A Lesson All Employers Should Learn

Several examples suggest that while it’s in an employer’s best interest to purchase employment practices liability insurance, it’s essential to do it correctly so that what you buy gives your company the protection it needs. Like other forms of insurance, employment practices liability coverage serves to help companies avoid catastrophic losses that could do irreparable harm.

 

The track record of failing to meet expectations was carefully documented, and the long-time employee was terminated for failing to perform. A few days after the separation, the employer received a letter from the dismissed employee’s attorney indicating that it was wrongful termination because of age discrimination, and that a claim would be filed with the state’s anti-discrimination commission unless certain conditions were met within 7 days.

Even though no action was ever taken, the cost to the small company was significant. A lawyer prepared the documentation indicating why the company was justified when it dismissed the employee. Also, time, effort and personnel was required for the company to answer questions and provide the necessary files and records. Eventually, the disgruntled employee gave up, but not before the cost to the company ran into thousands of dollars and the business operations were disrupted for weeks.

It’s too easy to dismiss such cases as “frivolous.” They’re often serious “fishing expeditions,” attempts to see what a company might be willing to do even though it didn’t violate federal or state employment statutes.

More than one in four (26 percent) privately-held companies have faced litigation by an employee or former employee in the past 4 years, according to a 2004 nationwide survey sponsored by the Chubb Group of Insurance Companies.

Why is this happening? It’s too simple to explain it by saying that employers are willfully violating the law, although this can happen just as the Supreme Court’s decision points out regarding Wal-Mart and its women employees. And it’s perhaps too cynical to suggest that lawyers are the cause of the problem, even though employment law practices makes up a sizeable segment of the legal industry.

At one time or another, we have all felt we’ve been wronged, yet we remained silent. However, today’s consumers are willing to speak out. The number of sexual harassment allegations point to the trend.

The Yankelovich Report on Generational Marketing concludes, “People don’t want to be talked to; they want to do the talking. People want their say, and they expect businesses to listen.” In the same way, employees want to have their say, and they expect employers to listen.

If an employee, former employee, an applicant for employment or a federal, state or local administrative or regulatory agency believes a wrongful act has occurred related to a broad range of issues, action can be taken against the employer.

Based on such laws as the Family and Medical Leave Act, Americans with Disabilities Act and the Age Discrimination in Employment Act, the list of charges includes anything from wrongful failure to employ or promote, to coercion or humiliation as a consequence of race, marital status, gender, age, physical and/or mental impairments or pregnancy, sexual orientation.

The complete list is sobering to say the least, particularly since it includes alleged, as well as actual acts, and it confirms the fact that every employer has an employment practices liability exposure.

Employers and employees alike recognize that merit, competence and the ability to perform tasks are the only forms of permissible discrimination. Most of us agree that this is the way it should be in our country.

If the situation were one of protecting a business against fire and other types of property damage, no business would open its doors without insurance coverage. No manufacturer would send its products to market without having product liability insurance. Yet most companies operate year after year without employment practices liability insurance protection. Why? It isn’t good enough to dismiss this coverage by saying, “We’ve never had a problem.” Most have never had their facilities devastated by a fire. Yet, they carry the correct amount of fire insurance.

There are also those who say that having employment practices liability coverage only encourages employees to take action. Does fire insurance increase arson? Would eliminating auto insurance cut down the number of accidents?

Here’s the point: We all see our individual situations through our own eyes. That’s true for employees and employers. Since we are not objective, there is always room for interpretation as well as misinterpretation. Few instances of employment discrimination are as clear as the Wal-Mart case in which women were treated differently from men in the same jobs. Many are less clear-cut and open to interpretation.

It’s the cost of defending against a lawsuit or an action by a governmental agency that can be expensive. This is one of the primary reasons for having adequate employment practices liability coverage.

Employers need to be careful when selecting a policy, however, because they differ. For example, is emotional stress covered? In certain situations, such as a hostile work environment, this may be an important issue.

There is also the matter of when the claim occurs. Some policies have no limitation as to when the wrongful act took place, while others are retroactive to a specific date.

It’s also possible for a policy to state that in the case of a claim, the insurance company has the right to appoint legal counsel. Some employers find this satisfactory, while others want to select their own legal representation. Because employment practices defense expenses can be higher than general liability cases, some policies include defense costs as part of the policy’s limits. However, the costs incurred to defend and settle a claim reduces the limits of coverage provided.

All this suggests that while it’s in an employer’s best interest to purchase employment practices liability insurance, it’s essential to do it correctly so that what you buy gives your company the protection it needs.

Like other forms of insurance, employment practices liability coverage serves to help companies avoid catastrophic losses that could do irreparable harm.

Judy Jacobs can be contacted at judyj@mosineeins.com or (715) 693-2100.