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 [email protected].