by Mitchell Sharp

If a business takes the time to hire good employees and treat them well, those employees will never take legal action against the business—right? Not true. According to Trusted Choice, employee lawsuits have increased by 400 percent during the past 20 years. The law in most states is written so that a prospective, current or former employee can sue a business for many reasons, but there is a way to protect your business from these types of lawsuits. The way to do this is by purchasing an Employment Practices Liability Insurance (EPLI) policy.

EPLI is a coverage that is necessary for any business that employs people, especially companies in the health care industry. It protects a business from claims made by employees, job candidates and former employees involving various violations of their legal rights. It can be looked at as a safeguard that provides legal protection for the business, owners, officers, directors and other employees. It is not just for the business itself, but also for most people involved with the business. Securing protection from the risk of these types of lawsuits is critical to the long-term success of many businesses (see below).

Business owners frequently think this type of policy is not necessary. One reason is because they only have full-time, long-term employees, employees they know well and believe they can trust. In reality, these employees are actually the most likely to file a lawsuit, and a suit from a long-term employee tends to cost the most to defend, easily reaching into thousands of dollars regardless of whether the claims are accurate. One common exception is when a crime is committed. If you or someone representing your business commits a crime, then the policy is invalid and legal fees will not be covered by an EPLI policy. This is important in cases of sexual harassment and discrimination.

The prevention of harassment and the filing of a claim against your business should begin before you even post a job opening. Put strict policies in place for anyone interacting with a potential employee. Everyone in your company should be thoroughly aware of what is and what is not acceptable behavior when interacting with potential employees and clients. There should be some form of documentation, such as a manual with a signature page, proving this has been shown to all employees as part of formal training. People who believe they were mistreated during the hiring process often bring harassment claims against companies, not just current and former employees. Having well-documented hiring practices can prevent lawsuits.

A major reason businesses lose employee rights lawsuits is because an employee went to HR with a problem, and HR did not respond in a reasonable manner. Your HR team should be prepared with a response for every meeting with an employee. There also needs to be more than one person involved in the decision-making process when harassment claims are made. Having more people involved prevents “he said-she said” situations.

In addition, you need a strict policy in place for firing an employee who has become a liability. When you make the decision to fire someone, you must have well-documented evidence of the reason(s). Without some form of documentation of liability or failure to perform, your business loses credibility in the eyes of the court.

The final thing to consider when purchasing an EPLI claim is what is referred to in the insurance industry as the “Hammer Clause.” This clause gives the insurance carrier the right to tell the insured business owner that it wants to settle a claim for a sum of money. At this point, the business must accept the advice of the insurance company, or it runs the risk of paying the claim plus damages if the court rules in favor of the employee. Frequently this occurs because the insurance company believes the cost of legal fees will be greater than the amount of the settlement.

The crucial thing to remember is that prevention is an ongoing process throughout an employee’s tenure. Training includes pre-employment, hiring, working, firing and after termination. The risk of employment litigation is not one that is comfortable to talk about, but securing coverage against the threat can determine the success or failure of your business.

Claims EPLI Coverage Protects

  • Employee discrimination
  • Wrongful termination
  • Age discrimination
  • Libel or slander
  • Sexual harassment
  • Race or gender discrimination
  • Wage and hour violations
  • Failure to promote