Employers' Practices Can Be Risky

Joseph Catanese

Typically, a business' insurance portfolio includes several policies such as: general liability, workers' compensation, auto insurance, directors and officers liability, and more. But today, one of the fastest growing liability claims is employment practices liability (EPL).

Employment practices liability insurance (EPLI) is a relatively new coverage that offers companies protection against employee-related violations or offenses. Such offenses include wrongful termination; failure to promote; gender, racial, religious or age discrimination; sexual harassment; and Americans with Disabilities Act (ADA) violations. General liability policies typically do not provide coverage for worker disputes. Some coverage may be offered under directors and officers liability insurance, if your company has this coverage.

In the past two decades, greater public awareness, highly publicized cases and changes in federal legislation have caused EPL claims to increase significantly. There are approximately 80,000 EPL claims filed annually, according to the Equal Employment Opportunity Commission (EEOC). The EEOC also estimates that between 1992 and 1998 more than $1 billion was awarded in EPLI claims. Some estimates state that nearly 75 percent of litigation against corporations involves employee disputes or discrimination claims.

Despite the best human resources practices and policies, many firms risk being hit with employment practices claims. Employment practices liability claims involve litigation expense, compensatory damages and potentially punitive damages.

Recent settlements have included Coca-Cola Co., Atlanta, which settled a $192 million racial discrimination suit with former and current employees. A Chicago-based grocery store paid $7.65 million to settle a sexual discrimination suit. The Boeing Co., Seattle, settled a $4.5 million suit after the court found that female and minority employees were paid less than their white, male co-workers. The Boeing settlement came only a few months after settling a $14.2 million class action race discrimination suit.

EPL claims are not restricted to large corporations. Any business, including waste facilities with one or more employees, can be subjected to an EPL claim. Luckily, like many of today's insurance niche markets, prices for EPL coverage are more affordable than in the past as a result of tighter competition and underwriting experience.

Additionally, businesses that display good claims histories receive better rates. EPL coverage can be purchased as an individual policy, or coverage can be obtained through an endorsement to your company's directors and officers policy.

In addition to insuring against risks, companies must adopt precautions to prevent EPL claims. EPL insurance providers typically assess employment practices risks with an audit to pinpoint areas of exposures and can suggest areas for improvement. However, protect your company with smart risk management tactics such as:

- Developing a human resources manual and regularly update it.

- Making sure your employees are familiar with the practices, policies and procedures. Have employees sign an agreement stating that they have read and understand company policies.

- Displaying employment-related federal and state posters in lunchrooms or other visible areas (e.g., Title VII, Family Medical Leave Act (FMLA); wages/hours; and OSHA compliance).

- Keeping detailed personnel records that prove the company has acted responsibly and in good faith.

- Adhering to standard hiring, firing and promotion procedures that can help reduce your exposure.

Even if your company is charged with discrimination, you'll be able to show that employees are treated fairly and equally through employment procedures are standardization.