The Risks of an Employment Lawsuit

Every business who has employees faces the risk of an employee lawsuit. In a recent study by Hiscox, on average, businesses in the US have at least an 11.7 percent chance of getting employment charge filed against them. In addition, businesses located in New Mexico, Washington, D.C., Nevada, Alabama, California, Mississippi, Delaware, Illinois, Arkansas or Tennessee, have a much higher risk of an employment lawsuit.

Many small to medium sized business owners don’t have any prevention measures in place. They may lack the resources or knowledge that large corporations have to prepare for such a lawsuit or believe that since they only employ only family members/ friends, are exempt from a risk of a lawsuit. In either case, the consequences can be very costly, even damaging if one doesn’t take the proper precautions. One in five businesses faced with an employment charge spend an average of $125,000 in defensive costs. However, businesses who had insurance, paid an average deductible of $35,000, saving $90,000 that the insurance company had to pay. Like the saying “better safe than sorry” goes: your best defense as a business is to implement some preventative measures.


Get Employee Practices Liability Insurance

An employment practices liability insurance policy in place can save you $$$ in the event you are faced with an expensive lawsuit. Depending on the circumstance, EPLI’s can be added to or in conjunction with a Business Owner’s and General Liability Policy. The amount of coverage you may need varies by a number of factors and can be discussed with your insurance agent.

Zero Tolerance for workplace discrimination and harassment

Communicate this to applicants, interviewees, and employees. Do they know what constitutes as discrimination or harassment? A shameless joke or gesture may be taken the wrong way and can lead to a potential lawsuit. Have employees agree in writing they have read and understand your company’s policy on workplace discrimination and harassment.

Have an Employee Handbook

Here you will clearly list and describe all company policies, rules and procedures. For example, if an employee doesn’t show up on the job, what are the repercussions? What constitutes termination over being penalized? Be clear and concise.

Write out job descriptions

Be sure to have a written job description for each position offered and filled at your company. Include job duties, on the job skills and expectations.

Conduct employee performance reviews and document all employee-related issues

Performance reviews offer a way for employers and employees to have a one-one-one discussion providing feedback on the employee’s current performance, solve any performance shortfalls and motivate to keep up the good work.

Develop a pre-employment screening program

This can be in the form of asking for references, completing criminal background checks, credit checks, and requiring the applicant to complete a physical or drug test. This isn’t just good from a risk management standpoint but also good practices to make sure you’re hiring the right people for you company.

Know the Law

There are laws in place to protect the rights of present, past and future employees. Familiarize yourself with the various employment laws so you don’t unknowingly encroach on someone’s rights.

If you’re unsure, schedule a risk review with your insurance agent. We will review any loss exposures with you and consult you on the amount of employment practices liability insurance that makes sense for your business.In general, we always recommend that our clients get a yearly risk review.