Limit your employment practices liability

Your company might be a great place to work, but you could still be blindsided by a lawsuit over employment practices. Even if the charges are dismissed, the cost of legal fees, management time, and reputational damage can be staggering, especially for small businesses.

Common incidents and allegations of wrongful employment practices include:

• Discrimination based on age, race, gender, religion, national origin, and other factors
• Sexual and other forms of employee harassment
• Wrongful termination or discipline
• Retaliation
• Breach of employment contract (i.e., oral, written, or implied, including employment handbooks and personnel manuals)
• Failure to employ or promote
• Defamation
• Mismanagement of employee benefit plans
• Privacy violations, including employee medical information governed by the Health Insurance Portability and Accountability Act (HIPAA)
• Violations of the Family and Medical Leave Act

Employment practices liability insurance (EPLI) can help protect your business by mitigating losses from allegations of wrongful acts by directors and officers, management, and employees.

EPLI can be purchased as a stand-alone policy, but it’s typically included as part of a larger management liability policy that also includes directors and officers (D&O) insurance and fiduciary responsibility insurance.

Whether you have five or 500 employees, you need to understand your company’s risk and how to manage it effectively. As your business grows and changes, you should reassess your risk and re-evaluate your EPLI coverage every 2-3 years.

Understand your liability

As a business owner, you’re liable for a wide range of wrongful employment practices. In addition to complaints from current employees, you could face allegations from past and seasonal employees, even claims made by people who sought employment with your company but weren’t hired.

Employment practices liability can also include actions taken by your employees toward a third party—like a vendor or customer—that cause a complaint. For example, let’s say your company manages residential property. If one of your employees makes a decision that directly affects a tenant, it could result in a discrimination claim. You might even be liable for the behavior of your customers or suppliers toward your employees.

If you’re considering acquiring EPLI coverage, you should know that most policies have some exceptions. Actions involving criminal acts, violations of government regulations, computer breaches, and workers compensation aren’t usually covered.

Limit your risk.

While EPLI helps cover you financially in the event allegations are made against you or your company, you’ll still want to avoid claims and lawsuits. The Insurance Information Institute recommends following these steps to minimize the risk of having a complaint filed against you or your business:^{Disclosure 1}

1. Establish clear workplace policies – Clearly articulate your workplace policies and employment practices. Be sure to post them regularly and include them in your employee handbook.
2. Educate management and employees about your code of conduct – Educate management, supervisors, and employees about ethical and legal workplace practices. Offer periodic diversity and cultural sensitivity training.
3. Make smart hiring decisions – Conduct a thorough screening process before hiring new employees to avoid any discriminatory practices.
4. Provide job descriptions – Clearly outline the goals, duties, and expectations of each position.
5. Perform regular employee reviews – Keep written records with your employees’ acknowledgements.
6. Keep documentation on file – Include disciplinary actions, complaints, investigations, and employee responses.

Establish a confidential communication channel—like a hotline or list with names of management to contact—that employees feel comfortable using to report behavior that violates company policy.

Once you’ve obtained EPLI coverage, you’ll have specific incident reporting requirements involving your EPLI carrier. Most policies covering small to mid-sized businesses have a “duty-to-defend” provision that ensures your EPLI carrier will find highly skilled attorneys with experience in employment matters to represent you.