Is Your Business In Danger Without EPL Insurance?

EPLINo smart business owner would ever think of closing down for the day, turning off the lights and leaving with the front door wide open hoping that nobody would come in to steal their assets while they are gone. However, that is the exact situation a business is in when they do not have Employment Practices Liability (EPL) insurance. A business without this coverage has a huge hole or opening in their insurance protection portfolio!

What is EPL insurance?

EPL insurance protects businesses and individuals against losses arising from employment practice disputes involving current and former employees. Common claims include discrimination, sexual harassment, workplace harassment, wrongful termination, failure to promote, invasion of privacy, negligent evaluation, and wrongful discipline, to name just a few. Did you know that your business is at risk of an employment claim from the moment you interview a prospective employee? For example, if you decide, for whatever reason, not to hire the prospect, that individual could allege some sort of discrimination and bring up a statement or a question which arose during the interview process.

As expected, large corporations typically have substantial EPL insurance in place. However, small businesses usually don’t have this coverage and are often the most vulnerable to employment claims. That’s because they usually lack a company handbook, a legal department, or even an HR Department that would be responsible for hiring, disciplining, or terminating employees in strict compliance with all local, state, and Federal laws. An employee bringing an employment case has a 75% chance of winning with an average damage award of $388,128. However, even if your employee loses, it is not uncommon for legal fees associated with a lawsuit to exceed $250,000. When you spend that much on legal fees, it is hard to feel like you have won. So how can you, as a small business owner, reduce your risk of these claims especially given the economic climate we are in today?

1. Prepare an employee handbook detailing your business’ employment policies and procedures for all aspects of employment including procedures for disciplining or terminating an employee. Make sure that each employee is given a copy of the handbook, reads it, and signs a statement acknowledging their receipt of this handbook.

2. Conduct periodic performance evaluations of employees and note the results in the employee’s file.

3. Create an effective record-keeping system to document employee issues as they arise and including steps that were taken to resolve any issues.

4. Create a job description for each position that defines expectations of skills and performance.

5. Institute a zero tolerance policy regarding discrimination, substance abuse, and any form of harassment in the workplace. Also make sure you have an “open door” policy in which employees can report infractions without fear of retaliation.

6. Review your loss exposures with your insurance agent and purchase the right amount of EPL insurance for your business.

While these steps can’t completely eliminate the risk, they can certainly reduce the risk and help you to better defend your business if and when a lawsuit is filed by one of your employees. This is why it is so critical to speak with your insurance agent and fill in this gap in coverage by purchasing an Employment Practices Liability Insurance Policy.

- Ray Alvarez

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