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. Associated Financial Group's e-Line newsletters are intended to educate and assist our clients, partners and other valid business contacts. Our publications are limited to these contacts, and AFG reserves the right to exclude competitors from subscribing. Registrants must have a valid corporate e-mail address (non-Hotmail, Gmail, or Yahoo) and provide complete registration profile information. Insurance products are offered by licensed agents of Associated Financial Group, LLC. (“AFG”). • Insurance products offered are NOT deposits or obligations of, insured by the FDIC or any agency of the United States • AFG is an affiliate of AB-C.• AB-C and its affiliates do not provide tax, legal or accounting advice. Please consult with your tax, legal or accounting advisors regarding your individual situation. This material is for information solely and should not be construed as tax, legal or accounting advice. Copyright© 2011 by Associated Financial Group, LLC. All rights reserved. Employee Benefits. Insurance. HR Solutions. www.associatedfinancialgroup.com