Technology Companies: Beware of the Employment Practices Litigation Explosion

Submitted by statecreative on Thu, 02/12/2015 - 21:04
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Business owners regularly face lawsuits for sexual harassment, hostile work environments, improper termination, and other claims related to employment practices. It is no surprise that employment practices liability insurance is crucial for businesses to protect themselves.

Sometimes the importance of the coverage is not immediately recognized, particularly with smaller, privately-held companies. Private company executives tend to think of their organization as a family. They know their employees. They eat lunch with them. They share the same company values. They don’t think they face the same risks as larger, publicly held corporations – and therefore, they assume they don’t need the same protections.

As the explosion of employment practices litigation in recent years has proven, those assumptions have turned out to be costly.

Private company executives are finding out their companies aren’t immune. Consider these typical risk scenarios:

  • Sexual harassment
  • Wrongful termination
  • Discrimination
  • Retaliation
  • Misuse of social media in hiring/firing
  • Wage and hour claims

According to Chubb’s 2013 Private Company Risk Survey, out of 450 U.S. private company executives surveyed:

  • 25 percent had an EPL-related event in the past three years
  • 45 percent are concerned about being sued for wrongful termination, sexual harassment, discrimination, or retaliation
  • 22 percent said an EPL lawsuit would cause the most financial damage to their company

These lawsuits can be financially devastating – and if your business is in California, legal verdicts are largely in favor of the employee. Nationwide, the average total costs associated with an EPL event are $70,267.

Wage and hour (W&H) claims are now the number one litigation risk for employers

According to a recent report by Seyfarth Shaw, LLP, 8,066 W&H lawsuits were filed under the Fair Labor Standards Act in 2014, a 31.8 percent increase from 2009, and the trend is expected to continue.

These claims are magnets for plaintiff attorneys because unlike a discrimination case where an employee has to prove the employer’s intent to discriminate, intent is irrelevant in a wage and hour case. With W&H cases, the employer either complied or they did not, and many employers get tripped up by one of the many legal gray areas.

The fact is, as an employer, you can seemingly do everything right and treat your employees with the utmost respect, fairness, and consistency – and still be hit with a lawsuit out of the blue.

You can’t afford to be without EPLi coverage if you have employees. Even though it’s not mandatory like workers’ compensation, these risks have become so prevalent that EPLi should be on the same list as your GL, workers’ comp, commercial property, and other essential business insurance coverages.

How do you protect your company?

First, talk with legal counsel and conduct an audit of your employment practices – especially anytime regulations change.

Second, even if you don’t commit to buying the coverage, walking through an EPLi application will give you valuable insight into your own labor risk management strategy and let you know where you’re vulnerable.

Finally, ask your broker if you currently have any EPL coverage; some GL policies provide a minimal amount. Then you can determine if you should consider more limits or broader coverage based on your company’s demographic (number of employees, state of operation, etc.). Be sure to ask about recently available insurance products that will insure for wage and hour claims on a stand-alone policy.

When you’re ready to talk about EPLi coverage for your privately held tech company, see the experts who know your industry and your challenges at Heffernan Insurance Broker to explore insurance for technology companies.

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