Even Good Employers Get Sued: The Cost of Not Having EPLI Insurance
Sara East |January 23, 2020
In today’s society many people sue first and ask questions later. Unfortunately, as an employer, there is a good chance that eventually one of your employees will sue your business.
Employee lawsuits can be much more than just an inconvenience. They are expensive, distracting for your management team, and can quickly erode productivity and employee morale. Employee lawsuits are becoming much more common, making employment practices liability insurance (EPLI) a necessity for businesses large and small.
Over the last 20 years, employee lawsuits have risen roughly 400%, with wrongful termination suits jumping up more than 260%. Oddly enough, you are more likely to be sued by an employee these days than to have a fire at your facility.
It’s not just large corporations that are being hit. Roughly 41.5% of employee lawsuits are brought against private companies with less than 100 employees. The financial damage of employee lawsuits can be dramatic. The cost of settling out of court averages $75,000, and the average jury award hits $217,000 if you go to court and lose.
It’s not just wrongful termination that can end in a lawsuit, you can be sued for many reasons. Despite all of these scary numbers, roughly 7 out of 10 businesses don’t carry EPLI insurance. This can be an expensive mistake.
The Top 4 Trending Employment Practices Liability Claims
According to industry experts, unpaid internships, illegal background checks, and issues related to pregnancy and health are the top trending employment practices litigation cases. The cost of claims is rising, as is the length of time it takes to resolve EPLI claims. Advisen recently released a white paper that showed defense costs topping out a around $300,000 and resolutions taking between 18 and 24 months.
Here is a quick look at the four most common types of claims:
1. Pregnancy discrimination: The US Equal Employment Opportunity Commission (EEOC) made pregnancy-related discrimination one of its top six priorities in its latest Strategic Enforcement Plan. The Pregnancy Discrimination Act was put in place in 1964 and states that employers must allow pregnant employees to stay at their jobs as long they can continue to perform their duties. In addition, employers cannot hold pregnancy against a prospective new employee.
2. Illegal background checks: Illegal background check lawsuits have also become much more common, according to industry experts. If you use background checks in your hiring process, the key to avoiding lawsuits is fully complying with the requirements of the Fair Credit Reporting Act and any relevant state laws. Background checks must be conducted across all hires, not just certain applicants.
If your business pulls credit reports on potential hires, they must be notified in writing of the credit report request and that it will be used in your hiring decision. You must have written permission to request a credit report. One of the major issues is the concern that inaccurate information and errors on the credit report could affect the hiring decision.
3. Unpaid interns: Parameters have been set by the Department of Labor that help companies determine whether an intern is or isn’t an employee. A couple of the factors are whether there is an educational component to the internship and whether their duties are similar to a current employee’s duties. In recent years there have been a number of class action suits and settlements related to intern programs. Experts advise that all internship programs and practices be reviewed to make sure they fall within true internship parameters.
Make sure your programs have an educational component, interns are not doing work that is usually done by employees, and there are no promises of paid jobs at the end of the internship.
4. Genetic discrimination: The Genetic Information Nondiscrimination Information Act (GINA) prohibits employers from using any genetic information in decisions related to employment and bans classifying employees based on genetic information or requesting any genetic information from employees. In order to avoid GINA lawsuits, verify that your hiring process doesn’t ask for family medical history information or any other genetic information from potential hires.
What Is Employment Practices Liability Insurance?
Employment practices liability insurance, commonly referred to as EPLI insurance, is specifically designed to protect employers from lawsuits brought by employees. It provides coverage for many situations that general liability insurance does not.
Even lawsuits that are thrown out of court or are won by your company are expensive, due to the high cost of securing legal defense. Therefore, this insurance coverage is very important as financial protection for your business enterprise.
Not Having EPLI Insurance Can Cost Your Business
Lawsuits are not only expensive, they are also stressful. Resolution can take 18 to 24 months; a lawsuit will have an effect on your personal and business life for a long time. When it comes to expenses, the cost of a lawsuit can be daunting. According to the law firm of Murphy Austin Adams Schoenfield LLP, here are average court costs and legal fees in different scenarios:
Average court costs and legal fees when settled out of court: $10,000 to $50,000
Average court costs and legal fees when the case is dismissed: $10,000 to $15,000
Average court costs and legal fees when the case goes to trial: $150,000 to $200,000
The cost of EPLI insurance is a fraction of what you will pay if you end up on the losing side in a lawsuit. EPLI premiums will vary depending on a number of factors:
The number of employees
The amount of coverage purchased
Whether your company has anti-discrimination and anti-harassment human resource policies in place
Whether your company has had any EEOC complaints or lawsuits filed against it in the past
Employment practices liability insurance will easily pay for itself if you are sued even once. The best way to find out what EPLI will cost your company is to get quotes from a variety of insurers. Contact an independent insurance agent. These agents will work to find comprehensive coverage for your business.
Why Your Business May Not Be Covered
Don’t be fooled. Unless you have an EPLI policy, your business is not covered against employee lawsuits. According to an industry study, 6 out of 10 non-buyers of EPLI coverage mistakenly think they are protected under other policies.
If you are not carrying an EPLI policy, your business is not alone. A study done by Advisen found that only 23% of companies with fewer than 100 employees purchase EPLI insurance; that number is 34% for companies with 500-700 employee,s and 40% for businesses that employ over 1,000 people.
Employment practices liability insurance provides compensation for losses caused by employee lawsuits. All court costs and legal fees are included in coverage. EPLI insurance protects your business from the following and more:
Wrongful termination: Statistics show that this is the most common claim brought against employers. According to the EEOC, it is illegal to terminate an employee on the basis of age, race, national origin, gender, or disability. A business can also be sued if they fire an employee for:
Taking a leave of absence under the Family Medical and Leave Act (FMLA).
Reporting wrongdoing to the authorities under the Whistleblower Protection Act.
Harassment: In most harassment cases, the issue is sexual harassment, but cases of violence, bullying and issues based on race, color, age, and religion all fall into this category. The harassers can be senior managers, supervisors, coworkers, agents of the employer, or even non-employees. If the employee can prove the company was aware of the issue and ignored it or did not take adequate steps to solve the problem, the business may face additional fines and penalties if the case makes it to trial. Prevention is the best way to eliminate harassment at your business. It should be clearly communicated to all employees that harassment will not be tolerated.
Discrimination: Discrimination cases involve employees who are turned down for employment or denied promotions or raises based on age, gender, race, national origin or disability. If an employee can show a trend of discrimination in your business, they may have a winning case on their hands.
Breach of contract: Violating the terms of an employee’s contract can result in a lawsuit against your company. Proof of damages to the employee due to the breach will often result in a victory for your former employee.
Emotional distress: If employees feel that your business is fostering a hostile environment, or if they are subjected to overly stressful situations in the workplace, they may sue. While these cases can be very difficult to prove, the legal fees for defending the case can be substantial.
Other violations: EPLI coverage doesn’t end with these types of claims. It offers protection for suits regarding statute violations, wage and hour violations, wrongful denial of workers’ compensation, loss of consortium, false positives from drug tests, libel and slander.
Choosing the Right EPLI Insurance Policy
Businesses have different needs when it comes to EPLI coverage. Those needs will vary depending on the industry you operate in, the activities your employees perform, and the state (or states) where your business operates.
Businesses in certain states are more likely to be sued than in others. According to Advisen, the top states for EPLI litigation are New York, California, Texas and Florida.
Consulting an independent insurance agent is the best way to find an expert who specializes in your particular industry and location. Contact an insurance agent today to get more information about employee practices liability insurance and to compare a selection of EPLI insurance quotes.