Employment Practices Liability: Is Your Business At Risk For a Lawsuit?

Employment Practices Liability Insurance (EPLI) is insurance that helps protect you against claims from your employees that result from the general conduct of your business.

Are you, the business owner, more likely to be sued by an outsider or by an employee?
The answer in most cases by a significant and growing margin...is an employee.

According to the Equal Employment Opportunity Commission, the average number of Employment Practices Liability (EPLI) cases file per year is a staggering 80,000 cases. According to a recent study, the average payout on an employee-related claim is up over 30% to approximately $180,000.

This new wave of litigation is not limited to large corporations. Mid-sized and small businesses are being devastated by EPL lawsuits. A recent case illustrates the problem.

A jury in Philadelphia decided in favor of a plaintiff who worked at a water treatment company with fifteen employees. The plaintiff was subject to national origin slurs and sued. After only deliberating for a half hour, the jury awarded the plaintiff $200,000 in back pay, $100,000 for emotional distress, and $265,000 for the plaintiff’s attorneys, for a total of $565,000.

Other crazy awards:

- A jury awarded $80.7 million to a UPS female supervisor who alleged a male supervisor poked her breast during an argument.

- A New York jury found that the NBA sexually discriminated when it failed to make a woman a regular season referee, awarding $100,000 in lost wages, and $8 million in punitive damages.

- State Farm settled a sex discrimination class action for $157 million

- Mitsubishi settled two sexual harassment cases arising out of the same incidents for $45 million

- Publix Supermarket announced an $81 million settlement of a sexual harassment lawsuit

Here are only some of the ways that employees can file lawsuits against employers:

1. Wrongful termination of employment
2. Age discrimination
3. Failure to hire or promote
4. Breach of an implied employment contract
5. Negligent hiring or evaluation
6. Sexual or other workplace harassment
7. Retaliatory treatment
8. Infliction of emotional distress
9. Employment related misrepresentation
10. Violation of employment related laws
11. Adverse change in terms of employment
12. Wrongful reference (deprivation of career opportunity)
13. Failure to grant tenure
14. Invasion of privacy
15. Libel, slander or defamation

Businesses are being destroyed by employee lawsuits. The cost to employers includes defense costs and payment of damages. A business has to defend itself in a lawsuit whether or not there is ever a judgment awarded. It can cost thousands of dollars to simply respond to an EEOC charge without any lawsuit.

How You Can Protect Your Business

The best way to protect your business is by creating an Employee Handbook.

Take the time to create employment policies and procedures for your company. The very act of researching and writing down your procedures will enable you to evaluate how you run your business. Once you have written procedures in place and you take care to enforce those procedures, you can better defend your company against employee allegations and lawsuits.

Define hiring processes, and create checklists for the entire hiring process to make sure all laws and procedures are followed.

Define the employee disciplinary and/or termination procedures.

Once you have written the employee handbook, have your attorney review it before it is published.

Once it’s published, meet with every employee, either individually or as a group, and go over the handbook in detail. Require each employee to sign off, indicating that they have received a copy and had the Employee Handbook explained to the employee.

Then, take care to strictly enforce the employment procedures in the law and in your Employee Handbook. That also means that you must train your management team to follow the Employee Handbook procedures.

Insist on an exit interview for every employee laid off or terminated. At that interview, review all issues and have the employee sign off, saying that the issues have been explained, regardless of whether the employee agrees or not.

Finally, business should purchase Employment Practices Liability Insurance. EPLI policies typically cover claims of wrongful discharge, workplace harassment and discrimination. Key elements of coverage for an EPLI policy include defense costs for the business as well as coverage for claims and jury awards.