Employment practices liability (EPL) insurance provides coverage to employers against claims made by employees. Large corporations typically have substantial employment practices insurance coverage in place and are prepared to deal with just about any employment lawsuit. However, small or new businesses are often the most vulnerable to employment claims. That’s because they usually lack a legal department or employee handbook detailing the policies and procedures that guide hiring, disciplining, or terminating employees.
Employment-related exposures include sexual harassment, wrongful termination, discrimination, workplace harassment, and retaliation. In addition, employers can be sued for failing to comply with federal, state, and local overtime and minimum wage laws. Because of the seriousness of these issues and the severity that an insurance claim could bring, it’s important that employers know the law and implement appropriate practices and a safe workplace culture. Legal fees to defend an employee claim can often exceed $100,000, and if an employer loses the lawsuit, the company may be responsible for paying the plaintiff’s attorney fees as well. According to the 2020 edition of “Employment Practice Liability: Jury Award Trends and Statistics,” the average verdict against employers for these types of claims was $688,302 in 2019, which does not include defense expenses or plaintiff attorney fees.
This is just one reason why companies should consider having an EPL insurance policy, which generally includes coverage for defense costs and damages related to various employment-related claims. Responding to an employment lawsuit is not only potentially expensive, but it can also be tremendously time consuming. In employment litigation, employers need to turn over voluminous records (including personnel records, emails, and work production), assist in responding to discovery requests from opposing counsel, and make witnesses available for depositions and trials.
There are also steps companies can take to help reduce the possibility of receiving an employment-related claim, first by promoting a culture—emphasized and acted upon by all executives—of zero tolerance toward acts of harassment, discrimination, and retaliation. Other mitigation actions can include providing employee training and implementing appropriate policies, then reviewing those periodically to ensure they are up to date. Organizations should carefully review any proposed employee termination with the Human Resources department, or preferably legal counsel, to minimize the risk of a lawsuit by a terminated employee.
According to Chris Williams, employment practices liability product manager at Travelers, employers should also take full advantage of any resources available to them. Many insurance carriers provide risk management services to their EPL customers. The Travelers website, for example, provides access to thousands of articles on a variety of risk-management topics, including checklists, podcasts, best practice videos, and a hotline customers can call for answers to general employment questions as they arise. Another benefit that comes from partnering with an insurance carrier is having local claim service, with access to claim professionals throughout the country who are well versed in the plaintiffs’ bar, defense lawyers, mediators, and judges in their regions.
“An EPL lawsuit can be frustrating at best and expensive at worst,” Williams said. “But having a plan to reduce the likelihood of a claim, along with an insurance policy should it be necessary to bring in professionals, can help keep this negative aspect of business ownership on the back burner.”
Don Foley is a principal at Cailor Fleming Insurance, Youngstown, Ohio.