The number and severity of employment practices claims filed against businesses is increasing, and as an employer, you need to protect yourself or risk costly litigation.
“Companies must adjust their mindset of, ‘We’re a family; my employees won’t sue us,’” says Shane Moran, a vice president at ECBM Insurance Brokers and Consultants. “That just doesn’t hold true anymore.”
To protect yourself, consider Employment Practices Liability Insurance (EPLI), which can provide coverage for claims including wrongful discipline or termination, harassment, discrimination and retaliation.
Smart Business spoke with Moran about how to protect your company from employment practices claims and what to look for in employment practices liability insurance.
What dangers do employment practices claims present to a company?
The company may not be able to survive defending the claim. It’s estimated that an average claim can bankrupt at least 50 percent of small businesses with fewer than 100 employees, especially if that company has not taken the proper steps to transfer that exposure by purchasing an employment practices liability policy.
Monetary costs are obviously a major concern, with attorney fees, judgments and investigators. But on the other side of the coin are the soft costs, which can be much harder to define, which include employee morale, loss of production, and the time and energy of management assisting in the defense of the claim, not to mention the emotional drain.
In many instances, the allegation can make headlines in the local paper, causing the company untold damage to its reputation — whether the allegation is founded or not.
How can the threat of employment practices claims affect the way employers approach personnel issues?
Employment practices claims affect every aspect of human resources and how a company governs itself, from questions to ask on new-hire applications and interviews all the way through potential termination of an employee. Documentation is a key element because every company wants a strong, defensible position in the event of an allegation.
Communication to employees is essential. Any and all changes or updates to company policies and procedures need to be posted and distributed to all employees on an ongoing basis. Make sure that all employees sign off on everything and that a copy of that documentation goes into the employee file.
Most companies should be offering their employees training, not just direct employees but managers and owners, as well. Most insurance carriers that are writing employment practices policies will sponsor training seminars for your managers, which helps them know what to look for to stop a potential claim and what topics to avoid in daily conversations.
In fact, one of the first questions a judge will ask is what proactive training have you provided to train your employees on correct behavior. If you have not done this, you will probably lose the case.
These steps will show that a company has a track record of being preventive in employee disputes, which helps give it a strong, defensible position if a claim is filed.
Is EPL insurance the right solution for every company?
In today’s world, a comprehensive policy is certainly the cornerstone for every company’s overall risk management strategy.
A staggering number of people think the cost of coverage is going to be prohibitive. But insurance carriers offer very broad, inexpensive policies to every business sector, and for most companies, it makes strong business sense to look into these types of policies.
With many carriers, the starting premiums are about $2,500 annually, and the policies cover the cost of defense and judgment. So statistically, the cost of defending the claim is higher than purchasing the policy.
To get started, simply go out and get quotes. Become knowledgeable about it. Once you have the quotes and the indications of premiums, then you can make an informed decision as to whether or not it really is too expensive for you.
Your broker can show you some of the costs to defend a claim. It’s staggering. In most cases, the cost to purchase the policy is much less than the cost of defending the claim.
What should companies look for in EPL insurance?
First, companies need to understand that they have an exposure. Then, ultimately, what are the ramifications for the company if and when that claim comes?
Each company’s human resources department needs to be knowledgeable about the policy terms and conditions. The policy language can vary greatly from one company to another, so understanding what the policy is actually covering — and more specifically, what the policy is excluding — is extremely important.
The HR department, or whoever is handling the policy, needs to work hand-in-hand with their broker because each carrier’s forms can be different. The broker needs to have a good understanding of the coverage so he or she can present the various options to whoever is making that decision.
You need to do a complete and comprehensive review of the various companies, select a limit of liability that is going to cover your exposures and then choose a retention amount based on how comfortable you are with risk. Typically, the higher the deductible amount, the greater the reduction in premium because the company is willing to take on more risk.
Shane Moran is a vice president at ECBM. Reach him at (610) 668-7100 x1237 or [email protected].
