could mean the end. In business, if you don’t have the systems and
training programs in place to identify employment policies and to educate those who work for you, you are setting yourself up for disaster.
“Most employment-related claims are founded in federal laws that impose responsibilities on employers,” says Michael Steiner,
senior vice president for property and casualty insurance, Eastern Region/Sky Insurance.

The difficulty is getting a handle on the broad nature of the risks. Today, discrimination suits top the charts, with more workers than ever filing claims against their employers. Sexual harassment, failure to promote, inappropriate conduct, wrongful termination — the list goes on.

Smart Business asked Steiner for insight on the exposure to employment liability and how to boost your line of defense.

What type of employee practice exposure do employers face daily?

In total, 14 different pieces of federal legislation impact how you deal with employees. These include but are not limited to: the
Consumer Credit Protection Act; the Americans With Disabilities Act; the Federal Military Selective Service Act; and the
Occupational Safety and Health Act.

The claims I see most often are wrongful termination, and one that is creeping up even more frequently is allegations of sexual misconduct. It doesn’t matter how small or large your business is. If you have employees, you are vulnerable.

Are employers aware of their risk to employment practice liability?

We tend to get complacent, and we assume that our employees won’t sue us. Part of this mindset is overconfidence in your perceived loyal staff and part of it is a posture of presuming that we won’t be the ones that get picked on. But across all lines of property and liability insurance, the largest claims I had last year were for wrongful termination allegations. The average cost for a
litigation case that goes to trial is around $250,000 — and many claims stretch even higher.

Are employers always aware of risky situations in their workplaces?

Most sexual misconduct claims are not filed against the owner of the business. The claims are from an employee being
harassed by a supervisor, or an employee being harassed by co-worker. These allegations are often a result of a inadequate
training and are complicated by the absence of a process by which incidents can be reported and evaluated. A situation occurs,
a supervisor ignores it, the harassment escalates, then — boom — the business owner must defend himself against a case he
didn’t know about. The key is defining policies, getting them on paper and training your employees.

How should business owners begin identifying risks for employment practice suits?

Your risk begins before a person even becomes an employee. Every business owner should know the answer to basic but important questions. Do you have a policy addressing pre-employment activities? Do you have an application form that meets the standards of the federal government? Do you have a system for checking references? Do job postings identify that you are an equal-opportunity employer? And last but most important, did you review your policies and forms with your legal counsel?

How should policies be communicated to employees?

All companies should have an employee manual outlining policies for vacations, holidays, sick leave, medical insurance, the hiring process, employee reviews, promotions and so forth. This manual should answer questions that employees might have on a
daily basis. If you purchase employment practice liability insurance, your provider can provide some assistance in determining
the essential elements of an effective manual, but your attorney must give final approval to the document.

What is the first step an employer should take if he or she does not have systems in place or insurance to protect the business against
such claims?

If you haven’t addressed employment practice liability in your business, you need to visit the issue. From a risk management
standpoint, take an inventory of ways you can minimize your exposure internally. Consider insurance coverage so if litigation
occurs, you have coverage for defense and for the potential that an award may be made in favor of claimant.

MICHAEL STEINER, CPCU, CIC, CRM is a senior vice president with Sky Insurance in charge of property and casualty
operations for Eastern Ohio. Reach him at (330) 262-6611 or [email protected].