Why Businesses Need Employment Practices Liability InsuranceNovember 25, 2013
Why does my business need Employment Practices Liability Insurance?
No matter how careful you are in the hiring and firing of your future, current, and past employees, your business is at risk for a professional liability lawsuit. These lawsuits can imply anything from wrongful termination and harassment to defamation and discrimination. Something as simple as a misunderstood joke in the lunchroom can lead to thousands of dollars in legal bills. In fact, the claim could be completely fraudulent and still cost your business dearly.
Employment Practices Liability Insurance (EPLI) covers your business, management, and employees in the case of an employee lawsuit. This employee lawsuit does not, however, have to come from someone currently working for you. A past employee may still sue for wrongful termination while that candidate you never even hired can sue for discrimination in the hiring process.
Those who hire internally are not immune to employee lawsuits. You simply cannot predict what a disgruntled employee may do to gain revenge for an act perceived to be wrongful within the employment cycle. Employee lawsuits are on the rise and small businesses make up a significant proportion of those suits. Large corporations tend to have substantial coverage in place whereas small businesses usually don’t have their own legal department, or sometimes even an employee handbook to detail policies and procedures.
Coverage for Employment Practices Liability Insurance
A variety of factors go into determining the cost of insuring your business for Employment Practices Liability Insurance coverage. The number of employees your business has, what your employee turnover rate is like, the risk level assessed for your business, and whether there have been any prior suits brought against your company can all affect your company’s level of coverage. For example, if your business does not have established policies and procedures in place that are also shared with all employees, a higher risk of a claim is present. Thus, your business may require more EPLI coverage in order to be adequately insured.
It is important for your business to first obtain EPLI coverage and then consistently maintain it. Any drops or gaps in coverage could leave your business unprotected. Employment Practices Liability Insurance tends to be written on what is referred to as a “claims-made” basis. This means whatever incident that resulted in the claim must have occurred within the coverage period. If there was no coverage at the time of the incident and it resulted in a claim, your business may be at risk. EPLI coverage could potentially be added to a General Liability Policy, depending on the size of your business.
How to Reduce Employment Practices Liability Risk
Even with adequate EPLI coverage in place, it’s important to lower your employment practices liability risk. Here are a few ways a business might accomplish this:
1. Review Your Employee Applications
Review your employee applications to identify any potentially discriminatory questions. Removing age indicators can help to reduce claims related to age discrimination in your interview or hiring process. This also gives you a chance to verify your employee applications are in-line with current regulations and do not contain any questions that would now be considered illegal. You can also review applications with legal counsel and with your insurance agent to ensure you are not unnecessarily exposing your business to the risk of a claim.
2. “At-Will” Employment
Pennsylvania is an “at-will” employment state, which means employment can be terminated at any time, for any reason. No reason needs to be provided and no notice has to be given. This, alone, helps to protect businesses operating within the state from employee lawsuits. Including a statement on all employment applications that employment is “at-will” along with an equal opportunity statement helps to further reduce the risk of a claim.
3. Develop an Employee Handbook
A good employee handbook documents your company’s procedures and policies. It should clearly define what is expected of employees in the workplace and define all policies related to attendance, discipline, complaints, and general conduct. Sometimes simply having what is expected and what is not considered acceptable defined in a handbook and made available to employees can reduce your company’s risk of a claim.
4. Job Descriptions and Performance Reviews
Defining clear job descriptions for each position that lay out expectations of both skills and performance can help protect your business. It also can help reduce the number of unsuitable candidates applying for the position; thus, reducing how many of them enter the interview process and, as a result, potentially reducing your company’s risk of an incident that could result in a claim.
Once an employee is hired, regular performance reviews can also help to reduce risk. Make sure you carefully note results of each review in the employee’s file. Usually, a synopsis of the review signed by both the reviewer and the employee is a good way to accomplish this. Not only can you reduce your company’s risk for a claim, but you may also increase the efficiency and productivity of employees as well.
Any business with employees is vulnerable, especially new or small businesses that have yet to put in place policies concerning the hiring, firing, or disciplining of employees. The fact is, as soon as you interview or hire your first employee your business needs to be protected.
An experienced insurance agent can help determine how much coverage your business needs as well as identify specific ways you can lower the risk of a claim. Call Ruhl Insurance at (717) 665-2283 today for a free consultation!
Disclaimer: Information and claims presented in this content are meant for informative, illustrative purposes and should not be considered legally binding.