Employment Practices Liability Insurance provides protection for an employer against claims made by employees, former employees, or potential employees for unlawful employment practices.
Defending a wrongful termination or discrimination claim — whether you are innocent or guilty, or even if the claim is groundless or fraudulent — can be expensive. You need EPLI.
Most general liability insurance policies exclude employee related claims. As soon as you begin to hire employees, consider EPLI. Most investors and directors will require that you carry this coverage as part of your Directors and Officers Liability Insurance, since they can also be held liable in suits related to employment practices. Moreover, in this economic environment, these claims continue to increase, leaving the uninsured vulnerable.
Employment related lawsuits pose significant business risks
The Facts: ABC Corporation is a technology company located in California. Mary was hired by ABC as an account representativeand worked for approximately three years. She told her boss that she was pregnant and would be taking a four-month maternity leave. Several months later, ABC lost a few major accounts and decided that they needed a reduction-in-force. Since Mary worked on one of the lost accounts, she was one of three employees that were let go. However, she was terminated one month prior to her scheduled maternity leave. Mary filed a lawsuit alleging wrongful termination and pregnancy discrimination and sought lost wages and compensation for emotional distress.
Risk Factors: During discovery, ABC learned that Mary’s supervisor had told her the company had a previous bad experience with a pregnant employee. This employee said that she was coming back after her leave but did not and left them with an empty position. The case went to trial and the jury sympathized with Mary who became emotional on the stand, describing how much she loved her job.
The Bottom Line: Due to the supervisor’s statement and the close proximity in the timing of the termination to Mary’s scheduled leave, the jury rendered an award in the amount of $500,000. In addition, under California state law, ABC had to pay an additional $175,000 to cover Mary’s attorney fees. On top of that, ABC paid $200,000 to its own defense. In the end, ABC was out-of-pocket $875,000.
The Facts: XYZ Inc. is a construction company in Detroit, Michigan. Jane was hired six months ago as a laborer and worked on a road crew in Minnesota. She was one of only two women on the road crew. When she failed to show up for work for two days, she was sent a termination letter. Two weeks later, Jane’s attorney sent a letter to XYZ alleging sexual harassment by Jane’s supervisor and a co-worker. Jane alleged that her supervisor, Mr. Smith, and one of her co-workers, Mr. Jones, made sexually explicit comments to her. In addition, she alleged that Mr. Jones asked her if she wanted to have sex with him and often bragged about his sexual conquests at work. Jane said that she told Mr. Smith that Mr. Jones made her uncomfortable at work, but Mr. Smith told her “she was being a baby” and would need to deal with it if she was going to be part of a road crew. As a result, Jane alleged that she could no longer return to work as a result of a hostile work environment.
Risk Factors: XYZ had a written sexual harassment policy which was reviewed by its attorney. In addition, the policy had a good reporting procedure which instructed all employees to report any discrimination or harassment to the HR department in Detroit. Jane did not take advantage of these complaint procedures which would have provided XYZ with a good defense. However, XYZ Inc. did not distribute the policy to many of its new employees on the road crew, including Jane. Only the employees in the main office received a copy of the policy and signed it. As a result, Jane reported the matter to Mr. Smith who did not handle the complaint appropriately.
The Bottom Line: XYZ Inc. settled the matter for $100,000.
The Facts: RST, LLC is a medical clinic specializing in internal medicine and diagnosis. John was employed as a medical lab technician for two years. He made internal complaints as well as a state complaint alleging that RST was improperly billing Medicare/Medicaid. Shortly thereafter, RST decided to fire John since he received a negative rating in his second performance review and co-workers found him difficult to get along with. The state issued a determination with regard to the improper billing and found no merit to John’s allegations.
Risk Factors: John was terminated while the state was conducting its investigation of RST. Thus, even though RST was found innocent of any improper billing, it still faced a retaliation claim from John for making such complaints and then being fired.
The Bottom Line: RST, LLC incurred defense costs of $150,000 in defending John’s retaliation claim and then settled the matter prior to trial for $30,000. Defense costs in this matter were high due to the need to review voluminous billing records during discovery.
