I’ll be covering the numbers of employee lawsuits. Learn which industries have the highest litigation risks and whether your business should purchase an Employee Practices Liability (EPL) insurance policy.
Here’s What the Numbers Say:
Let’s throw some statistics around.
The Insurance Journal found that only a quarter of companies who could benefit from an EPL policy actually purchase one. Unfortunately, many employers believe they’re not at risk for a lawsuit. But if you plan on being in business for at least five years, you can expect to face a lawsuit at some point.
If you have at least one employee, you’re at risk for an employment lawsuit. It only takes one issue to push a company past the point of recovery.
In 2016, the Equal Employment Opportunity Commission assisted U.S. employees in receiving over $480 million in compensation from discrimination charges. Think you can fight back? The same commission won over 90% of cases against employers in the same year. Your odds aren’t looking good, my friend.
Even if a suit against you is meritless, settlements aren’t uncommon. Most businesses think that heading to court to prove their innocence is their best option. But settling sometimes makes more sense. Settling can not only significantly reduce the cost of a lawsuit but also saves time and prevents your business from receiving an overload of negative attention. Here’s why:
- You receive a notice you’re being sued, along with the official court summons.
- You reach out to a lawyer who reviews the lawsuit documents. They’ll either file a response or advise you to file a countersuit.
- You, your team, and your lawyer spend the next several months preparing for court. This involves combing through files, data, emails, and other bits of information that can help you prove your case.
- You head to court and put your fate in the judicial system.
The time between receiving your notice and stepping into a courtroom could be several months, even a year or longer. As you can imagine, this is draining on your finances and energy. During this time, media coverage could start to harm your reputation, even if it’s just bad reviews on your Facebook page.
Paying for defense fees and settlements can cost a small business between $30,000 and $200,000. Settling quickly can keep you on the lower end of the spectrum. To summarize, businesses who believe they’ll lose in court should settle before heading to trial. But businesses who believe they could win in court should strongly consider settling to save on expenses and stress. It’s a harsh truth that many businesses don’t realize until they find themselves in such a position.
5 Signs It’s Time for Your Business to Get Employment Practices Liability Coverage
When it comes to purchasing an EPL policy, the timeline for every business is a little different. Periodically evaluate your current standings to see if you can benefit from such coverage by reading through the following signs. The more that remind you of your business, the faster you better run to the phone and call your insurance broker.
Here’s a quick breakdown, but keep reading for more details!
- You’ve never been sued
Just because something has never happened doesn’t mean that it will never happen. In fact, the opposite is probably more accurate. Every day that your business goes without a lawsuit brings you a day closer to one.
With roughly 90% of all businesses finding themselves involved with a lawsuit at some point in time, the risks are real and they’re closing in on you every day. You may have been lucky so far, but luck isn’t the best way to protect your business.
- You’re a large corporation…or a small business
…or somewhere in between. I know, vagueness at its finest. But the size of your business can tell you what you’re more at risk for. If you have a larger business, say over 500 employees, your risk for a lawsuit is greater. Think of it as a lottery. If every employee is a ticket, you have a higher chance of winning than the business with one ticket/employee. But this isn’t a lottery you want to win!
Every day your business is open brings opportunity for discrimination, wrongful termination, and harassment. As a larger business, you may be better equipped to handle the financial aspect of a lawsuit, but you could also experience irreversible public backlash if the lawsuit goes public.
Do you have just a handful of employees? You may not have as many opportunities for a lawsuit to show up on your desk, but the risk is still there. As a smaller company, you may not have the financial resources needed to fight in court or settle outside of it. If you’re a medium-sized company, you’re dipping your feet into both pools, giving you the good and bad of both worlds.
- You work in a high-risk industry
There are certain industries that are more prone to litigation issues than others. While I have yet to come across an industry that couldn’t benefit from EPL, I never suggest the following industries go without it.
According to QuickBooks the top five industries with Fair Labor Standards Act Wage and Hour lawsuits are:
- Accommodation and food services
- Healthcare and social assistance
If your business falls into one of these industry categories, looking into EPL coverage should be on the top of your to-do list.
- You employ supervisors and managers
Do you utilize employees in managerial positions to help keep your business running smoothly? While this is recommended from a productivity point of view, it does raise some concerns when it comes to avoiding lawsuits. Think of supervisors as appendages. You’re responsible for their actions and anything that happens as a result will ultimately come back to you.
Unless you can supervise every supervisor yourself (and wouldn’t that defeat the purpose?), you’re at a higher risk for an employee lawsuit. When hiring for leadership positions, make sure you vet each applicant properly as their actions will have a direct effect on your business’ future, whether they cause a lawsuit to come about or not.
- You have high turnover rates, diversity, or both
Some industries have higher turnover rates than others. Whether turnover is just part of your business or you went through a rough patch that left you with a team of replacements, know that higher turnover is associated with lawsuits, as disgruntled employees could find a way to sue for wrongful termination or criticize their former work environment.
The same goes for diversity. While hiring employees from diverse backgrounds can provide a unique and beneficial work environment, it does increase the chances of cultural misunderstandings that can lead to discrimination lawsuits. If you do have a diverse employee pool, periodic training can help prevent misunderstandings.
Employee lawsuits can turn your business inside out and upside down overnight. Even if you take every precaution, you’re always at risk for an employee lawsuit.
Don’t let a lawsuit take away everything you’ve worked so hard for. If you’re a business owner with one part-time employee or a team of 1,000, an EPL policy is a smart safety net to invest in.
Part 2: 5 Signs Your Business Needs EPL Coverage