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The Perils of Management: Employment Practices Liability

It is hard to believe that any business would intentionally discriminate in employment based on race, religion, sex, or any other protected class. Even so, the laws exist for a reason, and businesses with no ill intent can often face legal issues due to adverse impact discrimination. What, to many managers, may appear to be a neutral Equal Employment Opportunity (EEO) criterion may actually discriminate against a class in one way or another. Intent doesn’t matter; only how it is interpreted after it happens.


Understandably, if a manager isn’t intentionally discriminating, then avoiding discrimination probably isn’t at the top of their list. Why? Because it’s something that could happen that never even occurs to them. Unfortunately, it’s also something which cannot be ignored. Damage claims can be high, and lawsuits can take years to get resolved.


The job of HR is to ensure that hiring processes, requirements, and other factors avoid both intentional and unintentional discrimination. That compliance needs to remain intact through the entire employment relationship, not just the hiring process. The bottom line that HR professionals need to communicate to managers is that even seemingly innocent policies can put the organization at risk of lawsuits.


HR Morning, an organization presenting news for HR professionals, has done research on this and found that the average cost of a lawsuit in this situation is $125,000. Even more alarming is the fact that 25% of these judgments are over $500,000 (http://www.hrmorning.com/what-discrimination-charges-cost/). This situation is not limited to hiring or firing, either, and also includes things like ensuring a safe and respectful workplace. All of these things fall into a category known in insurance terms as Employment Practices Liability (EPL).


Ultimately, one of the best ways to avoid issues with EPL is to simply prevent situations from which it can arise and make sure everything is well documented. To that end, here are some of the best practices that organizations can follow:

· Keep documents detailing decisions you have made with personnel. Make sure to include the reasons for why these things have been done, with dates and associated documents.

· Ensure employees know you have an “open door” policy, or at least some kind of clear process for how to report any issues that they have with their employment. It is also important to make sure that employees know they won’t be punished for doing so.

· Relax. Rash decisions made in the heat of the moment are often the cause of these types of problems. Taking the time to relax and breathe is often all it takes to handle these situations with a more level head.

· Don’t post on social media about employees. With the potential for things to go viral and get out of hand, it is better to avoid it altogether.

· Treat everyone equally in the workplace. Don’t offer anyone special perks that you aren’t giving to everyone else. This can include alternative work arrangements like telecommuting, etc.

· Make sure you give clear expectations to everyone: standards, timelines, goals, priorities, etc. While you’re at it, make sure they are written down somewhere and you keep track of them. These metrics are often what can be used to show fair practices if someone has to be let go.


To this end, think about creating an employee handbook.

· Go through periodic performance reviews of employees and be sure to note any issues in the file of the employee being reviewed.

· New hires pose a higher risk, so a thorough screening and hiring program is essential to weed out unwanted candidates prior to calling them for an interview.

· Include equal employment opportunity statements on your employment application and ensure you have a statement that employment will be “at-will.”

· Have a zero-tolerance policy regarding discrimination, harassment, and substance abuse.



Beyond this, there is also EPL insurance. These policies are specifically designed to cover the expenses of lawsuits brought about when employees sue over wrongful termination, discrimination, harassment, and related issues. Coverage begins when an employee (or employees) claim that they cannot complete their work in a fair environment or that they have had their rights violated in some way. With such high-dollar amounts associated with lawsuits arising from EPL issues, it simply isn’t a feasible plan to hope for the best.


It’s important to note that this insurance is not meant to foster an “us vs. them” mentality between management/ownership and employees. It, like other policies, is simply meant to alleviate some of the risk associated with doing business. People who sue for these issues are not inherently malicious. They may feel legitimately slighted, which is why following best practices is important.


Does your organization currently have an EPL policy? If not, you may be at risk. That risk, again, is present regardless of the actions you take. Even by taking all the preventive steps and following best practices, all it takes is one disgruntled applicant to cry foul and suddenly you are stuck dealing with it whether you like it or not. It pays to be covered. Even on the low end, not many organizations could easily deal with the sort of costs that EPL issues can bring with them.


How much this coverage could cost depends on a few things: how many employees you have, whether or not you have faced lawsuits in the past, employee turnover, and whether you are currently following well-established policies and practices to avoid EPL issues.

To speak with one of our EPL experts and find out how to prevent any risk to you or your organization, contact us at 952-941-9418 or NesbitAgencies.com.