Employment practices liability insurance coverage tackles many aspects of your relationships with your employees, from wages to immigration status to harassment to wrongful firing and more. Even if you have a top-notch human resources department and a detailed employee manual, there’s always the possibility that an employee may sue you.
We’re All Friends Here
Several years ago, I was consulting with a client who opted out of employment practice liability insurance. “Oh no,” he said, “We're all friends here and really don’t need something like that.” I wish that were true. He recently told me one of his former employees was suing him. The insurance would have cost him $1,500, now his lawyer’s fee will be substantially more than that, and who knows how much he’ll be paying if they lose the case?
It Wasn’t Intentional
Many businesses do have a friendly culture and within the past 10 years, there has been a movement to lessen the divide between work life and family life. Company picnics, employees developing strong friendships outside of work, and acceptance of personal phone calls and conversations during working hours can all add up to a more pleasant work experience. Unfortunately, even a wonderful company culture does not guarantee the business won’t be sued by its employees.
Things can happen without any intention, such as not keeping up with the changes in payroll rules and regulations, a seemingly simple comment taken out of context, or even an outside influence who convinces an employee that they “have a case.”
Don’t be blind to the things that happen with intention, even if it's subtle, such as inappropriate or insensitive comments, whether sexual, political, body shaming, performance-based, or something else. Comments that change the workplace from pleasant to hostile can easily prompt an employee lawsuit.
Outsourcing the Risk – Payroll Service vs. HR Organization vs. Professional Employer Organization
Unless your business has an internal staff that’s focused on employee management, sometimes it’s best to outsource it. There are a few different options depending on how much risk you want to keep or mitigate.
A payroll service will process the payroll, ensure that there’s enough money to cover paying your employees and paying the taxes and help you make your tax payments on time (depending on the depth of service you choose). They don’t know if you are paying the correct salary or adhering to your own rules – they process what you tell them, so your employees get paid. All the other human resource responsibilities and risks stay in-house, such as benefits packages, employee manuals, raises, promotions, demotions, and more.
A human resource organization (HRO) offers payroll services as well as HR administration services including benefits, training, and compliance. They make sure things are getting done, but your business is still responsible for things going well in your work environment, so continues to maintain all the risks.
A professional employer organization (PEO) is considered a co-employer and shares the risk with you. These organizations manage everything related to the employee while you manage the company culture, The PEO becomes the “employer of record” and is responsible for all the human resources functions.
The Benefit of Employment Practices Liability Insurance
The biggest benefit is that you don’t have to worry about the process if your business gets sued. Instead of trying to find an employment lawyer after-the-fact or worrying about if you can afford the cost of a lawsuit, you simply must file a claim.
Once you file a claim the insurance carrier takes care of the process. They have the attorneys, cover the costs of being in court, and pay the judgment decreed in favor of the employee. However, if you were sued for underpayment of wages, or any other fees, taxes, expenses etc. that your business should have paid in the first place, your business is liable for that money.
An employee lawsuit is about action, not intention. It’s important for a business to be diligent about enforcing the terms of the employee manual, addressing issues as soon as they arise, document as much as possible, and stay abreast of changing federal and local regulations.
Even with the appropriate processes, outsourcing, and training in place, no business is risk-free from an employee lawsuit. Even as a co-employer, you want to be covered. Employment practices liability insurance makes sure your business won’t have to pay legal expenses that in some cases, could cause unrecoverable financial damage.