Are You Ready For a $500,000 EPL Claim?
According to a risk survey conducted with 302 corporate executives in 2013 by Pollara Strategic Insights, many Canadian companies are ill prepared for key employee-related risks. Employees, including board members, present unique challenges and potential exposures such as:
- Wrongful dismissal
- Sexual harassment
- Constructive dismissal
- Employment related misrepresentation
- Breach of oral or written employment contract
- Wrongful failure to employ or promote
- Wrongful discipline
- Invasion of privacy
- Wrongful demotion
- Wrongful infliction of emotional distress
- Wrongful deprivation of a career opportunity
Lawsuits Are Always Costly
And if an employee decides to sue, the defense cost can be significant. The Pollara survey found that costs of up to $500,000 were experienced by 41% of respondents. One executive confirmed that the cost of defending their organization against an Employment Practices Liability (EPL) was a staggering $5 million.1
Chubb Insurance Company of Canada cites an example of gender discrimination at a private Canadian company that was settled through mediation. An employee alleged being fired due to her pregnancy after a corporate restructuring layoff. She filed a gender discrimination lawsuit.
With approximately 100 employees and $100 million in annual revenues, the lawsuit posed a challenge on multiple fronts. The defending company had EPL insurance that addressed this situation. Their insurer paid $67,000 for the Employment Practices Liability claim mediation, indemnity and defence costs.2
Employee Lawsuits Are On The Rise
While good human resources practices can go a long way to mitigate risk, research shows that 33% of employers have experienced an employment related allegation in the past 3 years. Employers need to be aware that there are minimal barriers to employees or former employees suing employers as lawyers will work on a contingent basis and Human Rights Tribunal allegations can be made without the involvement of a lawyer.
This area of law is also constantly evolving and becoming increasingly complex with new labour laws emerging regularly as affirmed by Benjamin Aberant, of McCarthy Tetrault LLP, in a 2014 article, Ontario Human Rights Commission releases new policy on gender identity and gender expression.
Brand and Reputational Risk
Employment Practices Liability claims also have the potential to lead to reputational damage. Employees and clients will likely become aware of a lawsuit filed by a former or current staff member. A well-publicized lawsuit that calls into question corporate ethics and policies may well have a long-term impact on an organization’s brand.
Be Prepared For Employment Practices Liability Claims
Employment Practices Liability (EPL) / Wrongful Dismissal Insurance is protection against allegations of errors and omissions and “wrong doing” in the management and administration of human resources (HR), it can be best described as a “HR malpractice policy”. Employment Practices Liability (EPL) Insurance is specifically designed to respond to specific employment exposures.