Employment Practices Liability And Layoffs
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Good human resources practices and experienced insurance brokers are essential in mitigating risk. With thousands of harassment charges filed each year, the cost of resolving employment related lawsuits totals in the millions of dollars. While some suits are groundless, defending against them is costly, time-consuming and can have a long-term negative impact on employee morale as well as public reputation. Understanding Employment Practices Liability insurance – commonly referred to as EPL – and risk management best practices are critically important when considering employee layoffs.
Terminated employees may claim that their dismissal was wrongful or discriminatory. According to a Risk Insights by Zywave, “to protect your organization against potential lawsuits brought on by terminated employees:
- Ensure that your organization has written policies and procedures for disciplining and terminating employees, and that they are presented upon hire.
- Maintain documentation about employee performance and the actions that were taken to make the employee aware of his or her performance shortcomings. Creating a paper trail is the best defence against a lawsuit.
- Create a business plan outlining the need for layoffs (if they are coming in a large quantity), what part of the business will be affected, what positions will be affected, when the layoffs will occur and how the layoffs will be announced to employees. These decisions should be made well in advance of any actions being taken.
- Create a list of criteria for evaluating your employees (years of service, field experience, job performance, disciplinary history, etc.). Establish a weighting system for each item on the list to determine how employees rank. This may be used as a decision-making tool, if you must make a massive layoff.
- Conduct an analysis of how a layoff would affect the organization and whether it would unlawfully affect a protected class of employees.
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- Retain legal counsel to protect against lawsuits and as a source of guidance for handling layoffs.
- Create a probationary period for all hired employees (cannot be more than 60 days). During this time, employees can be laid off for any reason without severance.
- Except in the instances where an employee seriously violates company policy, give workers adequate notice before they will be terminated.
- When delivering layoff news to employees, it is best to avoid being too apologetic or sugar-coating the reasons for the decision.
- Keep detailed records of all layoffs—note the reason for the decision, what was said and how it was handled.
- Do not retaliate if employees become angry or aggressive while being laid off. Remain calm and do not be threatened by their demands or accusations.”1
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If you are ready to apply for or renew your EPL insurance, our experts are ready to walk you through the process. We understand the latest products and risk management techniques and can line up the best employment practices liability coverage options. Our commercial insurance brokers can help you get an EPL liability insurance quote that protects your bottom line.
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1 Adapted from Risk Insights © 2009, 2012-2013 Zywave, Inc. All rights reserved. This Coverage Insights is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.