According to a report released this week from Hiscox, businesses in the Golden State are 40% more likely than their peers to be sued by an employee. In fact, just four states – New Mexico, Nevada, Alabama and Washington, DC – outstrip California when it comes to employee lawsuits.
The reasons why are complicated, but report authors suggest that state laws going beyond federal guidelines are the most likely cause of discrepancies in the rate of employee lawsuits between states. In California’s case, that means strict regulation around anti-discrimination and fair employment practices that subject businesses to higher scrutiny from workers.
Discrimination, as defined by these laws, comes in many forms including age (over age 40), disability, national origin, race, color, religion, sex (including pregnancy) and genetic information (diseases or disorders in family medical history).
More clear is the effect such lawsuits have on businesses. According to Hiscox, the average legal dispute regarding an employment matter lasts 275 days and in 19% of cases, defendants are subject to a defense and settlement payment. When that happens, businesses can expect to bill their insurers an average $125,000 in claims while taking $35,000 in deductibles on themselves.
The report comes just months after a similar survey from Littler Mendelson, in which 57% of human resource and C-suit professionals said they expect workplace discrimination claims to become one of the top business risks in the next years.
The statistics are a serious argument in favor of ample employment practices liability insurance (EPLI) for California businesses. Without proper coverage, clients could end up on the hook for an extra $90,000, going by national averages. Inadequate limits could also cause a sting, though arguably less of one.
Still, more than 22% of private companies surveyed by Chubb Corp acknowledged that an employee lawsuit would cause “the most financial damage to the company.”
To sell clients on the importance of this coverage, however, insurance agents may have to do some quick education. According to a 2013 survey from Chubb Corp, just 30% of private companies carry an EPLI policy and as many as 60% mistakenly believe the risk is covered under their general liability insurance policy.
Agents may also have to engage with a different set of clientele in dispelling these myths. Industry professionals say human resource departments are typically responsible for purchasing risk management materials like EPLI, and as such, do not often understand what they’re looking at.
Many policies come with guides to best practices, which could be a good place to start.
Otherwise, prevention is the name of the game, Hiscox says.
“The EEOC provides outreach and education at no cost for businesses, associations and non-profits,” the report advises. “They will provide representatives who can speak at conferences and seminars, based on availability. The commission also has small business liaisons at each regional offices to answer questions about compliance and anti-discrimination laws.”
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