In today’s workplace, it’s important for businesses to manage risk, including the potential for lawsuits from the general public, as well as your company’s vendors, customers and even your own workforce. Thankfully, there are ways to protect your business. This article will address the risk of being sued by your own workers.
Employment practices liability (EPL) is an insurance policy specifically designed to protect organizations from claims brought by employees for a variety of workplace situations. EPL insurance can provide coverage for you, as an employer, for suits brought against you by your employees for claims including, but not limited to:
- Discrimination
- Unlawful demotion
- Unlawful termination
- Harassment
- Hostile working environment
- Lack of advancement
- Wage & hour
EPL can also be extended to include harassment and discrimination suits brought against you by someone other than an employee (i.e., EPL including 3rd party coverage, which we will discuss later in this article).
Lawsuits against employers are on the rise. Companies are finding that they are vulnerable from the pre-hire process through the exit interview and beyond — even if the prospective employee was never hired or was with the company for a matter of only a few days.
It can happen to any employer. It could be a joke told in the break room, an employee you had to lay off or fire, or that person you chose not to hire. Every employer can become the target of legal action from past, present and even prospective employees. Even if the claim is groundless or fraudulent, the defense of a suit can be very costly, both financially and through time and resources.
Let’s consider a couple of sample claim scenarios.
Standard EPL
An upfitter is sued by a recently terminated employee, who alleges he was terminated based on his age. The employee states he complained several times to his manager that he felt as though he wasn’t receiving fair treatment or compensation in comparison to his younger fellow employees.
The employer claims the employee was terminated due to his lack of performance and poor attendance. In this case, the insurance company could pay to defend the employer as well as any damages awarded to the employee or settlement to the employee on the employer’s behalf. In many cases, EPL coverage will also pay punitive damages where allowable by law. Even if no award or settlement is made, just the cost of defense can be very high.
EPL including 3rd party coverage
A parts distributor has a full inside sales staff, calling customers all over the United States as well as locally. One of their salesmen has regular contact with a female customer, who feels he repeatedly flirts with her during their sales calls, even suggesting he can give her a break in pricing because he likes her. At one point, he suggests they meet in person, to which she declines. She sues the salesman’s employer for sexual harassment. Under the 3rd party coverage extension, the insurance company could pay to defend the employer, pay any damages awarded or any settlement.
This coverage extension is important to include on your EPL policy because there was coverage provided in this scenario even though the claimant wasn’t an employee.
It is commonly thought that standard general liability or garage liability policies would cover these types of claims. Unfortunately, that is rarely the case, and if coverage is afforded, it’s done so on a limited basis. To insure these exposures, a separate policy likely must be purchased.
To obtain EPL, you must complete an application. The applications are typically brief, and obtaining a quote can be a quick process. The policies are underwritten based on many factors, but primarily_
- How many employees do you have?
- What is your turn-over rate?
- Do you have an employee manual?
- If so, does it include anti-discrimination wording, open-door policy wording, etc?
- Are you expecting any downsizing or growth in the next 12 months?
Remember, actions that qualify as “harassment” or “hostile” are often defined in the courts as whatever the claimant interprets the actions to be. If the employee feels as though they’re being harassed, he or she could have a case against you. This can be a frustrating situation for most employers because they truly care about this issue and diligently strive to keep this kind of behavior out of the workplace. Unfortunately, that’s not always enough.