As a small business owner with a growing company, you’ve been careful to hire the “right” people for your team. You’ve put systems and procedures in place to ensure employee workflows are secure, compliant, efficient, and always serving your customers’ best interests. One of the growing pains of business expansion, on any level, is an increased risk of an employee making a poor decision that calls your employment practices into question—and possibly into a courtroom. Unfortunately, this can happen, and you don’t want to be unprepared if it happens to you.
This is the reason behind employment practices liability insurance. Claims of wrongful employment practices can disrupt your business, create a public relations disaster, destroy morale, and drain your finances, not to mention threaten the health, safety, and livelihood of a valued employee in the event of an incident. Here, we’ll take a closer look at the risks your business may face and how to protect against them.
Understanding Employment Practice Risks
Wrongful employment practices come in a variety of flavors related to hiring, firing, compensation, the work environment, and more. Claims may take the form of any of the following:
- Violation of the Family and Medical Leave Act
- Violation of an employee’s civil rights
- Failure to provide equal opportunity of employment
- Negligent employee evaluation
- Failure to promote
- Wrongful discipline
- Wrongful termination
- Harassment (sexual or otherwise)
- Libel, slander, or humiliation
- Infliction of emotional distress
- Failure to provide or enforce corporate policies
Here are a few hypothetical cases that employers are at risk of facing without the proper controls and protection in place:
- A 64-year old employee claims he’s terminated for age discrimination despite consistently meeting his sales goals and quotas.
- An employee files a lawsuit because her employer miscommunicated her eligibility to receive overtime pay.
- An employee sues his company because his salary is reduced by 20% without good cause.
- An employee claims a coworker consistently makes inappropriate sexual comments towards her and insinuated she is having a sexual relationship with another employee.
- An employee says he was fired in retaliation for complaining about his pay.
These are simple examples that merely hint at the complexity of an employment practices lawsuit. Not only may managing a claim overwhelming, but its costs can be potentially detrimental to your business.
Taking Action to Protect Your Small Business
Consider these best practices to help lower your employment practices liability risk:
Develop Sound Hiring and Employment Review Practices
Be as clear and transparent as possible through the hiring process—and keep up ample communications over the employee lifecycle. This includes creating a detailed job description for each position that defines your expectations, , screening candidates carefully, and conducting background checks before hiring. It might make sense to consult with a business attorney or work with an employment agency to help you manage the hiring process.
When it comes to retaining employees and managing their performance, refer to their job description documentation while reviewing and assessing their work. Use clear language when setting expectations and goals, making sure each employee understands their current role and what they need to achieve to reach the next level. Be sure to take good notes and maintain an employee file for each worker.
Establish and Communicate Policies
Create an employee handbook—working closely with your HR manager or employment agency partner—outlining the company’s policies and procedures related to attendance, complaints, and disciplinary action. This document should be updated annually and given to all employees or made accessible through an online employee portal or intranet. Additionally, establish, publish, and communicate a zero-tolerance policy regarding any form of discrimination or harassment.
Learn more in Best Practices to Help Prevent Workplace Harassment.
Listen to Employees
Employment practices protect you, as a business owner, and your employees. Make sure your employees are part of the “solution” before problems arise. Part of this effort involves clear and continuous communication. Aside from distributing an employee handbook and communicating job-related expectations, institute an “open door” policy that makes it clear what employees should do (e.g. who they should call) if and when they’re party to a suspect situation in the workplace—even if they witness suspect behavior. And be sure to take action on their reports, contacting the proper authorities and following due diligence recommended by your HR manager, legal counsel, and insurance provider.
Talk with Your Insurance Agent
Learn about Acadia Insurance’s employment practices liability insurance coverage and book an appointment with your insurance agent. Review your potential loss exposures together before purchasing employment practices liability insurance to be sure you’re protecting your business with the right level of coverage.
Acadia Insurance is pleased to share this material with its customers. Please note, however, that nothing in this document should be construed as legal advice or the provision of professional consulting services. This material is for general informational purposes only, and while reasonable care has been utilized in compiling this information, no warranty or representation is made as to accuracy or completeness.