Employment Practices Liability Coverage: How to Protect Yourself

December 2015 Vol. 242, No. 12

Kenton Miles

The last year has been tough on the oil and gas industry. In times like these, as a number of companies are forced to downsize, the last thing your business needs is to face a lawsuit for wrongful termination.

Even if you are fully within your rights, and you have done everything possible to prevent letting people go in a challenging economic environment, it’s no guarantee a former employee won’t feel otherwise and pursue litigation. In fact, there have been several recent news stories about law firms in cities that were experiencing the oil and gas boom in recent years that are now seeing a marked uptick in the number of cases from laid-off employees bringing suit against their former employers.

What many companies fail to realize is that their general liability coverage does not cover wrongful termination suits. In fact, general liability does not cover discrimination cases of any kind. To protect your business in these instances, you need what’s called Employment Practices Liability Insurance (EPLI).

What’s EPLI?

EPLI covers your business against claims by your employees that their legal rights as employees have been violated. An EPLI policy covers discrimination and employment-related issues. Coverage includes sexual harassment, discrimination, wrongful termination, breach of employment contract, negligent evaluation, failure to employ (for example, if you decide not to hire someone who believes they should have been hired) or failure to promote, wrongful discipline, deprivation of career opportunity, wrongful infliction of emotional distress, and mismanagement of employee benefit plans.

In addition, a policy can protect you in a third-party discrimination suit. EPLI coverage can be added to your general liability policy or sold as a standalone piece of coverage for your business.

Who Needs EPLI Coverage?

It’s not just the big corporations that face these kinds of lawsuits. Your business is at risk for a claim no matter how large or small the company. In fact, it doesn’t even have to be an employee who brings the claim. If you don’t hire someone you interview, you could be at risk for a discrimination suit.

Even if you didn’t do anything wrong, if someone brings a suit against your company, you still have to factor in the fees required to defend the case in court. These fees could get into the thousands to tens of thousands. If you (or another employee of your company) are found to have been in the wrong, the damages awarded, especially in a challenging time for the industry, could mean the difference between staying in business and closing up shop.

What Can You Do to Protect Your Business?

The challenge, if you are a small to mid-size business, is that you might not have a big legal department or strong human resource policies and practices. It becomes even more challenging when most of your workforce is spread out in the field. If anyone responsible for hiring, promoting or handling human resources (HR) issues doesn’t have clear guidance and adherence to legal policies and procedures, your business is liable for their actions.

Here are a few things you can do right now to protect your business:

• Document everything. Keep detailed records of employment, hiring, any issues that are brought to your attention and any steps the company is taking to address problems.

• Research best practices, policies and procedures for HR. The best thing you can do to protect your business is to have good HR processes and protocol in place so you can hopefully avoid a suit in the first place. You can often find helpful HR template documents and best practices online at sites like Workforce.com. Then, once you’ve created your processes, be sure to educate your managers. There have been several recent cases in the news where consistent education with employees could potentially have prevented a costly claim. Provide training on issues related to HR and make sure your managers know where to find the company’s policies on HR issues so you can better ensure compliance with local, state and federal employment laws.

• Find out if you have EPLI coverage. If you don’t have coverage, talk to a knowledgeable insurance broker about your risks and the type and level of coverage you might need. It can be much more affordable than you might think. Firms like Moody Insurance work with a number of the country’s top insurance carriers and can help match you with a carrier that understand the unique challenges the oil and gas industry faces.

Downsizing is always painful – no two ways about it. But with the right resources, coverage, policies and procedures, you can ensure that your employees are treated fairly and that your business is protected.

Author: Kenton Miles is an energy risk and insurance consultant for Moody Insurance Agency in Denver, CO. Miles joined Moody Insurance Agency in 2013 as a risk and insurance consultant. He received a bachelor’s of science degree from Colorado State University with a focus in corporate finance. He earned his certified insurance counselor (CIC) designation in 2012.

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