Develop a full risk management strategy complete with EPLI Insurance.
Over the past 20 years, there has been a dramatic rise in the number of employee lawsuits. This increase has hit small businesses the hardest. Statistics vary, but the average cost to defend against an employee lawsuit is between $125,000 and $235,000 depending on what state your business is located in. As a result, small business owners need to do everything they can to protect their business and themselves.
The reason that small businesses are disproportionately affected is that most typically do not have a legal department or a human resources department. In larger companies, these groups would be responsible for creating and enforcing policies and procedures. So, if creating these departments is not feasible, how can a small business protect itself against employee lawsuits? Let’s find out!
What Triggers Employee Lawsuits?
Before we discuss what small businesses can do, let’s be clear on what typically triggers a lawsuit. The most common claims result from the following:
- Discrimination based on race, gender, age, religion, or disability.
- Wrongful termination.
- Harassment.
Now that we’ve established precisely what kind of lawsuits we are referring to, let’s examine what small businesses can do to protect themselves.
How Does Business Insurance Factor In?
One major misconception amongst small business owners is that their business owners insurance covers them against employee lawsuits. This, however, is not the case. A separate Employment Practices Liability Insurance (EPLI) policy or endorsement is required.
EPLI pays to defend against lawsuits and pays out if the court rules in favor of the plaintiff. Often, small business owners are not aware of this gap in their insurance coverage.
Those who are aware of the need for EPLI often forgo it because they feel they cannot afford the added expense. They may also believe that an employee lawsuit is unlikely. So instead of purchasing EPLI, they choose to take a risk.
Of course, a willingness to take risks is often a small business owner’s greatest asset. But one must learn to differentiate between good and bad risks and there is very little upside to gambling on potential employee lawsuits. Most employment lawyers, insurance agents, and seasoned business owners would all strongly advise carrying EPLI.
How Can An Employee Handbook Reduce Employee Lawsuits?
Insurance aside, one of the best ways you can provide additional protection for your small business is by developing an employee handbook.
At the most basic level, an employee handbook sets expectations, outlines prohibited behaviors, and instructs employees on the procedure for reporting a complaint.
A handbook minimizes misunderstandings which can help prevent employee lawsuits. Importantly, having a good employee handbook can also reduce the cost of EPLI insurance because insurers know that they help minimize costly risks.
Developing A Full Risk Management Strategy
Small business is the heart and soul of this country’s economy. If you’ve put everything on the line to start up your own enterprise, make sure you protect it. EPLI insurance, employee handbooks, and proper training are three great ways to start.
Arbor Insurance Group is an independent insurance agency that provides business insurance and personal insurance products throughout the Lehigh Valley, including Allentown, Bethlehem, Easton, Emmaus, Macungie and surrounding areas.
