These are tumultuous times for small business owners. The economy has not only made running a business difficult, but managing the business is difficult as well.
Small business owners can no longer look at their employees as one big happy community working together for common good. When the effective unemployment rate is at 15% (or higher depending where you look), employees get desperate.
Your employees are not your friends. Your employees are not your family. And even if they are. . .
Your Employees Are Your Employees
Gone are the days of losing your job and quickly jumping into a new one. So when a business decides to let an employee go, every “T” must be crossed and every “i” must be dotted.
More and more former employees are looking for ways to cash in on being fired.
According to an article in the NY Times by Paul Sullivan, a report released in March from the Equal Employment Opportunity Commission said claims were up 15 percent last year, to 95,402. The highest number in the agency’s 44-year history. Mr. Sullivan hypothesizes that with the unemployment rate continuing to increase, this trend of discrimination and wrongful termination claims will likely climb again this year.
So how do you protect your business against such claims?
There is an insurance product, (outlined below from this III.org article), called Employment Practices Liability or EPLI. Employment Practices Liability provides protection against many kinds of employee lawsuits, including claims of:
- Sexual harassment
- Discrimination
- Wrongful termination
- Breach of employment contract
- Negligent evaluation
- Failure to employ or promote
- Wrongful discipline
- Deprivation of career opportunity
- Wrongful infliction of emotional distress
- Mismanagement of employee benefit plans
Employment Practices Liability is overlooked far too often by small business owners for various reasons (employees are considered family, don’t want the expense, assume coverage included in Business Owner Policy, etc.). Considering the amount of coverage an Employment Practices Liability policy provides a business the cost of such a policy is very inexpensive.
If you are a small business owner or decision maker in your business, I highly recommend taking a longer look at an Employment Practices Liability policy. I’ve personally have had clients as small as five employees deal with claims related wrongful termination.
And these types of cases can get ugly and expensive.
Respect Employment Practices Liability
The headaches and legal expense associated with a wrongful termination or discrimination case are horrible. The legal expense alone picked up by the insurance carrier, even in frivolous lawsuits, make the policy a worthwhile investment.
Employment Practices Liability provides a solution to those concerns. You shouldn’t have to sweat terminating an employee that is under-performing.
Yours in Insurance,
Ryan Hanley
Insurance Protection Photo via Shutterstock
It is certainly true that insurance coverage can be a valuable tool to limit the unexpected costs of a lawsuit brought by a disgruntled former employee, but as you noted, “when a business decides to let an employee go, every ‘T’ must be crossed and every ‘i’ must be dotted.”
Given the statistics which you cite, and the costs of even a successful lawsuit, it is important that business owners take time to learn the best ways to terminate employees, both from a legal perspective and from the psychological point of view. A badly handled dismissal can trigger feelings of anger and a desire for revenge that are much more likely to result in a lawsuit, even if every legal requirement was followed to a “T”. While you are right that employees should not be confused with family or friends, they do need to be treated with empathy and respect, and an employer needs to recognize that losing a job, particularly in the current economic environment, is likely to leave a terminated employee grasping for any possible lifesaver.
Good points but in our experience it isn’t about being chummy with employees. There are things an employer can do ahead of time to protect themselves from suspect prospects. But after the hire: Its about having a mature, professional community environment that supports a job well done. Communication top down and the recognition of senior management that individuals are to be respected and appreciated is in a sense what the family theme is about. This will improve loyalty and performance
There are some good points that you brought up on this post. It is vital for businesses to learn the best ways to terminate employees and make sure you are complying with all laws and regulations. The cost of lawsuits is outrageous and can make a business go bankrupt. Often times it is easier for small businesses to outsource HR functions in order to avoid these problems.