Does Your Organization Need Employment Practices Liability Coverage?

We get the question a lot, mainly for specialty lines of coverage. Is binding Employment Practices Liability (EPL) coverage right for you? Opting to not bind certain specialty lines of coverage to save money, may end up being an even more costly decision in the end.

Small to mid-size organizations might be especially at risk for employment-related litigation due to smaller staff, and a limited HR department (or no HR department at all!). Even the most “iron clad” HR policies and procedures, with the most diligent employment record keeping, cannot stop a disgruntled employee from filing suit. Having the HR “safeguards” in place certainly lends a helping hand, as well as consistent and well documented employment files that can make the largest difference in the event of litigation.

In 2019, the Equal Employment Opportunity Commission (EEOC) had over 70,000 charges for workplace discrimination. Retaliation claims were the largest number of claims filed, accounting for 53.8 percent of all charges filed. The other “top offenders” for EEOC charges were discrimination of disability, race, sex, age, and national origin. Wrongful termination lawsuits have risen over 260 percent in the last 20 years, and 75 percent of EEOC claims were made against small businesses with 50 or fewer employees.

General Liability insurance does not include coverage for these types of employment related claims. If an employee files a claim against your organization and are taken to court, or if you settle outside of court and you don’t carry the appropriate coverage, the defense costs add up fast, and could put you out of business. One in five businesses under 500 employees will face employment charges with an average cost to defend of $125,000. And those are just defense costs, not including any settlement or judgment costs. EPL provides coverage for claims made by employees, former employees, and potential employees alleging discrimination, harassment, wrongful termination, and other employment-related issues.

Here are the top five reasons employees file suit against their employer:

1. Not giving a clear reason for firing an employee (including at-will employees).
2. Firing an employee for bad performance when they have had good performance reviews. This is where documentation of the employment file is crucial!
3. Poor timing – firing an employee who has just filed an internal complaint against the employer or manager.
4. Improper response to an EEOC charge.
5. Failure to follow your own policies. Not abiding by internal training or abiding by the employee handbook and anti-harassment/discrimination policies.

No one ever expects an employee to come after a business legally, and no employee should ever be the victim of discrimination and ridicule, but it is important to be prepared if the unexpected happens. An organization may have the most loyal, tight-knit staff, but organizations still need to manage employment-practices risks (ex. hiring and firing practices, responding to EEOC charges, setting up job descriptions, etc.). There are many reasons an employee might bring suit against your organization, and lawsuits can be financially draining for businesses large and small.

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