Employment-related lawsuits are a concern for employers of all sizes, especially during times of layoffs or other significant changes to your workforce. As costs for litigation and damage awards climb, experts predict that employment liability will become even more complex. As a result, it is critical for employers to understand their exposures and options to manage the risk effectively.
Strategies to Reduce Your Company’s Exposure
There are two main strategies for managing your employment practices risk:
- Solid human resource practices
- Employment Practices Liability Insurance (EPLI) coverage
Both of these strategies are necessary. The fact is, while solid human resource practices are critical to minimizing your risk, they don’t stop a disgruntled employee from claiming that you did something wrong and filing a lawsuit, which requires that you retain an attorney to defend yourself. Employment Practices Liability Insurance provides you with the legal defense to respond to an allegation and pays sums that may be required to settle the allegation. One of the most important things to understand about employment lawsuits is that, in most cases, you haven’t actually done anything wrong—you didn’t intentionally fire someone for a discriminatory reason or seek to treat someone unfairly. Nevertheless, the employee can allege that you did so, and more often than not your EPLI policy acts primarily as defense coverage so that you can turn it over to the insurance company and let their attorney handle the situation. While catastrophic claims are certainly possible, most times they result in a minor settlement after extended litigation. But without EPLI coverage, even minor employment issues can be damaging to your finances due to the legal fees.
That’s why both risk management strategies are important, and one does not take the place of the other.
Three of the most common employment-related lawsuits today are:
- Wrongful Termination: The discharge of an employee for invalid reasons, including retaliation.
- Discrimination: The denial of equal treatment of workers who are members of a protected class.
- Sexual Harassment: When a worker is subject to unwelcome sexual advances, obscene or offensive remarks, or the failure to stop such behavior.
Employment Practices Liability Insurance works hand-in-hand with your internal employment practices to provide the necessary resources to defend your company against a suit or to pay a claim. To best understand how to cover your employment risk, it’s important to know the potential sources of risk:
- Recruitment practices
- Employment applications
- Employment offers
- Employee orientation
- Annual conduct reviews
- Enforcing performance policies
- Termination
- Improper documentation of any of the above items
Engaging in solid human resources practices is the most important strategy to limit your exposure and reduce your company’s liability. Start by having a well-constructed Employee Handbook with guidelines that are adhered to by everyone in your organization. We can provide assistance in drafting a handbook, but it should be reviewed and approved by your Attorney.
If you don’t currently have Employment Practices Liability Insurance, feel free to reach out to us. We can discuss details and obtain quotes for you.