Employees are your greatest business asset, and sometimes liability…

by Chris Orletski

Posted on October 19, 2017

Like many business owners, you’ve probably been required (at some point) to carry general liability, perhaps workers compensation insurance, and maybe business auto or liquor liability insurance depending on the size and type of business. But the largest risk exposure you face as a business owner, is actually managing your employee relationships.

That’s right, one of your past, present, or future employees at some point could sue the business for any number of reasons. For example, let’s take a service business which employs two people. Have you considered a scenario where an employee claims they work in a hostile workplace due to a manager’s or employee’s behavior? Or an employee who offered to do things on their personal time is now demanding to be paid. What if your business is shut down and you still have to pay your employees?

Mr. Z’s hard lesson

That is exactly what happen to one unsuspecting new attorney (whose name will be changed for privacy reasons). During hurricane Irma Mr. Z was forced to shut down his practice for nearly two weeks which kept his paralegal without work for that time. Upon the storm’s passing, Mr. Z’s paralegal advised that they would be taking a new position with another firm effective immediately for higher wages. Mr. Z, in an attempt to salvage his business, withheld the remaining pay because he believed work was not performed during those days. Three weeks later Mr. Z received a letter from another law firm advising that Mr. Z’s former employee is alleging back pay and is owed the withheld wages along with any attorney’s fees. The claim is currently pending litigation and could cost Mr. Z more than he realized.

The truth is in the numbers

According to the Trusted Choice (Independent Insurance Agents Association), 7 out of 10 business are without employment practice liability (EPL) and even scarier, 6 out of 10 think they are covered by another policy. There is no way to sugar coat it, it is twice as likely to have an employment related claim than a slip-and-fall claim. Florida courts typically favor an employee over an employer. With billboard signs flooding the highways, practically demanding to sue for uncollected wages, it’s inevitable that even the best business could be faced with an employment related claim.

Released by Advisen in a white paper regarding employment practices liability (EPL) insurance, defense costs top out on the high end at $300,000 and typically come to resolve between 18 and 24 months. Here is a list of the four most common employment related claims and one growing concern:


  1. Pregnancy Discrimination – The U.S. Equal Employment Opportunity Commission (EEOC) has deemed pregnancy-related discrimination one of the highest priority problems outlined in the latest Strategic Enforcement Plan. The Pregnancy Discrimination Act of 1964 mandates that employers may not treat pregnant women with any prejudice while being employed (as long as they are able to perform their functions), or while applying for employment.


  1. Illegal Background Checks – Illegal or improper background check lawsuits have become more prevalent in recent years. The key to avoiding an issue as an employer is to fully comply with all federal, state, and local laws including but not limited to the Fair Credit Reporting Act. Background checks must be across the board for all hires, not just certain applicants. The biggest concern is that inaccurate/incorrect information in the reports could affect the hiring decision.


  1. Unpaid Interns – The Department of Labor has set forth parameters for companies to determine the status of an intern. Some of the factors in the determination of a true internship program is the educational component, and whether the roles are similar to an employee. A review of your company’s internship program is highly recommended by industry experts. There have been several class action suits and settlements related to intern programs, so make sure you’re in compliance.


  1. Genetic DiscriminationGINA is the Genetic Information Nondiscrimination Information Act which prohibits employers from using genetic information in employment related decisions, or generally requesting any genetic information from employees. The best way to avoid a lawsuit, hire an expert to review your policies and procedures, and make any necessary corrections immediately.


  1. Social Media Discrimination – We should expect that the rise in social media use could spell potential problems in the workplace. Its anticipated that claims of employers attempting to regulate employee’s work-related social media posting will continue to rise. Interestingly, social media has found a way to create hostile work environments similar to the cyber bullying found in schools. Carriers recognize the growing concern and are swiftly offering forms of protection.


The sunshine state of employment liability

Based on an EEOC 2016 report, Florida had the second highest charge count in the country at 7,610 charges, far exceeding the national average of 1,528 charges. This means you are 5 times more likely to have an employment practice related claim in Florida than any other state, based on the national average. If an employee claims Wrongful Termination, Harassment, Discrimination (which can take on many forms), Breach of Contract, Emotional distress, or any number of employer related issues, an employment practices liability (EPL) policy will be your best form of defense. An EPL policy will often cover 3rd party claims in the event a customer, vendor, or applicant sues your company for discrimination or even harassment.

No two businesses are alike, which is why each policy should be tailored to meet specific needs of the company. For instance, restaurants and other industries with a higher than average turn-over rate, should strongly consider an employment practices liability policy including a wage & hour endorsement. Just like our example with Mr. Z, even having 1 or 2 employees could cost your company thousands so make sure your business is protected. Contact an expert who understands the coverages and more importantly the impact it could have on your business.


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