It’s a terrifying prospect for a business: Letting go of an employee who then turns around and claims that the termination was unjust. The business can find itself ensnared in a long – and likely very costly – wrongful termination suit with the Equal Employment Opportunity Commission (EEOC).
If your business is sued for wrongful termination, you’ll find yourself in one of two positions, either you are either a business that is protected by employment practices liability insurance (ELPI) or you are one who isn’t. Unfortunately, while most business owners know about and are sure to get property insurance, liability insurance and business disruption insurance, few know about EPLI and how it can protect their business from a costly lawsuit. Especially for small and medium-sized businesses, insurance carriers see a gap in EPLI coverage. Here is what you should know about employment practices and EPLI for your business.

What Are Employment Practices?

“Employment practices” is a general term that has to do with how employees are treated in the workplace. Employment practices have to do with hiring, firing, promoting, disciplining and overall treatment of employees in the workplace. It is an all-encompassing term dealing with on-the-job policies and behaviors.

How Are An Employer’s Rights When Hiring And Firing Handled In New Jersey?

In the state of New Jersey, employers have the legal right to hire and fire employees as they see fit. However, employers do need to be mindful that this doesn’t protect them entirely from a wrongful termination suit. A former employee might think that there was some sort of discrimination at play in their termination, or they may seek a discrimination or wrongful termination claim as a way to retaliate against a former employer. Of the 92,000 claims brought to the EEOC, approximately 60 percent of claims are deemed valid. Regardless, if a suit is brought forward, a judge will have to consider the potential validity of those claims.

What Is Employment At Will?

New Jersey is an “at will” state when it comes to employment. That means that residents are free to take any job that is offered to them, and they are free to quit that job when they wish to. On the flip side, employers may hire the people they wish to hire and fire the people they wish to fire, as they see necessary. “At will” employment protects employees and employers from working with people they do not wish to work with.

How Is Wrongful Termination Handled If You Have EPLI?

Wrongful termination cases have a tendency to get messy for employers. For example, an employer might fire an employee who has been accused of harassing other employees or customers. The fired employee might come back and sue for defamation and/or wrongful termination, especially if that employee doesn’t have harassment charges filed against them in conjunction with the accusations. EPLI would cover the legal costs of defending the company against the suit, regardless of the suit’s outcome, along with any settlement agreements.

What Do You Do If You Do Not Have EPLI?

For businesses that don’t have EPLI, employment practices suits can get expensive. In the above scenario, just defending the innocence of the business in terminating the employee could cost $50,000 in legal fees. On top of the cost, businesses without EPLI who find themselves in the target of a employment practices suit are faced with a great deal of stress, and they often have to put a great deal of their own time into addressing and defending the business against the suit.

How Does Drug Use Factor Into Termination?

Drug use is a common reason for termination, particularly if job performance is being negatively impacted or if on-the-job safety is a concern. When it comes to wrongful termination suits, however, drug use as a valid cause for termination may come down to circumstance. Drug use alone may be enough of a reason to fire someone, under EEOC guidelines, or it could be ruled that the employer should have first offered the employee some sort of assistance in addressing the employee’s drug use. This can be a problem for small businesses, who may not have the resources to offer assistance or time off for rehab. A fired employee would likely have some legal protection if they were fired because the employer refused to accommodate or support their attempts at rehabilitation.

How Do Businesses Get EPLI?

Most independent insurance agents have the capacity and the knowledge to write EPLI policies, and insurance agencies should be offering EPLI to all of their insured businesses because of the amount of claims that are filed each year against businesses; when it comes it an employment practices claim against a business. It’s generally not a matter of “if” but rather of “when” a claim will arise, and EPLI cases are very expensive. EPLI coverage can be rolled into a business’s general insurance policy, but this isn’t recommended because an EPLI claim can cause a business’s policy to be canceled, or it can drive premiums for that policy upward. Businesses that do seek a separate EPLI policy in conjunction with other policies for their business – such as liquor liability, product liability or general liability – often can save money by bundling the policies. If a business has multiple policies with an insurance carrier and an EPLI claim is filed, costs for the other policies will not be affected.

Which Businesses Should Get EPLI Insurance?

All businesses should consider EPLI insurance, and the insurance becomes more important the more employees a business has. Ultimately, it will fall to the business owners to determine whether EPLI insurance is right for them, but at a minimum, business owners should talk to their insurance providers to hear more about EPLI coverage, the cost of coverage and the different protections that an EPLI policy offers their business. An EPLI policy may cost additional money every month, but it can save the business from a costly lawsuit that erodes profits or even bankrupts the business.
If you find your business the target of a wrongful termination suit, you will want to be one of the businesses that is protected. Talk to an insurance provider who is an expert in employment practices to find out how you can keep your business safe from potential lawsuits.