Sexual Harassment Policies Can Reduce Small Business Liability

Sexual Harassment Policies Can Reduce Small Business Liability

Following the #MeToo movement, awareness of sexual harassment has increased. In addition, many businesses have placed an increased emphasis on sexual harassment policies and training to prevent sexual harassment claims. Unfortunately, this is not necessarily the case in the small business world.

According to the CNBC/SurveyMonkey Small Business Survey of more than 2,000 small business owners, only half of businesses with 5-49 employees had formal sexual harassment policies in place. That number decreased to 39 percent at businesses with less than five employees. That’s a stark contrast to businesses with 50 or more employees, as 85 percent said they had formal sexual harassment policies in place.

Eleven percent of the businesses surveyed said they issued companywide reminders of their sexual harassment policies and reporting procedures as a result of the #MeToo movement and other high-profile sexual harassment accusations. Nine percent said they’ve reviewed policies regarding diversity and gender equality. Seven percent have required new or additional training, and 4 percent have issued new reporting procedures. However, 61 percent of all businesses surveyed did not take any of the above precautions.

Role of HR

Complicating matters for small businesses is that two-thirds of those surveyed lacked an official human resources professional, meaning that the business owner was responsible for handling any harassment claims. Only 3 percent said it was the job of human resources personnel to handle harassment issues and 10 percent said they had no specified way to handle harassment at all. Without a designated, unbiased person to speak to about harassment, employees may be afraid to report it for fear of retaliation.

Protect Your Business

A lack of a formal policy and procedures for handling sexual harassment in the workplace doesn’t mean that a business owner is exempt from liability. Although federal law exempts small businesses with less than 15 employees from the requirement to have a sexual harassment policy, it’s in their best interest to establish one.

Other than the fact that state laws may have smaller thresholds for requiring a formal policy, the financial and reputational costs are too high to risk running a business without one.

According to the Equal Employment Opportunity Commission (EEOC), employers have a duty to investigate sexual harassment complaints and must take actions to prevent the recurrence of such offensive conduct in their workplace. In addition to these actions, an employer should have a sexual harassment policy in place outlining the company’s intolerance for sexual harassment.

Training Can Help Prevent Sexual Harassment IssuesPolicy Considerations

Sexual harassment policies should contain the following items:

  • Make clear what behaviors, both verbal and physical, constitute sexual harassment, and stress that the company has a strict no-tolerance policy.
  • Encourage employees to bring forth claims of harassment so that the company can investigate, take appropriate action and take necessary steps to prevent future harassment.
  • Guidelines for how to report sexual harassment
  • A complaint procedure and a response to the complaints procedure for management personnel

Here are some other things to consider in preventing sexual harassment in the workplace:

  • Provide employees with at least two separate resources for reporting sexual harassment complaints. This protects the employer in case the alleged harasser is the employee’s direct supervisor.
  • Designate a female and male staff member from Human Resources to receive sexual harassment claims, preferably individuals with experience in dealing with discrimination and harassment.
  • Outline in your policy that employees found guilty of sexual harassment will be subject to disciplinary action, including termination. The disciplinary action should eliminate the harassment and should ensure that the victim feels safe once again. In addition, preventive action should be taken to ensure that a recurrence of the harassment does not occur.

Create Strong Sexual Harassment PoliciesCan Insurance Coverage Help with Possible Sexual Harassment Claims?

In addition to providing staff training and creating company policies that ensure a safe work environment for all employees, it is wise to review your insurance coverage should a complaint be filed.  While there is not a specific coverage that would defend a claim of sexual harassment, there are some types of insurance coverage that may be helpful.

Employment Practices Liability Insurance (EPLI)

When it comes to protecting your organization against alleged sexual misconduct claims brought about by employees, EPLI insurance is often the best source of coverage. Specifically, EPLI insurance can provide protection for employment-related misconduct claims.

Most policies cover claims for sexual harassment, wrongful termination, discrimination and retaliation. In some cases, policies can provide coverage for additional employment-related claims, including defamation. EPLI insurance can also protect against claims made by non-employees, like vendors or customers.

It should be noted that EPLI insurance often excludes claims that allege bodily injury. Therefore, in the event that a claimant alleges both verbal and physical harassment, an EPLI policy may only provide partial coverage.

General Liability Insurance

General liability policies are designed to protect businesses from claims related to bodily injury or property damage for which your business is found to be legally liable. In some situations, general liability policies can be used in sexual harassment claims. Specifically, general liability insurance can provide coverage for claims alleging personal injury and defamation, which is useful in some misconduct lawsuits.

Essentially, if an employee alleges he or she was treated unfairly or that you acted illegally, a general liability policy will usually not respond.

Directors and Officers (D&O) Insurance

Most directors and officers are surprised to learn that their own employees are one of the most common sources of D&O claims. In fact, if employees are mistreated during any phase of their employment, they may bring their concerns to the organization’s management team. If employees feel that their concerns have not been addressed in a satisfactory manner, they may seek legal action as a means of resolving their grievances.

Some of the most common employment practices claims against directors and officers include discrimination and sexual harassment.

It’s important to keep in mind that D&O coverage for sexual misconduct claims is ­limited by standard exclusions for bodily injury, which may extend to claims for mental anguish, humiliation and emotional distress, and willful or intentional misconduct.

Crisis Management or Reputation Risk Insurance

In some cases, reputational fallout from a sexual harassment allegation can be more costly than litigation itself. Even if an allegation is handled gracefully, organizations can lose favor in the public eye, sometimes indefinitely.

It should be noted that policy language for crisis management and reputation risk management insurance can vary widely. Depending on the type of coverage purchased, sexual misconduct-related events may or may not be covered, so it’s important to be specific and ask questions during the underwriting process.


Again, no one policy provides organizations with ample protection against sexual misconduct allegations. In order to remain protected, companies need to take a multi-faceted and preventive approach when it comes to protecting their employees from sexual harassment and their business from sexual harassment claims.

To learn more about policies that may protect your company from sexual harassment and other employee issues, contact one of the business insurance specialists at Roper Insurance today online here, or by phone at 303-721-1145.