Every business faces the risk it will be accused of wrongful employment practices
Commercial general liability insurance policies typically exclude coverage for employment practices claims, as do some commercial umbrella insurance policies. Employment practices liability insurance, known as EPLI, is a common way to insure the employer’s risk.
But you can — and should — take steps to manage employment practices risk to prevent accusations, claims and lawsuits in the first place and to handle them properly if they do arise.
How are you at risk?
Organizations in Canada — whether they’re businesses, government entities, nonprofit organizations or religious institutions — are held to rigorous standards under federal and provincial laws and regulations.
Administrative tribunals such as the Canadian Human Rights Tribunal, the Federal Labour Relations Board or the Employment Equity Tribunal field the majority of employment-related complaints, and most cases that do make it to court are resolved by judges.
This means that the potential for a large payout is far less than in the United States. But that doesn’t mean organizations shouldn’t get EPLI coverage.
What are the areas of risk?
Businesses can face liability for actions related to:
- Retaliation by management against employees
- Wage and hour disputes over minimum wage, overtime, child labor and meal-and-rest-break laws
- Wrongful termination
- Discrimination based on race, religion, age, sex, disability, genetic information, nationality, pregnancy and other protected characteristics
- Sexual harassment
- Breach of contract
- Mental or emotional harm
- Invasion of privacy
- Failure to promote/deprivation of a career opportunity
- Negligent evaluation
- Mismanagement of employee benefits
What are some risk scenarios?
Businesses can face employment practices liability for issues ranging from payroll errors to hostile workplaces to bad management behaviors, such as threatening the safety and well-being of workers. These acts are especially problematic if they are frequent or if management is unresponsive once attention is brought to the problem.
Here are examples of such situations:
- An employee reports fending off sexual advances from a manager.
- A supervisor allegedly retaliates against a worker who pointed out a safety issue on the job. Examples of retaliatory acts include taking the worker off assignments and giving a negative evaluation.
- An employee claims that co-workers posted derogatory statements on an online company bulletin board accessible to all workers and that management didn’t remove them in a timely manner.
- An employee complains of being denied appropriate overtime pay.
- A supervisor allows racial insensitivity in the use of slang terms or racially offensive jokes.
Whether or not the company is ultimately found financially liable for its actions in cases like these, the business will incur costs. The expenses of legal representation, reputational damage control and internal investigations will occur even if the complaint is unsubstantiated.
How do employees report an incident or pattern of wrongdoing by a manager or employer?
Employees can make their claims known to you as their employer or a third party in various ways:
- Verbal complaint to the employer
- Written notice to the employer from the employee or other claimant
- Written notice to a regulatory agency
- Filed lawsuit
One of the first things a regulator or lawyer will ask a complainant is if that person reported the situation or misconduct to the employer and, if so, what the response was. Having a clearly articulated reporting protocol with excellent recordkeeping and follow-up can go a long way in showing the company’s good faith and help resolve matters before they reach regulators and courts.
What steps can companies, nonprofits and other organizations take to reduce the risks of employment practices complaints?
Don’t ignore employee issues. Problems in the workplace might seem small, but disputes can evolve into a department-wide or firm-wide problem. Business owners or managers who hear about an employee complaint must tackle the issue as quickly and forthrightly as possible. They must also anticipate potential problems and institute preventive measures.
Some business leaders view employment practices risk as an opportunity to create a culture of awareness and zero tolerance for acts of harassment, discrimination and retaliation.
Business owners can provide planned, frequent training and assessments of how the company conducts its operations. Overall, these can lead to improvement in how the firm implements and complies with laws/regulations. Companies that learn the law and take steps to protect the business can better manage their operations and costs over time.
The onus is on management to protect employees’ rights. While it might not be convenient for managers, they are obligated to follow legal standards and regulations if a worker lodges an employment practices complaint.
Consult an employment attorney to see about implementing arbitration agreements. An employer and employees with an arbitration agreement in place can resolve an issue through arbitration rather than litigation. Employment practices attorneys note this arbitration can present less risk and cost to the employer. Notably, it can reduce collateral damage in the court of public opinion and help both employers and employees return to business after a workplace conflict.
Let technology help. Increasingly, there are diversity and inclusion software programs that can help organizations avoid problems in communications and hiring. Some of these allow workers to run their emails, memos and other content through a filter before distributing. The software highlights inappropriate language and suggests a better formulation of the content so the author can revise the wording before sending it out.
Other diversity and inclusion (D&I) software assists in the hiring process by tweaking job descriptions so they are less likely to discourage certain classes of candidates and by allowing “blind” evaluation of applicants until far into the hiring assessment. These latter programs do follow-up résumé queries by online chat apps that mask gender, race and age characteristics, thereby removing much of the potential for unconscious bias.
Technology is also helping with interactive training on employment practices that fully engages employees and boosts their learning, awareness and empathy.
What insurance protection is available for employment practices liability?
All business entities with employees need protection against the costs of legally defending themselves in employment practices complaints. They typically also benefit from having some help with the expense of assessed damages for wrongdoing. Employment practices liability insurance (EPLI) provides financial protection for many kinds of employee claims.
EPLI is built to protect a business or organization from risks related to the entity’s actions as an employer. Specifically, EPLI is liability insurance for a business, nonprofit or other organization that covers wrongful acts arising from the employment process.
EPLI protects a company from the cost of defending against claims of wrongful termination, sexual harassment, discrimination and other infringements of the legal rights of employees and some employment candidates.
EPLI policies typically cover actions by directors and officers, management and employees. Most insurance companies provide this coverage as an endorsement (addition) to a Directors and Officers (D&O) policy. Other companies may offer EPLI as a stand-alone product.
Not all wrongful acts are insurable, however. Insurance typically will not cover intentional wrongdoing by an employer.
That said, employment practices liability insurance is a crucial tool in every company’s financial portfolio. Combined with a top-down culture of respect, clearly communicated and documented protocols for employee treatment, swift and balanced enforcement of policies and obedience to employment law, EPLI rounds out a full complement of quality employment practices that benefit the entire organization.
Your insurance broker can help ensure you have the right policy to meet the unique needs of your business.
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