What to Do When Employees Become Plaintiffs

An Employment Practices Liability Insurance Primer for Startups.

A woman accepted a restaurant assistant manager position a few days after learning that she was pregnant. Very soon after being hired she asked that her schedule be adjusted to allow her to attend medical appointments. Upon return from vacation, the general manager learned about her erratic work schedule and informed the assistant manager that he intended to terminate her. She was in fact discharged within the first 10 days of employment on the grounds she failed to perform her job. The court allowed the woman to pursue her claim for pregnancy discrimination, stating that the restaurant's reason for terminating her was suspect as she had been given permission to change her schedule.

The above scenario is a summary of a recent lawsuit against a restaurant, and just one example of the kind of employment discrimination claims that rear their head in the hospitality industry. Even businesses with the best practices and systems can be vulnerable to an employment liability practices claim, which is one of the reasons that Employment Practices Liability Insurance (EPLI) is receiving greater attention by small and larger enterprises. Even when businesses prevail in these suits, the expense of investigation and legal representation can be onerous.

In this article, we discuss the basics of EPLI so that you can have a productive discussion with your insurance broker if you decide it might be worth purchasing for your business. The old adage, "an ounce of prevention is worth a pound of cure" certainly applies when attempting to protect your business from employment-related lawsuits. In fact, EPLI insurers will often assist restaurants in auditing and improving their hiring, firing and other employment practices to help reduce the risk of these claims.

A Little History

EPLI, which came into being in the mid-1980s, covers businesses against claims made by employees for violations of certain rights in the workplace. Policies may be stand-alone or available as endorsements to "directors and officers" coverage. The passage of the Civil Rights Act amendments of 1991 ("Title VII" of the act prohibits discrimination in the workplace based on race, gender, religion and national origin) led to a large increase in EPLI policyholders, as federal employment discrimination claims against companies of all sizes increased. Employers were getting sued, and the demand for EPLI increased.

Depending upon the policy selected, EPLI coverage may extend to 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, and mismanagement of employee benefit plans. (EPLI policies typically do not cover wage-and-hour claims or breach-of-contract claims.)

While EPLI is often standard coverage for large corporations and chains, many independent businesses do not carry it. One of the main reasons, of course, is the cost; however, businesses with few employees often do not feel vulnerable to the kinds of claims addressed by EPLI. In fact, more than 40 percent of employment-related claims are brought against businesses with 15-100 employees, and the "family" atmosphere of some independent businesses can create a fertile ground for discrimination and sexual harassment. The hospitality industry sees its share of these actions due to many factors, including the relatively high employee turnover, the often relative youth of its managers, and the carefree party atmosphere that accompanies this industry and can blur the lines between "professional" and "personal."

Equal Rights Advocates, a San Francisco-based organization that promotes equal rights for women, said that a study found that more than 42 percent of the female restaurant employees surveyed reported that a customer, manager or co-worker had sexually harassed them. The Internet and other resources have created a well-informed and empowered workforce in these matters. While you want to maintain a workplace that is fair and friendly to all of your staff, problems can arise despite the best intentions. As the boss or manager, you may not always be aware of what transpires in your own business.

Can I Afford the Coverage (and Can I Afford Not to Have the Coverage)?