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 Steve Cesare
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Several months ago, a potential client called me to discuss several employee issues (e.g., employment discrimination, retaliation and wrongful termination) with me.
During our conversation, I suggested his company purchase Employment Practices Liability Insurance (EPLI) to provide suitable legal protection in the event a past, present, or potential employee ever sued his company on any of those human resources issues.
He said he did not have $6,000 for $1 million of coverage and thought EPLI was an unnecessary cost.
Two months later, his company was sued by a former employee for $505,000.
Sixty percent of American companies are sued by former employees every year. The employee wins nearly two-thirds of the cases, with an average verdict of $200,000 (not including punitive damages).
EPLI protects the company, its directors, officers and other employees against a broad range of human resources claims, including discrimination, constructive discharge, sexual harassment, retaliation, wage and hour, wrongful termination, and other claims.
Once covered, the EPLI carrier will normally reimburse the insured company for expenses (e.g., legal fees, settlements, judgments) incurred by handling the lawsuit regardless of outcome.
Key Points. The following 10 issues must be considered when deciding to adopt EPLI coverage that provides maximum protection.
1. Definition of Insured: The policy should broadly define those people being “insured” (i.e., covered) to include directors, officers,and employees (e.g., full-time, part-time, seasonal).
2. Definition of Claim: The policy should broadly define a “claim” to include written demands for monetary damage, as well as criminal, civil, administrative, and regulatory proceedings, investigations and arbitrations.
3. Definition of Loss: The policy should broadly define a “loss” to include damages, settlements and judgments, defense costs, front and back pay, and punitive damages (with most favorable venue wording).
4. Definition of Wrongful Employment Practice: The policy should broadly define a “wrongful employment practice” to include wrongful termination, sexual harassment or other unlawful harassment, violation of federal, state, local or common laws concerning employment discrimination.
It should also include employment related misrepresentation, wage and hour, wrongful deprivation of career opportunities, negligent evaluation of employees, failure to adopt adequate employment policies, defamation, and retaliation.
5. Prior Acts Exclusion: The policy should not exclude any acts that occurred before the policy’s adoption date.
6. Multiple Agency Claims: The policy should cover claims filed by individuals as well as claims filed by agencies (e.g., EEOC, DOL, state agencies) on behalf of individuals; this is critical given the lack of that detail recently cost Cracker Barrel $2.7 million.
7. Distress and Anguish: The policy should have emotional distress and mental anguish carved out of the bodily injury exclusion since they are commonly alleged in employment practices lawsuits.
8. Retaliation Carve Outs: The policy should have carve outs for certain exclusions (e.g., ERISA, COBRA, FLSA, OSHA, NLRA) related to retaliatory claims.
9. Contract Exclusion: The policy should contain wording in the contract exclusion that provides the exclusion would not apply if and to the extent that liability would have attached in the absence of such a contract.
10. Human Resources Hot Line: The policy should contain free and unlimited company access to a human resources hot line to help guide the company through difficult employment issues requiring legal insight.
Cost. The cost of EPLI is dependent upon several company issues: annual revenue, number of employees, core business, claims history, hiring and firing practices, and written policies and procedures regarding employees and human resources practices.
Summary. While not intending to increase costs to landscapers who are already overburdened by administrative expenses, EPLI should be viewed as another strategic shield protecting the company, its executive team and employees from people who feel they are entitled to something that is not theirs: the company’s money.
Steve Cesare is an industrial psychologist with the Harvest Group, a landscape consulting group. Send your HR questions to cesare@gie.net.
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