Employment Practices Suits Are on the Rise Considerations When Purchasing EPL

Thursday, September 15, 2011—Vol. 10, No. 8
Employment Practices Suits
Are on the Rise
Among the many consequences of the economy’s
continued lack of vibrancy is an increase in the
number of lawsuits related to employment practices.
As employees are laid off or terminated, they often
ask, “Why me?” Sometimes they come to the
conclusion that they have been wrongfully
discriminated against, and they decide to sue the
employer. And as the number of charges against
employers increases, workers become more aware of
the existence of prohibited employment policies and
practices. That, in turn, increases the likelihood of an
employer being sued.
Employees who believe that a federal law prohibiting
employment discrimination has been broken can file
a charge with the U.S. Equal Employment
Opportunity Commission (EEOC). They must take
this step before they can file a job discrimination
lawsuit against the employer.
“The number of charges filed with the EEOC has
jumped dramatically in recent years (see chart), and
the state of the economy is the main reason,” says
David Hartnell, executive risk consultant, Associated
Financial Group. “The number of lawsuits filed
against employers is generally a certain percentage
of the number of EEOC charges filed, so that’s a
good indicator of the problem employers face.”
“And lawsuits are just a small fraction of the trouble
employers are facing,” says James Olney, JD,
Associated Financial Group. “The EEOC totals
understate the actual number of employmentpractices cases because the tallies don't include outof-court settlements.”
EPL Insurance Can Save the Day
Employers can protect their businesses with
employment practices liability (EPL) insurance.
“Every employer should consider it,” Hartnell says.
More than 40 percent of all employment practices
claims are filed against employers who have between
15 and 100 employees, according to the EEOC.
Businesses this size may be more vulnerable
because they often lack the dedicated human
resources professionals and formalized employment
practices that larger firms have.
Considerations When Purchasing EPL
It’s important to understand exactly what an
employment practices liability (EPL) policy covers
before purchasing it. Find out what kind of claims will
be covered and which won’t. Look at the policy limits
and deductibles.
Find out whether there is a “duty to defend” clause.
“That means that the insurance company must
defend your business regardless of whether it
considers the claim meritless or groundless,”
explains David Hartnell, executive risk consultant,
Associated Financial Group.
Number of Discrimination Charges
Filed with EEOC
FY 1997
80,680
FY 1998
79,591
FY 1999
77,444
FY 2000
79,896
FY 2001
80,840
FY2002
84,442
FY 2003
81,293
FY 2004
79,732
FY 2005
75,428
FY 2006
75,768
FY 2007
82,792
FY 2008
95,402
FY 2009
93,277
FY 2010
99,922
Source: U.S. Equal Employment Opportunity Commission Charge
Statistics, www.eeoc.gov.
Copyright© 2011 by Associated Financial Group, LLC. All rights reserved.
Employee Benefits. Insurance. HR Solutions.
www.associatedfinancialgroup.com
Thursday, September 15, 2011—Vol. 10, No. 8
“Not having EPL coverage could potentially cripple a
company financially,” Hartnell continues. “Claims
involving no damages—that are just defense of the
claim—average about $25,000 to $50,000. And
claims with damages are now likely to be more than
$100,000, on average.”
•
Distribute an employee handbook that
contains the firm’s equal employment
opportunity policy. It should also spell out
strong anti-harassment and antidiscrimination policies. Post the policies
throughout the workplace, too.
Consider a 35-person company, for example, that
expects continued growth, but has never been sued
by an employee for discrimination in the workplace,
which is the risk that EPL covers. Should the
employer include EPL at this point?
•
Include an anti-retaliation provision. The
number of retaliation claims, which hovered
around 25 percent of all charges filed with
EEOC for many years, has recently
increased. In 2009 and 2010, they made up
31 percent of all charges.*
•
Train supervisors in human relations
procedures and policies, such as procedures
for terminating an employee.
•
Outline steps employees should take if they
believe they’ve been subjected to
harassment or discrimination. If employees
don’t follow the procedure, you may be able
to use that in your defense.
•
Document all the steps your business takes
to prevent and solve employee disputes,
including all correspondence and meetings.
•
If you’re going to purchase an EPL policy,
consult an insurance specialist who is
experienced in that area.
“The informed employer would say ‘yes,’” says Olney,
who is an HR Consultant with AFG. “One lost,
uninsured suit could cripple the cash flow of his
growing $1.8 million company. And that's a risk he's
not prepared to take.”
EPL provides protection for employers against claims
made by employees, former employees or potential
employees. It protects against damages for wrongful
termination, discrimination, unfair hiring and firing
practices, harassment and defamation.
“Of all the types of insurance that businesses
purchase, EPL is the most likely—aside from auto
insurance—to have a claim on it,” Hartnell says. “One
in five businesses will incur a claim within the next
three to five years.”
Some insurance carriers offer EPL insurance as part
of a package of business insurance. “But EPL as part
of a package usually comes with a reduced limit, and
these policies tend not to offer all the specific
coverages that a stand-alone policy would,” Hartnell
says. “My recommendation is to look at individual
coverages as part of an overall management program
that includes directors and officers liability and EPL.”
Protection through Policies and
Procedures
•
Businesses can take steps to protect
themselves from claims, and to lower the
cost of EPL premiums:
•
Create effective hiring and screening
programs to avoid discrimination in hiring.
Find Out More
To learn more about how employment practices
liability insurance can help protect your business, talk
to a business insurance consultant. For more
information, contact Associated Financial Group at
800.258.3190 or [email protected].
* Source: U.S. Equal Employment Opportunity Commission Charge
Statistics, www.eeoc.gov.
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Copyright© 2011 by Associated Financial Group, LLC. All rights reserved.
Employee Benefits. Insurance. HR Solutions.
www.associatedfinancialgroup.com