Employment Practices Liability Policy: A Necessity During a Pandemic

 

Most people start a business to fuel a passion and make money. In normal times, it's hard enough accomplishing the goals you set out to do every day.  Now, layer in the added challenge of operating during a pandemic. Business owners are grappling with shutdowns, remote working, furloughs, layoffs, terminations, quarantining after vacations to red zones, FMLA, PPP...dare I say...masks.

 

While the decisions to the above actions are made by businessowners, staff are undoubtedly impacted.  Some employers treat their employees as valued team members of the organization while others consider them to be dispensable.  No matter how you view your employees, one thing is true: Your employees can sue you. 

 

Even if you've done nothing wrong, the process to defend yourself can be an all-consuming drain on the precious resources of time and money. 

 

Employment Practices Liability Insurance

That's where Employment Practices Liability comes in. We'll refer to it as EPL.  Before we talk about what the benefits of having an EPL policy and covers, we must stress how the pandemic is shifting the insurance market for this crucial coverage:

• At the onset of 2020, there was chatter about increased employee lawsuits as a result of social inflation and the settlement amounts of claims.  Now, the pandemic has only intensified EPL pricing increases and the tightening of terms. What is triggering the increases are the expected claims associated with unemployment filings. The last time so many mass layoffs, furloughs, and reductions in staff occurred was in 2008; and it rocked the Employment Practices Liability market.

 

What does EPL cover?

EPL covers businesses against claims by workers who allege that their legal rights as employees of the company have been violated.  EPL provides protection against many kinds of employee lawsuits, including claims of:

• Sexual harassment
• Discrimination
• Wrongful termination
• Breach of employment contract
• Negligent evaluation
• Failure to employ or promote
• Wrongful discipline
• Deprivation of career opportunity
• Wrongful infliction of emotional distress
• Mismanagement of employee benefit plans

 

What are some examples of employee claims against a company?

• Discrimination—a new employee is not provided work opportunities after their religious beliefs are discovered.

• Harassment—a young employee gets whistled at every time they walk down a hallway at work.

• Wrongful Termination—a manager terminates an employee after hearing a rumor the employee is looking to unionize. That employee becomes outraged and demands damages from the employer.
• Retaliation—After getting injured on the job, an employee files a workers' compensation claim resulting in weeks of time off.  As a result, their employer must reassign a big project.  Upon their return, the employer informs them, without explanation, that they no longer have a job.
• Breach of Employment Contract—an employee has been terminated abruptly for poor performance and is not paid the remainder of the salary promised under their employment contract.
• Third-Party Claimants—a delivery driver feels discriminated against at a client's location after employees of the client were making derogatory comments about his national origin.

 

Consider these statistics:

1.    In 2016 there were 91,500 employment practice charges countrywide with 41.5% brought against private companies with less than 100 employees¹.

2.    Organizations have a greater chance of being sued by an employee than having a property or casualty claim².

3.    The cost of settling an EPLI claim out of court averages $75K and the average jury award hits $217K for those that go to court and lose³.

 

How much does EPL cost?

It depends on your industry and the limits you select. Most policies are rated based on number of full time and part time employees.  Depending on employee count, premiums can be as low as $200-$500 with limits around $100,000.  For more robust policies with limits at $1,000,000, premiums may start around $1,000-$2,500.

 

Major benefits of an EPL policy

1. Defense
   • If you are brought into a lawsuit, attorney representation is part of the policy. Legal expenses can often outweigh any damages awarded. EPL policies typically provide coverage on a Duty to Defend basis, and provided the claims alleges a covered wrongful act without an applicable exclusion, the insurer will defend the claim regardless of the veracity of the said claim.
   • The cost to defend a claim without insurance coverage could be 2-3 times more costly to an organization because they lack the benefit of pre-negotiated rates with expert law firms. So, whether at fault or not, you need to consider whether you have $25,000 to $50,000 to spend on nuisance claims. For a claim with teeth, you would need at least, twice or three times as much.

 

2. No HR Department? No problem.  Most EPL policies offer unlimited access to the following services:
   • The creation of employee handbooks
   • Manager/employee training
   • Coaching on employment-related situations
   • Assistance with developing policies and procedures

 

These services are incredibly valuable for small to mid-size businesses which don't have the scale for dedicated HR personnel. With an EPL policy, you gain access to HR professionals that better help you navigate rules, regulations and best practices as they pertain to layoffs/furloughs/reductions in staff, and other employment-related actions and decisions.

 

 

 How can your company decrease the probability of being sued?

1. Establish Standards
   • One step is to draw up an employment policy manual. Having a set of written policies in place helps establish procedures to be followed, so that your employees know what is to be expected of them, as well as what responsibilities your company has. This handbook should also contain steps that workers can follow to file a complaint if they believe they have been mistreated.
2. Train Employees
   • Once procedures have been established, strive to train employees about how to handle issues so that they can be addressed as efficiently and effective as possible, thereby reducing the risks of legal recourse.
3. Get the Right Coverage
   • An employment practices liability insurance (EPLI) policy provides insurance in the event you are sued by an employee for a wrongful act. 
4. Address the Situation As Soon As Possible
   • Finally, should an employee complain about an issue, take action promptly. Employees who recognize that the matter is being handled may be less likely to seek remedial action through the court system. However, when these matters arise, always seek legal advice as a precaution.

 

If you're curious about an EPL policy, don't wait. Give us a call and we can help you figure out the best policy for your needs. Call us at (717) 235-6891.

 

Sources:

1. http://www.advisenltd.com/wp-content/uploads/2016/02/Advisen-EPLI-Dataset.pdf
2. https://news.leavitt.com/business/employment-practices-liability-insurance-epli-could-your-company-be-at-risk/ http://www.abais.com/sbg-blog/overcoming-EPLI-misconceptions
3. https://www.trustedchoice.com/business-insurance/liability/epli