As an attorney, I’m often asked to assist small business owners in managing risk and dealing with potential liability resulting from an unforeseen risk. Most have given some thought to potential risks and how they can insure against losses resulting from those risks. For example, an insurance policy may be purchased to protect against premises liability or catastrophic loss. Unfortunately, some of these same thoughtful business owners are caught off guard when an unanticipated risk presents a potentially crippling financial liability. In today’s litigious society, employment claims are often the source of this unforeseen risk.
Employment claims are incredibly varied, often very complex, and include anything from wrongful termination and sexual harassment to discrimination and negligent evaluating. No employer, regardless of how large or how small the business, is totally immune from this potential liability. For that reason, the insurance industry offers coverage in the form of employment practices liability insurance (EPL).
No one knows a small business better than the owner. What should you ask yourself before deciding if purchasing EPL is right for your business? The most important inquiry is how many employees you have. The more employed by a business, the higher the risk. Stop and think about your employee turnover for the last few years. Terminations and resignations increase the risk of a potential claim against your business.
Take a look at your employee handbook or human resources policy manual, if you have one. Has it been reviewed by an attorney? The pages in a handbook may expose your business to future liability. Documents signed by employees upon hiring should also be reviewed for potential risk. Mandatory drug tests and written policies regarding harassment, discrimination, and termination all play into potential risk of employment claims.
If you feel as though there may be more risk of claim than you initially anticipated, it may be a good idea to sit down with an attorney or insurance representative to discuss options for coverage. Many small business owners are surprised to learn that there are a multitude of federal and state statutes under which employees can bring a claim, including the Civil Rights Act of 1964, the Americans with Disabilities Act, and the Age Discrimination & Employment Act, just to name a few. Claims can also be brought under contract and tort theories.
There are a variety of coverage options, policy limits, and other ways a policy can be customized to meet your specific needs and preferences in regard to exposure. If your business lends itself to employment claim liability, it can’t hurt to look into insuring against it.