Employee Lawsuits: 5 Reasons Your Small Business Needs EPLI Coverage

September 6, 2017

employee lawsuits_EPLI insuranceHow much do you know about employee lawsuits? If you’re like most small business owners, the answer is probably: not much. Unfortunately, in today’s work environment, you are more likely to be sued by an employee than see your business burned in a fire.

Kind of scary, right? This is why we’re urging all our commercial clients to consider EPLI (employment practices liability insurance) alongside their standard business owner’s policy. EPLI can cover legal defense costs in the event that one of your employees claims wrongdoing. If you need to pay an employee settlement, EPLI can ensure it doesn’t bankrupt your business.

So take a minute to browse the following facts. Whether you’re already a C&S client or not, please call our team with any Massachusetts business insurance questions you have.

FACT ONE: Employee lawsuits are on the rise.

Rightfully or not, American employees are quicker to file lawsuits than they used to be. For workers, the trend may be an encouraging step toward better checks and balances. For business owners, however, the rising number of employee lawsuits should be taken as a warning: this could happen to you.

Nationwide, there were 91,503 charges of workplace discrimination filed with the EEOC in 2016. This is the second year in a row that the number of charges has increased. More locally, the Massachusetts Commission Against Discrimination (MCAD) received 3,042 new claims in 2015. (The MCAD deals with companies that employ between six and fourteen people.) All together, 2016 complaintants were awarded more than $480 million in damages.

FACT TWO: Small businesses are often sued by their employees.

Think employee lawsuits are mainly aimed at major corporations with deep pockets? Think again. More than four in ten employment lawsuits (41 percent) are filed against companies with fewer than 100 employees. In 2015, small Massachusetts companies (those employing between six and fourteen workers) paid more than $1,400,000 in compensation for claimants’ lost wages and emotional distress. And that figure only represents cases resolved through MCAD conciliation and negotiation.

FACT THREE: Employee lawsuits come in many different forms.

Discrimination is a leading cause of employee lawsuits. Denying a promotion, withholding a job offer, or firing an employee on the basis of race, religion, age, sex (including pregnancy), disability, or citizenship is against federal law. Massachusetts state law goes a few steps farther—here, employers cannot discriminate based on marital status, arrest record, gender identity, or military service.

If you’re having trouble imagining how or why someone on your team might sue you, here are a few common examples of discrimination-based lawsuits filed against small companies in Massachusetts:

  • A Massachusetts employer was forced to pay $10,000 and complete fair employment law training, after failing to accommodate an employee with migraine headaches, and terminating her for “excessive absences.”
  • Another Massachusetts employer agreed to pay $30,000 and send its supervisors to anti-discrimination training, after making inappropriate inquiries about a job candidate’s criminal record.
  • Also in Massachusetts: an employer paid $12,500 for compensatory damages after firing an employee based on his failure to comply with its grooming policy. The employee claimed he was discriminated against based on his religion (Rastafarian) and endured comments about the length of his hair.

Employee lawsuits can also originate with claims of harassment, personal injury, illegal background checks, insufficient parental leave, unpaid internships, and numerous other causes.

FACT FOUR: Business owners are liable for the actions of their supervisors and managers.

Most business owners are successful, in part, because they’re good at treating people fairly. But without proper training and an updated knowledge of anti-discrimination laws, the people you hire to manage your teams may be putting you at risk. According to Workplace Fairness, Massachusetts state law holds employers liable for discriminatory behavior committed by their supervisors or managers. So if an employee can prove her case against one of your supervisors, then you are automatically liable, too.

FACT FIVE: Employee lawsuits are expensive, even if you’re in the right!

A lot of clients tell us they have exceptional HR professionals on their team, and they’re very careful about following appropriate protocols. Unfortunately, this doesn’t guarantee you won’t be sued. The New York Times recently profiled a California business owner who was sued not once or twice, but three times by aggrieved employees. Though he was able to procure a written apology from the third employee who filed a suit, settling the claim was ultimately the least expensive route. He credits his employment practices liability insurance with allowing him to fight for his principles.

Just how expensive are employee lawsuits? The cost of defending and settling a claim out of court can be as high as $75,000. A case that goes all the way to trial costs twice as much—potentially more, if you lose. And even when a claim is thrown out of court, an accused company pays $10,000 to $15,000 on average, according to Trusted Choice.

So what can you do to protect your business? Getting the right amount of EPLI coverage is a smart first step. We also recommend taking advantage of MCAD’s resources on anti-discrimination training and employment policy. Finally, don’t drag your heels about contacting an MA insurance agency that understands this growing business risk. Call our team at 508.339.2951.