In today’s litigious environment, no business is immune from employee lawsuits. Regardless of a company’s size or the sector it operates in, if there are employees on the payroll, then there is the potential to be sued for wrongful employment practices. Possible claims include, but are not limited to, harassment, discrimination and wrongful termination. Defending an employment claim, even if it is groundless or fraudulent, can be prohibitively expensive.
“Employment claims are a reality of the current workplace environment, and there is no way to prevent these claims from being made,” says Linda Pierce, area vice president for Arthur J. Gallagher & Co. “There are ways, however, to reduce the inherent risks and impacts of employment-related claims.”
Smart Business spoke with Pierce about how companies can protect themselves against employment practices claims, the importance of Employment Practices Liability Insurance (EPLI) and how to go about selecting an appropriate coverage.
What kinds of employee lawsuits are most common?
The three most common types of employment claims continue to be harassment, discrimination and retaliation [including wrongful termination]. According to statistics from the Equal Employment Opportunity Commission (EEOC) for the year 2006, the top three bases for alleged discrimination were race, gender and national origin. The EEOC charges filed on behalf of men claiming harassment also saw an increase.
How can a company protect itself against employment practices claims?
All employers should have current policies and procedures in place that adequately reflect legal obligations on the part of the employer as well as expectations the company has of its employees. Employers should also undertake training of human resources staff, management and even rank-and-file employees on issues affecting the workplace. Employment Practices Liability Insurance is also an essential insurance product to have in place in order to lessen the economic impact of employment claims.
What is Employment Practices Liability Insurance?
Employment Practices Liability Insurance is designed to provide coverage for companies and individuals acting on behalf of the company for defense costs and losses including judgment and settlements for employment claims, such as harassment, retaliation, wrongful termination and discrimination. Some EPLI products provide some coverage for claims of harassment and discrimination brought by third parties, such as vendors, customers and clients. Typically, EPLI policies are written on a claims-made or a claims-made-and-reported basis.
What risks can be mitigated by having EPLI in place?
First and foremost, EPLI can mitigate the financial impact of employment claims. Defense fees alone can be devastating to a company’s bottom line. Jury verdicts continue to favor employees, making pretrial settlements more desirable for employers. Employment Practices Liability Insurance is an effective way to manage the uncertainty of financial loss from employment claims that, due to their very nature, cannot be adequately ascertained before they occur.
Secondly, many EPLI products have risk management enhancements that, if used effectively, can reduce the risks of taking employment actions that could result in claims. For example, some risk management enhancements provide access to employment attorneys who can provide guidance to employers in addressing tricky employment situations as they arise.
What considerations should be taken into account when selecting coverage?
Like other insurance products, factors concerning risk shifting and risk retention should be considered. Prospective insureds need to consider what level of retention is realistic to bear and what aggregate limits of liability would adequately protect them in the event of a loss. Other factors, such as the nature of the business, the nature of the work force, the history of employment-related claims and, in the case of third-party coverage, whether the company provides goods or services to the general public, need to be taken into account as well.
How important is it to work with an experienced insurance carrier when selecting EPLI coverage?
It is important to work with an experienced insurance carrier and an experienced broker in selecting EPLI coverage. As with other management liability insurance, terms and conditions of EPLI coverage should be reviewed and negotiated. The particular claims handling of the insurance companies should also be considered in the process of selecting what insurance product best suits the needs of the insured company.
LINDA PIERCE is area vice president for Arthur J. Gallagher & Co. Reach her at (818) 539-1390 or firstname.lastname@example.org.