Employment lawsuits are one of the most expensive and time-consuming issues your business can come up against. The U.S. Equal Employment Opportunity Commission (EEOC) reported in 2021 that, in 2020, there were 67,448 workplace discrimination charges, and the agency collected around $439 million in monetary benefits from various employers. It’s easy to see why employment liability insurance — which protects you from financial losses associated with employee claims — is so important.
In this article, Lee, Gober & Reyna break down the importance of employment practices liability coverage and the most common types of liability concerns you should actively prevent.
What Is Employment Practices Liability Insurance — and Do I Need It?
Anyone with employees needs employment practices liability insurance (EPLI). This type of coverage shields your business against employee claims of discrimination, harassment, wrongful termination, and other violations of employees’ legal rights — all of which are on the rise. Even though most of these cases involve large corporations, no business is immune to lawsuits. In many cases, business owners don’t have to do anything wrong to be sued.
If you obtain the right insurance coverage, it could be the difference between a hiccup and financial ruin.
Types of Liability Coverage
Several types of employment liability coverages exist to provide companies with comprehensive coverage:
- Commercial general liability insurance: Most companies carry this broad type of coverage to cover themselves against general business risks like property damage, bodily injury, and reputational harm. However, it does little to protect businesses from employment-related liability.
- Directors and officers liability insurance: This insurance exists to protect the assets of corporate officers and directors as well as their spouses in the event they’re sued by employees, competitors, customers, or other parties.
- Employment practices liability coverage: EPLI fills in any gaps in coverage to account for claims by former or current employees regarding sexual harassment, discrimination, breach of contract, invasion of privacy, emotional distress, wage and hour law violations, and more.
Employer Liability vs. Employment Practices Liability Insurance
While both of these types of insurance pertain to employee claims, EPLI covers employment practice-related lawsuits, and employer liability insurance covers lawsuits surrounding employee injury. The reason they are separate types of coverage is that some professions carry a higher risk of injury than others. Each coverage type is important to have, though, as these claims can end up costing hundreds of thousands and sometimes millions of dollars.
Common Types of Employment Practice Liability Concerns
Here are common concerns to be aware of so you can keep employees happy and avoid these types of lawsuits in your workplace.
Wage and Hour Claims
The Fair Labor Standards Act (FLSA) has established standards for minimum wage, recordkeeping, and overtime pay that employers must comply with. So when a company misrecords time cards to avoid overtime pay, for example, an employee can file a claim against them for unfair business practices. If the claim turns into a class action lawsuit, it becomes quite costly for the business to defend itself.
Some EPLI insurance providers no longer cover this, so refer to the U.S. Department of Labor’s guide to the FLSA to ensure your business remains in compliance with these rules.
The Family and Medical Leave Act (FMLA) is a piece of legislation that allows employees to take a certain amount of unpaid leave in the case of a qualifying event, which is considered to be any illness, injury, or condition that requires ongoing treatment and prevents the employee from performing their job duties. An example could be the birth or adoption of a child, cancer treatment, or caring for a family member suffering from a serious health condition.
In recent years, there has been an uptick in FMLA leave requests, and some are more legitimate than others. Unfortunately, denying leave subjects employers to employment liability claims, as employers are forbidden from interfering with or denying the exercise of FMLA rights. They are also prohibited from retaliating or discriminating against those using FMLA leave.
Any unwelcome physical or verbal advance of a suggestive nature in the workplace or related to work activities constitutes sexual harassment. Inappropriate conduct can interfere with employee performance and even contribute to a hostile work environment. These cases often involve large sums of money and necessitate EPLI coverage for protection. Sexual harassment claims are usually covered under EPLI and sometimes CGL coverage in most policies.
Employment practices liability coverage also covers whistleblower and retaliation cases in which an employee experiences discrimination or harassment by their employer and claims they were punished for speaking out. These claims, also sometimes called retaliation claims, are associated with pay cuts and demotions that the employee believes were a result of exposing the employer for something that wasn’t supposed to become publicly known.
Most people are on some form of social media these days, and social platforms only grow more popular by the year. This means employers need to be exceptionally careful about what they post about their employees; a single comment or post about an individual has the potential to be seen by millions of people.
What’s more, employees have been known to use social media to harass their coworkers. While EPLI doesn’t protect against harassment among coworkers, it can protect the organization that employs them when one of the workers attempts to sue the company for not preventing the harassment. It also protects the business when someone in leadership has made an inappropriate post about an employee, and the worker decides to sue.
As an employer, it’s more than likely you know the Equal Employment Opportunity Commission’s rules that prohibit discrimination in the workplace on the basis of race, color, sexual orientation, religion, age, gender, marital status, pregnancy, disability, and other protected classes. EPLI covers claims in which an employee sues a company for unlawful discrimination.
Corporate data breaches are on the rise, and leadership most often takes the blame as well as the liability. Employment practices liability coverage applies to situations in which the claim is filed against a negligent supervisor or employer.
Gender and Sexual Orientation Claims
In recent years, LGBTQ+ individuals have achieved an increase in protection in the workplace and society as a whole. While old policies are less clear, newly emerging EPLI policies now offer coverage for discrimination on the basis of sexual orientation and/or identity. It’s important for your organization to update and review your employment practices liability coverage to make sure your insurance is sufficient for your organizational risk.
Alternative Work Arrangements
Since the COVID-19 pandemic, alternative work arrangements have become increasingly more common; they encompass everything from telecommuting to staggered scheduling, compressed work weeks, and more. These styles of work subject employers to a host of new liabilities. For example, if an employer discriminates in selecting employees who are permitted to adopt alternative work schedules, these constitute wrongful acts covered under employment practices liability coverage.
The Bottom Line
Employers face more liability risks than ever before, which means that having employer liability coverage is essential for the longevity and viability of your organization. We hope this information will help you protect your business and your employees moving forward. If you’d like to learn more about related legal topics, visit the LGR Law Firm blog today.