Employment practices liability: manage your risk.

• Author: Powers, Stephanie
• Position: Indiana: small: business reference: guide

A suit was filed by an employee who claimed he was wrongfully terminated due to gender and ethnicity discrimination. The case settled for $170,000 in damages plus defense costs.

An overweight employee filed a lawsuit for discrimination after being terminated far failure to follow company policy. The claim closed for $140,000 in damages and defense costs.

These are recent examples of actual employment practices liability (EPL) claims against local businesses. Not only can the potential settlement or loss be costly, the amount of time and emotional drain spent on these types of cases can be overwhelming.

According to the Equal Employment Opportunity Commission, between 77,000 and 81,000 charges are filed against employers annually under the statutes enforced by that commission, and the majority of those claims are brought against companies with fewer than 100 employees. A survey conducted by Chubb Insurance Company in 2005 concluded that one in three privately held companies had experienced an EPL-related event and that the frequency of EPL lawsuits increased dramatically as the size of the company increased.

CNA Insurance Company estimates that 75 percent of all litigation filed against corporations involves employment disputes, and the average cost of a claim against smaller companies is around $50,000. This does not include the opportunity cost of the time spent preparing for and defending the claim.

Because employment-related claims can be so costly and time consuming, it is important that business executives work closely with their human resource teams to take preventative measures including;

* Creating an effective and consistent hiring process for all employees, including standardized position descriptions, formal training for employees involved in hiring, and conducting background checks.

* Ensuring that policies against harassment, discrimination and retaliation are well publicized and that employees are educated on those policies and how to report an incidence.

* Establishing guidelines for compensation, employee appraisals and...