John Sweeney is a partner with Thomas Rutherfoord, Inc, a full service risk management consulting and insurance brokerage firm. John’s expertise in complex Property & Casualty issues for government contracting, contracting, real estate, and technology firms is recognized in the industry. Rutherfoord will be co-hosting a seminar on “Software Failure: Practical Steps for Avoiding Disaster! on March 24 in Arlington.
Remember when it was only the five of you? You had a few set aside contracts and a little seed money. That was only a few years ago. Now success has gained traction. You’ve got over 150 or more employees, managers and supervisors and continuing to grow. Complexity has replaced simplicity, and the Risk Management aspect of Human Resources has become a full time necessity.
Considering literally dozens of Federal, State and local laws and ordinances governing the employment relationship to comply with, and the necessary speed to staff your growing business (or conversely – a reduction in force), Employment Practices Liability is a critical component of your insurance portfolio. In fact, in today’s economic environment employers are seeing increasing legal obligations in managing their workforces. In addition, recent large and highly visible verdicts and judgments have encouraged suits from those who “feel” they have been unfairly treated in employment actions. As well, consider the amount of time and lost productivity of management and other employees when an employment related suit or claim is presented. Even when nothing was done inappropriately, the cost to defend and dispose of the matter is daunting. Average indemnity costs are greater than $50,000 with an unfavorable verdict. Compounding this, average defense costs run $40,000 or more. Occasionally, these claims and their defense have accumulated costs easily rising into the millions of dollars. The bad news is that no business is immune from the threat, and the threat has grown from “if” to “when”.
One would think that avoidance of employment related claims is impossible in our litigious and complex environment, but it can be minimized and a claim’s impact significantly diminished. It starts with best practices in employment policies and procedures, and keeping up to date with the evolving statutes. Best practices involve formal policies and procedures with execution and documentation in the follow areas:
- Recruiting and Hiring Employees
- Employee and Applicant Testing
- Workplace Harassment
- Personnel Policies and Employee Handbooks
- Employee Evaluations
- Discipline and Corrective Action
- Terminating the Employment Relationship
- Layoffs and Reductions in Force
- Resolution Options
- Documentation and Use
As already stated, a claim or claims for employment related practices will occur given the pressures of the economy, human nature, whether your business is growing or reducing, and the increasing diversity and complexity of your workforce. Every company of a modest size can expect a claim or several claims within their lifecycle. Mitigation of risk by establishing and executing best practices is the first step, but there is still a further way to mitigate and control the total cost of risk to your business.
Risk transfer through the Employment Practices Liability Policy can provide quantifiable and measurable protection to you, your balance sheet, and your brand, while simultaneously limiting the severity threat to your enterprise. Within the last 10 years, this insurance product has emerged as a critical and necessary element in your business insurance portfolio.
The Employment Practices Liability Policy provides insurance against claims arising out of a wide variety of employment practices and actions – alleged or actual. It includes associated defense costs. In addition, almost all insurance carriers include, at no cost, a wealth of online materials, guidance and resources to create best practices whether building your programs and policies or what to do in the event of a claim. Generally, the cost of this product is significantly less than what you would expect – Even less so considering the costs in dollars, reputation and possibly business continuity.
If you do not have this coverage in your portfolio, call us or speak with a risk management and insurance professional.