Protecting Your Small Business From Employment Related Liability

by | 16 Dec, 2016

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You’ve heard it stated many times, “your employees are your greatest asset”.  Their commitment, drive and performance can either make or break a company in today’s competitive environment. While the vast majority of employer/employee relationships are productive and positive, sometimes these dynamics can quickly change.  A once loyal employee, feeling treated unjustly, can become a legal nightmare.

As an employer, your liability begins well before you even hire your first worker. From the very beginning of the recruiting process and all throughout the duration of employment, employers are exposed to employment related liability resulting from acts or omissions, whether intentional or not, that can have serious repercussions on your business. Beyond being expensive, they can distract management from critical business functions, and have damaging effects on productivity and employee morale. Thus, it is very important for employers to understand how to mitigate employment practices liability exposure.

First, it is necessary to be cognizant of the areas that most commonly bring about claims. Here are some of the most common laws and protections that employment practices liability deals with:

    • Title VII of the Civil Rights Act of 1964
    • The Americans with Disabilities Act
    • The Civil Rights Act of 1991
    • The Age Discrimination Employment Act
  • The Family Medical Leave Act

Furthermore, the Equal Employment Opportunity Commission, which interprets and enforces these laws, recognizes 11 types of employment practices discrimination: age, disability, equal pay/compensation, genetic information, national origin, pregnancy, race/color, religion, retaliation, sex, and sexual harassment. 

Large corporations often have sufficient resources in place to proactively mitigate their exposure and also respond effectively to employment related claims. Small businesses, however, usually lack those resources, such as an HR or Legal department; making them vulnerable to the negative impact of employment related claims. Small business owners would likely be surprised to learn that roughly 41.5% of employee lawsuits are brought against private companies with less than 100 employees. (Source)

What can small businesses do to better prepare and protect themselves against employment claims?

    • Create a handbook with clearly defined policies and procedures including detailed anti-harassment and anti-discrimination policies
    • Train supervisors in HR policies and procedures
    • Regularly audit handbook and procedures to ensure compliance with the latest regulations
    • Include anti-retaliation provision that states there will not be penalties for making accusations of harassment or discrimination
  • Create a record-keeping system to document issues that arise and how they are resolved

In addition, employers should maintain employment practices liability insurance (EPLI). EPLI coverage protects the company by helping to cover expenses involved in defending against such claims or lawsuits.. However, a study done by Advisen found that only 23% of companies with fewer than 100 employees purchase EPLI insurance. Many small business owners either assume they are protected from employment practices liability by other policies, or they may not know it even exists!.

EPLI’s cost is dependent upon a company’s size and perceived exposure.  Like other forms of insurance, there are many variables that determine the ultimate cost.

When it comes to protecting your company from employment related liability, Professional Employer Organizations (PEOs) can provide smaller businesses with an invaluable solution.  By providing a comprehensive range of services and functions that can proactively minimize risk exposure, such as developing the employee handbook or performing HR audits, they can also provide access to EPLI with broader coverage and typically at a much lower cost.

With the constant increase in regulations, the workplace has become fraught with legal landmines. It is no longer an option; small business owners must take proactive steps to minimize liability and protect their livelihood. Working with a PEO offers the most efficient way to accomplish this. PEOs are experts in HR and help take this burden off of employers, allowing them to focus on growing their businesses.

If you’re interested in learning more about how a PEO can help you with employment practices liability insurance, please reach out for more information or a free consultation!

Tom DiSilva
Tom DiSilva has been providing professional human resource services for over 30 years. As the CEO of Navigate PEO, he actively partners with organizations of all sizes in the Greater New England area and across the country to help their businesses grow. He has expertise in HR and Labor Management, offering guidance and support for key areas of business such as negotiations, operations management, employee coaching, and employee benefits design. He is an active member of The Society for Human Resource Management (SHRM), The National Association of Professional Employer Organizations (NAPEO), Professional Association of Co-Employers (PACE), and The American Payroll Association (APA). He is deeply committed to giving back to the community both personally and through Navigate Cares, which provides support for several nonprofit organizations such as the USO, The Boys & Girls Club, and the 3Point Foundation.

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Disclaimer: this article does not represent expert advice and is provided for informational purposes. Please get in touch if you would like expert HR advice.