The law can be a demanding taskmaster. Although occasionally humorous, more often than not the legal system is not kind. I have seen a lawsuit where the combined legal fees and expert fees on both sides exceeded $30 million. It was not pretty. For the average person, however, a $30,000 lawsuit is just as ugly.
From a business owner’s point of view, there is no way to avoid the legal system, particularly when it comes to employment. EEOC, EDD, OSHA – the legal requirements are spelled out in initials. For many businesses, their single largest area of legal exposure and risk is in the area of employment practices.
During my 18 years as general counsel, the legal staff spent 20% of its time dealing with employment related issues, primarily from the viewpoint of proactive prevention of problems. Even the best preventative program, however, does not guarantee that there will be no problems. That’s where a new set of initials can be helpful: EPLI or Employment Practices Liability Insurance.
With the average jury verdict over $250,000 and the costs of defense lawyers over $100,000, even an attorney can figure out that avoiding just one employment related claim is cost effective.
Avoiding claims and protecting the interest of the employer is what general counsel does best. I advise clients to consult counsel before they discipline or discharge any employee, and to make sure that their company and employment practices are up to date.
Yet even the most careful company can find itself on the wrong end of an EEOC (Equal Employment Opportunity Commission) complaint or a lawsuit.
At one time, it was nearly impossible to insure against the risk of a wrongful termination lawsuit, and the available limited coverage was expensive. Today the trend is towards expanded coverage and lower premiums.
EPLI policies can cover discrimination, sexual harassment, wrongful termination, defamation and negligent hiring. Policies generally do not cover wage losses or violations of state or federal labor laws.
In California, policies are not permitted to cover punitive damages. Thus, even with EPLI, employers are at significant risk for punitive damages which often greatly exceed actual damages.
Premiums can vary widely depending upon the employer, the industry, prior claims and preventative practices. Premiums can be reduced for companies with a solid preventative maintenance program. Some insurance companies require legal audits or self-reviews as part of their underwriting process.
There are two types of companies in this world: those who have had an employment practices claim, and those who will. Every company should have a proactive, preventative legal program in place to minimize the risk of employee claims. But, since it is impossible to control everything that employees do, an EPLI policy can further help to manage the risk of a catastrophic judgement.