Employment Practices, Risk and Management

A survey of 422 businesses in May and June of 2006* indicated that, for 89% of the participants, at least one new law suit was filed in the prior year. Lawsuits brought by employees, both current and former, has been a litigation growth area in the recent past. And prospective employees who feel they were wrongfully passed over for an employment opportunity are also more likely than ever to bring suit.

There are basically three tiers to protecting your business from financial damage as a result of employment practice claims: Identification of risk areas, Developing and Managing your company’s employment policies and procedures and Insuring against financial loss. It is a good idea to develop a program that incorporates all three.

Identification of Risk

Here is a list of exposures to employment practice lawsuits common to most businesses:

  • Hiring decisions
  • Promotion, discipline and termination
  • Discrimination
  • Sexual harassment
  • Invasion of privacy

This is not by any means an all-inclusive list but it is a good place to start. Inconsistency in handling decisions in these areas and a lack of a documented policy regarding these practices creates a vulnerability to financial loss. Many smaller businesses, who do not have a dedicated human resource or loss control function or in house counsel, are often more at risk because of this lack of dedicated focus.

Developing and Managing Employment Practices

Having a written policy in place for hiring, reviews and office conduct is vital. That can seem daunting for a small business but there are resources available for help. Checklists for interviewing, job descriptions and qualifications; performance expectations and measurements; job salary grades, pay for performance plans and performance evaluation procedures are basic documents that, when properly used, can minimize risk of lawsuits in many risk areas. Once completed, these policies, procedures and documents should be reviewed periodically to make sure they stay up to date.

A training program will be needed for managers so they know how to implement the overall program, conduct reviews, provide feedback and document issues. Employee training should cover workplace conduct as well as any changes in job evaluation. Finally, no policy or procedure is very valuable unless it can be demonstrated that it is followed consistently and with uniformity across the company. Development of procedures and policies is only the first step. Training and documentation are also necessary.

Insuring Against Financial Loss

Even the most well managed business, with sound, well executed employment practices and excellent overall employee morale can still wind up in court. As a final layer of risk management Employment Practice Liability Insurance (EPLI) is becoming a standard part of many business insurance programs. Broadly speaking, this type of insurance covers claims by employees and job applicants who believe their legal rights have been violated. There are many different kinds of policies that provide differing levels of protection.

One thing all EPLI policies have in common is that they are more affordable when it looks as if your business is less likely to encounter a claim. Thorough identification of risk areas, training and management to address those risks will, as with other kinds of insurance, reduce your overall program costs.

*Litigation Trends Survey conducted by Business Development Directives

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