Most Companies View Employment Liability Claims Through Rose Colored Glasses

“It will never happen to me” is a multi-purpose rationale people use to avoid doing what they know they should, especially when it is difficult or requires extra effort. Interestingly this rationale also applies to small and medium-sized businesses wanting to avoid the issue of employment practices liability (EPL).

Research proves there is no reason for employers to adopt such a rosy outlook. According to November 2005 figures from Jury Verdict Research, the average compensatory jury award for employment practices liability lawsuits has risen by an annual average of almost 5 percent. The average amount for these awards in 1998 was $164,200, which rose to $218,133 in 2004. A significant factor in this trend has been the U.S. Equal Employment Opportunity Commission’s aggressive approach in prosecuting offenders. The agency obtained an unprecedented $168.1 million in awards in 2004.

Jury Verdict Research went on to note that since 1998 the most frequently targeted businesses are retail and service companies. Although these lawsuits outnumbered those brought against manufacturing and industrial companies by more than three to one, the average awards against manufacturing and industrial companies were far higher. Awards in manufacturing and industrial company suits averaged $250,000, as compared with $137,853 for retail and service companies.

With statistics such as these, why would any business risk liability when it comes to employment practices? Specialty insurer Beazley commissioned research to find the answer to that question. What they discovered was that many small and mid-sized businesses have developed a sense of prosecutorial immunity from the media’s bias toward reporting only awards against Fortune 500 corporations. This reinforces the impression that EPL claims are only a problem for large companies that maintain public visibility.

What should a small company do to protect itself from EPL claims? Start by reducing your exposure with a comprehensive employment practices program. Your program should not only spell out company policy, but must be specific in terms of the consequences for violating that policy. The next step you need to undertake is to protect your company’s financial assets. You can transfer this risk by purchasing Employment Practices Liability Insurance. While sound employment practices and well-trained managers can help reduce the risk of EPL suits, if an employee feels they have been unfairly treated, they can take legal action at the drop of a hat. For this reason you should consider the financial protection an EPLI policy provides.