Employment Practices and Benefit-Related Liability

Employment practice disputes are a rapidly growing reason for civil lawsuits in the United States. A recent white paper from Advisen (a research firm for the insurance industry) shows that, in the last two decades, certain types of employment lawsuits have risen a whopping 400%. Examples include cases involving:

• Leaks of personally identifiable information covered under HIPAA
• Violations of wage and hour laws
• Failure to provide mandated health care coverage under the ACA or state law
• Accusations of fiduciary duty violations among pension plan sponsors, especially sponsors of 401(k) plans

Don't make the common mistake of thinking that your commercial general liability insurance is enough to cover your vulnerability. While it's an essential insurance, it leaves holes in your risk management plan.

In fact, recent data indicates that more employers are sued over employment practice-related disputes than over general business liability issues. Keep in mind, even if your company wins a lawsuit or a case is thrown out of court, the cost of defense isn't cheap.

Car Trouble

Here's a brief look at an actual case, illustrating why commercial general liability insurance may not be enough.

One auto industry business is facing severe sanctions because some workers failed to receive required COBRA eligibility notices when they left the company. More than 700 workers joined the suit, claiming they'd never received the required eligibility notices.

The company had hired a payroll administrator to handle these notifications, but that didn't protect them. How much could such an error cost? In this case, $110 per day per worker, for total penalties of $1.8 million.

Your Defenses

Ask your insurance professional or business adviser about employment practices liability insurance (EPLI). This insurance is designed to protect an employer when lawsuits, such as the one described above, are brought by its employees. EPLI covers many situations that general liability insurance will not.

You should also:

• Stay on top of your vendors who are involved in employment practices in any capacity. If they drop the ball on their end, your business will still retain responsibility and potential liability (though you may have a claim against the vendor in that case).
• Regularly compare your list of recently departed workers against your COBRA notifications to ensure no one is falling through the cracks. This is important even if a third-party administrator handles payroll for you, as the example above shows.
• Conduct annual reviews of your pension and 401(k) plan administrators and ensure they're fulfilling their duties.
• Keep tabs on the fees your employees pay to retirement plan administrators to check for reasonability.
• Ensure your human resources, risk management and compliance management teams are adequately resourced and trained.
• Invest in security technology. Data breaches — both accidental releases and intentional hacking by employees, other insiders and external perpetrators — are increasingly common. These incidents frequently lead to employment practices-related liability.

The Best Offense is a Strong Defense

Creating a strong defense, which should include adequate insurance, could mean the difference between keeping your doors open and being forced to close forever. Unless you're prepared for the worst, a single employee lawsuit could cripple your operations — even if you have a good relationship with your workforce.