According to a recent study, more than half of all claims filed for employment-related liabilities are against employers with fewer than 50 employees. Alarmingly, the study also reveals that not even 2 percent of small businesses have employment practices liability insurance (EPLI) coverage.
Employment Claims Can Be Costly
Employment-related claims can be extremely costly, especially in cases that drag on for years. With a slow economy and increasing adoption of worker-friendly laws, these cases are on the rise—in fact, discrimination claims have increased significantly in the last 20 years. According to data from the Equal Employment Opportunity Commission (EEOC), most claims are based on race, sex, age and disability. Many small businesses cannot afford to pay these costs and keep their company afloat.
What are the Risks for Businesses?
From the moment that you start the pre-hiring process until the exit interview, you are vulnerable to an employment-related lawsuit. As a result, your business should take a hard look at whether it can afford to defend itself against alleged wrongful employment practices accusations. If not, there is an insurance solution called employment practices liability that protects against wrongful termination, discrimination or sexual harassment suits from your current, prospective or former employees. This coverage applies to directors, officers and employees, and can sometimes extend to third party liabilities.
Understandably, it can be much more difficult for small businesses to defend themselves against employment-related claims because they tend to have fewer resources and a different work environment. Small businesses are particularly at risk for employment-related claims for the following reasons:
- Many have a minimal staff and lack of in-house counsel and/or full human resources department to rely on
- Overall lack of extensive recordkeeping on employee performance
- More intimate working environments may cause personal rifts during layoffs
Employment Practices Liability Insurance Can Protect You
Fortunately, with employment-based lawsuits on the rise and the economy’s sluggish upward climb, EPLI coverage is becoming more affordable. More insurers are beginning to offer EPLI policies with comprehensive coverage to smaller businesses to protect them in tough times. In fact, EPLI is becoming so important to the success of small businesses that it is being offered at more affordable prices and being tailored specifically for those smaller companies. With the average cost of an employment lawsuit exceeding $270,000, the potential return dwarfs the initial cost of EPLI coverage.
Some of the benefits of Employment Practices Liability Insurance are:
Coverage for Alleged Acts: EPLI insurance not only protects organizations from actual wrongful acts, but alleged acts as well. Specifically, EPLI coverage can safeguard an organization from claims related to discrimination, harassment, retaliation, and wrongful termination.
Timely Responses to Lawsuits: Employees suing their employers is common, and organizations will want to be prepared. This is especially important when you consider that there is no cap on how much a jury can award and that settlements in employment-related cases can easily reach six figures.
Access to Legal Help: Strong EPLI policies provide the insured with access to legal resources. This can prove invaluable if you need advice quickly.
Risk Management Strategies: While employment-related lawsuits can arise at any time, organizations that take the time to implement basic risk controls are better equipped to avoid claims altogether. Many insurance companies provide access to risk management training and human resources consulting. These services can greatly reduce the likelihood that your company is sued by an employee.
Additional Protection for Your Directors and Officers: While directors and officers (D&O) insurance can defend against employment-related lawsuits, dedicated EPLI is necessary for many organizations. Having a policy that provides separate coverage for lawsuits connected to wrongful terminations, discrimination, invasion of privacy and similar employment claims ensures that the limits on your D&O (policy aren’t exhausted unnecessarily.
To learn more about how this Employment Practices Liability Insurance coverage can protect your business, and whether it is the right coverage for your business, contact our Business insurance specialists at Roper Insurance & Financial Services today by email or by telephone at 303-721-1145.