Why your Business needs Coverage against Employee Discrimination Claims

The news that Ellen Pao dropped her appeal against her former employer Kleiner Perkins in the highly publicized discrimination case may seem like good news for employers. The fact that she has to pay $275,000 in costs as awarded by the court may cause those contemplating such actions against their employers to reconsider their plans before proceeding. However, this kind of outcome is far from normal. According to a study done in 1998 by the Risk Management Consulting Services of PricewaterhouseCoopers, almost 70% of employment claims result in a monetary award and the average amount was, at that time, $1.5 million. The increase in employment related lawsuits and the higher awards being given today by courts have increased the risk for employers exponentially.

With the best of employer intensions and the strictest of polices in place, there is always room for an employee to bring a case against the employer. That is why employment practices liability insurance (EPLI) is an essential coverage for all businesses.

Why EPLI?

Insurance companies started offering EPLI in 1992, after the sexual harassment claims made during the confirmation hearings of Supreme court Justice Clarence Thomas. Also it was at that time that the Civil Right Act was amended to allow juries to award punitive and compensatory damages to plaintiffs inemployment related cases. In the years since then, the number of sexual harassment and discrimination cases have been steadily increasing. While cases against large corporations garner the most publicity, it is the small and new businesses that are often most at risk. Large companies have legal departments and established practices to control employee hiring, discipline and termination. Smaller businesses usually do not have such processes in place and tend to suffer the most.

What Does EPLI Cover?

EPLI provides employers with indemnity coverage for defense costs, judgments and settlements in the following basic areas:

• Sexual harassment
• Discrimination
• Breach of employment contract
• Wrongful termination
• Wrongful discipline
• Negligent evaluation
• Failure to employ or promote
• Denial ordeprivation of career opportunity
• Wrongful infliction of emotional stress or trauma
• Mismanagement of employee benefits

Commercial General Liability Insurance Is Not Enough

Many employers make the mistake of thinking that their business owners liability policies will cover them against the kind of issues mentioned above. It does not. EPLI is a separate coverage that is normally offered as an extension of coverage on umbrella liability or Directors and Officers (D&O) liability policies. Most D&O policies only cover specific individuals like executives, supervisors and so on, but not the company as a whole.

EPLI Is Essential

The cost of EPLI is often surprisingly low. How much it will cost will depend on factors like the number of employees in a business, the number of prior suits filed against the company, the volume of employee turnover and the presence of effective employment rules and practices. The actual cost can be as low as $2,000 per year. If you do not have EPLI or are unsure about your coverage, contact an insurance broker to discuss your current situation and what you can do to increase your protection.

Employment Practices Liability: Defusing a ticking bomb

If you are like any other organization that conducts background checks on employees before hiring them, then you are at a graverisk of workplace harassment lawsuits. Protect yourself with an Employment Practices Liability Insurance (EPLI). Want to know more?

Background Checks are necessary for any organization. According to the Justice Department’s report on Workplace Violence Statistics, between 1993 and 2009, nearly 572,000 crimes of a minor nature occurred in the American Workplace. In most cases, the offender/assailant was an employer/employee/colleague of the victim. Little wonder that most companies have a thorough recruitment procedure which checks the prospective employee’s:

• Skills
• Family background
• Educational background
• Criminal Background
• Credit History
• Driving Offences
• Drug and Alcohol tests

While these are common to most organizations, several of them have additional,custom checks to be completed. As a result, hiring cycles drag out much longer in the United States than in comparison to other countries.According to leading HR Consultancy – Glassdoor; since 2009, it takes an average of 22.9 days to hire a new employee, an increase of 4 days from the previous decade.

Interestingly, while most of these checks were mandated by the Federal Government, delays in hiring, during a recessionary economy, have forced the Government to rethink these policies. The Equal Employment Opportunity Commission (EEOC) and the Obama Government have been vociferous in demanding flexibilities around these checks.

Across the country, more than 100 cities and counties have adopted a policy, popularly known as ‘ban the box’. According to this, employers must primarily focus on the candidate’s skills or qualifications, and the conviction record check is conducted much later in the hiring process. As many as 18 states have adopted the policy completely, and another 7 states - partially.

The driving force behind the policy is the perception that criminal background checks and credit rating checks have a disparate or unequal impact across ethnicities. It allegedly puts African-Americans in generaland African-American males in particular,at a severe disadvantage.The EEOC published guidelines on the use of criminal background information during recruitment, in 2012. Since then, it has been aggressively driving the ‘ban the box’ policy through legislation and litigation.

Several lawsuits have brought the policy into the limelight and caused a pushback on some of the EEOC guidelines, to make it fair to both employers and employees.

Notable among them are:

• Freeman: The EEOC vs Freeman suit was filed in 2008 by an African-American lady who alleged that her employer discriminated against her based on her credit history. Subsequent investigations and hearings expanded the scope of the charges and EEOC alleged that the employer practiced a pattern of discrimination against African-Americans by using their credit history, and against all African-American, Hispanic and white male applicants by using their criminal history, during hiring. The employer could prove that all of these checks were clearly communicated and there was no intention to discriminate.
• Pepsi: Pepsico was forced to pay a $3.1 million fine and modify its hiring procedures, in the light of similar allegations.
• Dollar General: In an ongoing suit, DolgenCorp is defending its right to withdraw the job offer, if a subsequent background checks reveal criminal history.

Refining existing guidelines and creating new ones is a continuous process. But the larger reality is that business organizations are constantly at the risk of lawsuits from various aspects of their operations.

The only option for organizations then, is to have anEmployment Practices Liability Insurance (EPLI) cover. EPLI is a comprehensive policy that covers not just hiring practices but a whole lot of situations that a business organization can face in its lifetime. This includes losses and injuries to prospective employees, existing employees, clients, vendors, consultants and third-party agencies;hiring practices, malpractice coverage, workplace harassment, etc.

In short, EPLI is Health Insurance for a company.

For more details, call and speak to any of our agents.

Employment Practices Liability Insurance: Drawing a Line

The United States of America, has always stood for equal opportunities in employment, and creating a safe workplace for the community of employees. Similar to several other areas of labor and employment related issues, the United States of America, has been a shining example of how legislation can be used to enforce good practices and prevent acrimonious incidents at the workplace. Some of the landmark legislations in this domain include:

• 1964: Title VII of the Civil Rights Act
• 1967: ADEA (Age Discrimination in Employment Act)
• 1990: ADA (Americans with Disabilities Act)
• 1991: Civil Rights Act
• 1993: Family and Medical Leave Act (FMLA) 

These laws are interpreted and enforced by the EEOC (Equal Employment Opportunity Commission) of the Federal Government.

However, use and abuse of laws exist in every sphere of life and the law governing the safety and equal opportunities for employees is no exception. These laws have, unfortunately, opened up a whole slew of employment related lawsuits. It has been reported that between 1999 and 2003, there were as many as 403,000 law suits filed under various laws and subsections, by employees, with the EEOC. Needless to say, some of these claims were groundless, but nevertheless extremely expensive to defend or settle.

That is why, in the last couple of decades, one of the insurance products that is increasingly being favored, is the Employment Practices Liability Insurance (EPLI). EPLI is a type of liability insurance that covers wrongful acts arising at the workplace and provides protection from claims against them. These generally cover:

• Sexual harassment at the workplace
• Discrimination on various grounds such as gender, age, physical disability, compensation & benefits, genetic traits, nationality of origin, pregnancy, race, color, religion and retaliation for whistle-blowing, among others
• Wrongful termination from employment
• Breach of employment contract
• Negligent or improper evaluation
• Refusal to employ and/or failure to promote
• Wrongful norms for workplace discipline
• Wrongful infliction of emotional distress
• Inappropriate workplace conduct
• Defamation
• Invasion of privacy

EPLI aims to protect Managements of the businesses from groundless claims brought about by disgruntled employees. The coverage also includes:

1. Perceived issues: Although there may not be an intention to create a wrongful act, gaps in age, generation and communication gaps can create a perception of wrong-doing.
2. Legal conflicts between employees and contractors, vendors, customers, partners and clients.
3. Deliberate damage or injuries inflicted by the company’s employees without the Management’s consent or knowledge.

The policies cover Directors, Officers, Management personnel, and employees as insured. However, most EPLI policies generally exclude coverage for:

• Punitive Damages
• Fair Labor Standards Act Violations
• Certain Americans With Disabilities Act Claims
• Employee Retirement Income Security Act (ERISA) Violations
• Consolidated Omnibus Budget Reconciliation Act (COBRA) Violations
• Occupational Safety and Health Act (OSHA) Violations
• Intentional Institutional Claims (such as retaliating against a whistle-blower)
• State Employment Law Violations

The cost of EPLI coverage is a complex matter and depends on the nature of business, size of the company (number of employees), past history of lawsuits and claims made against the company. The policy will reimburse the insured company against the defense costs which is the cost of defending the lawsuit in court, as well as, the settlement amount. It also covers legal costs, irrespective of the outcome. 

Allied Brokers is a full-service insurance brokerage firm and has been providing insurance cover throughout California, under various categories since 1954. We understand EPLI thoroughly, having handled many such claims. We will guide you through the intricate terms, conditions, details and caveats that govern EPLI. We provide policies that are optimally-priced and offer the kind of coverage that is required, keeping your best business interests in mind.