Employment practice liability insurance is a coverage that is designed to help protect businesses, both large and small, from claims that an employee’s civil rights have been violated. The insurance policy will ensure that the company is represented in a court of law. It will also pay any damages that are awarded to the plaintiff. Despite its value, however, many businesses fail to see the importance of this type of liability insurance.
Why Does Your Business Need Employment Practices Liability Insurance?
Employment practice liability insurance may seem optional, especially for small businesses. In truth, however, it really is a necessity if the business has employees. Even if the employer never commits and act against an employee’s civil rights, claims can be made. Defending against those claims can cost hundreds of thousands of dollars. To make matters worse, civil rights violation claims really are a “he said, she said” situation. The verdict usually falls in the favor of who is most believable in their testimony. Sometimes, even if the business has done nothing wrong, the scales can tip in the favor of the plaintiff.
Common Employment Practices Claims
Employment practice claims can be made by potential employees, current employees and former employees. Discrimination based on age, gender, race, sexual origin or religious beliefs can be used to make claims against a company. Not all claims are based upon actual evidence of discrimination; claims can be made on a perceived violation. These types of claims can be very difficult to resolve.
Take, for instance, a pregnant woman applies for a position with the company. While the personnel manager may know that someone else was more qualified for a position than the applicant making a claim, the applicant still feels that her pregnancy played a role in the personnel manager’s decision to hire someone else.
In instances such as these, lawyers that represent the plaintiff may look to the company’s history to try and determine if there is a trend that violates the civil rights of others. Even if a violation may not have happened through intent, if the lawyer is able to find information that makes it look like the company regularly avoids hiring certain individuals, the company can be seen as discriminatory.
Sexual harassment can also be used to make a claim against a company. Sexual harassment claims are generally more founded in nature. The plaintiff may have a witness to the action. They may have gotten their supervisor or a co-worker involved in the matter. Unfortunately, if the sexual harassment goes unresolved in the eyes of the plaintiff, they can make a legal claim and sue the company. It is for this reason that companies should have a sexual harassment policy that is clear and concise. This policy should be followed at all times.
The Cost of Employment Practices Liability Insurance
Because of the diversity of each business, cost will vary greatly from one business to the next. Small businesses with only a few employees can expect to pay much less than large corporations that employ hundreds of employees. The difference between the two could be thousands of dollars annually. Still, the exact cost can only be determined by an insurance underwriter.
Several factors are used by the underwriter to determine how much a company will pay for their employment practices liability insurance, including:
- The company’s revenue.
- The number of individuals employed with the company.
- The industry or nature of the business.
- Past claims made against the business.
- Hiring and firing practices.
- Turnover rates.
- Written company policies and procedures regarding their employees.
Employment practices liability insurance is not inexpensive, by any means. The cost, however, pales greatly in comparison with the cost of defending a company in a court of law against a claim. An even bigger contrast exists between the cost of paying for employment practices liability insurance and the damages if the plaintiff wins their case. Settlements of up to $5 million dollars have occurred in the past. Costs such as these could liquidate a business, which is exactly why protection is needed.
Selecting an Employment Practices Liability Company
Once you have settled on the fact that employment practices liability insurance is essential, it is time to start selecting the right company for your coverage. This can prove to be rather challenging. Each insurance company is different. Prices from one company to the next will vary. Limits on the amount of coverage you will receive for your premium will be different as well.
Before signing on the dotted line, be aware of how much protection the insurance company is offering you for your money. Take the time to read the fine print and be aware of limitations or exclusions that may be present in your contract. Try to find the company that offers you the most protection at the best price.