Protect yourself against employee lawsuits

Welcome to Part 1 in our series about Insurance information for property management businesses. Check back next week to learn more about Cyber insurance.

Got employees? You’ve got potential liability.

Yes, nearly all businesses need employees, once they get big enough. And, simply the act of hiring, compensating, disciplining and firing employees is fraught with legal land mines and potholes that can potentially land you, the employer, in court.

You wouldn’t be the first. For example, when Kanbar Property Management, LLC, in Tulsa, Oklahoma eliminated the property management role that 53-year-old Toni Strength had previously held. Strength, sensing something was off, went to the federal Equal Opportunity Employment Commission, where she was able to show that the company was instead replacing her with younger and prettier women. Investigators determined the company had violated the Age Discrimination in Employment Act, which makes it unlawful to discriminate against workers over 40 on the basis of age. As a result, the company wound up paying $140,000 in a settlement, in addition to providing other relief.

Both the number of employment practices-related lawsuits and their costs to employers have exploded over the last two decades.

• Over the last 20 years, the number of employee lawsuits against employers has risen five-fold.
• The number of lawsuits accusing employers of wrongful termination has tripled over the same period of time.
• Small businesses—those with 100 or fewer employees—have been targeted in at least four of ten employment practices lawsuits.
• When cases do reach a jury, and the jury finds for the plaintiff against the employer, the average jury award is $200,000.
• Juries rule against the employer 60 percent of the time
• The average costs of employment practices claims settled out of court is between $15,000 and $18,000
• If a case makes it to pretrial proceedings, you can expect legal fees in the $50,000 to $75,000 neighborhood—even if the case is dismissed. Yes, you might be in a ‘loser pays’ state. But how many of your employees could write a check for that amount if they had to? You might get a judgment against the employee or former employee, but you may well have a tough time actually collecting on it. So the loser-pays rule, if your state has one, won’t help.
• If the case actually goes to trial, you can expect your attorney’s fees to approach six figures.
• The bottom line: A typical employment practices case that goes to trial and generates a ruling for the plaintiff costs about $300,000. And sometimes much more. Seven-figure awards are not unusual.

Pretty scary stuff, right? The good news is that employer liability insurance is designed to protect employers against costs arising from accusations of a variety of wrongful employment practices. Common examples include the following:

• Sexual harassment (even if it’s employees, rather than owners/executives doing the harassing.)
• Unlawful discrimination
• Breach of contract
• Violation of whistleblower protection laws
• Breach of employment contract
• Negligent employee evaluations
• Failure to employ
• Failure to promote
• Mismanagement of employee benefits
• Unionization-related claims
• Wage and hour disputes
• Overtime disputes
• Violations of laws like the Family Medical Leave Act or Uniformed Services Employment & Reemployment Rights Act or similar state laws.
• Giving a bad reference to an employee’s future employer
• Libel, humiliation, slander or defamation
• Constructive discharge for creating a hostile work environment

And many other possible causes.

Furthermore, don’t look to your commercial general liability policy for help. Those policies don’t cover employment practices related lawsuits.

Don’t forget: a non-employee can sue you.

Yes, employment practices liability normally focuses on protecting you against complaints filed by employees, former employees and applicants. But suppose one of your maintenance staffers, or someone in your leasing office, gets accused of sexually harassing a tenant, or makes sexist or bigoted remarks towards a resident or guest and generates a complaint. What then?

It won’t be your employee that gets sued. Plaintiff lawyers know that you have deeper pockets, so you could find your property management company slapped with a lawsuit over something that may have occurred months ago. You may not have any idea that it even happened.

What happens if an employee’s discriminatory or harassing behavior against a non-employee generates the claim? In that case, unless you’ve taken some specific actions to protect your company, you may be out of luck.

Insurance companies that sell employment practices liability insurance (EPLI) will usually offer a rider/endorsement for third-party discrimination & harassment coverage to your employment practices liability policy. This optional feature provides for defense and settlement of lawsuits in which non-employees, such as your residents, their guests, tenants and/or vendors accuse your employees of discrimination or harassment.

Most of the time, employment practices liability insurance does not cover these claims as part of the base policy. You would get this coverage as an endorsement on an existing employment practices liability policy. It’s optional, of course, so you can make your own decision about whether the additional cost is worth the risk. However, you can see the costs of defense and the costs of settlement above.