Op-Ed: Insurance against potential employee lawsuits could save your business
Considering the business risks related to managing Puerto Rico’s comprehensive and complex labor regulation, it makes sense for companies to protect their resources with an Employment Practices Liability (EPL) policy.
This insurance product protects organizations against employee suits for rights protected by law such as wrongful termination, sexual harassment, discrimination, invasion of privacy, breach of contract, emotional distress, and wage and hourly violations, among others.
In fiscal year 2011, the U.S. Equal Employment Opportunity Commission (EEOC) reported it received almost a million discrimination claims. Resolving these disputes cost employers billions of dollars, in addition to time and resources. The EEOC is responsible for enforcing federal laws that prohibit discriminating against applicants or employees because of their race, color, sex (including pregnancy), national origin, age (40 or older), disability, or genetic information.
Locally, there were 332 claims reported to the EEOC during the same period, most of them (44 percent) corresponding to disability rights; followed by retaliation claims, at 30.1 percent. The third most common discrimination claim filed in Puerto Rico corresponds to sexual harrassment charges, and represents 22.9 percent of the total charges filed. Age discrimination represented another big chunk of the pie with 22 percent of the claims.
Other discrimination claims reported to the EEOC in 2011 were related to national origin (7.5 percent), religion and race (3.3 percent each), color (2.1 percent), and equal pay (0.3 percent).
A study published by the Puerto Rico Society for Human Resources Management (SHRM), named “Tendencias Laborales de Puerto Rico para el 2012” (Puerto Rico Labor Trends for 2012), went deeper into the topic, pointing out wrongful termination as the most common cause for labor lawsuits, according to 51 percent of study participants.
The second most common legal issue revealed by participants in the study related to wages, or unpaid work hours (28 percent.) Sexual harassment and a hostile work environment (also known as harassment in the workplace) took third and fourth place, with 17 percent and 16 percent, respectively.
Study participants also identified management of sick leave, vacation time, and overtime pay as common claims with a high potential of becoming legal issues. They did say, however, that most of these disputes are resolved at an administrative level, rather than in a courtroom.
In addition to having the EPL policy, handling and managing the claims is just as important. Otherwise, it would be like having a boat without a captain.
To activate the policy coverage, the insured must be served with a complaint or receive notice of a proceeding, administrative charge, or a similar document. However, we strongly encourage the insured to report any circumstances (potential claims) that may reasonably give rise to a claim under the policy.
The latter would avoid future situations should a formal lawsuit arrive from an administrative process that was not informed during the policy period to the insurance company, being that these policies are claims made.
Once it’s clear that a claim or circumstance requires notifying the insurer, it’s important to follow the right procedure. In the case of Aon Hewitt’s EPL policy, the notice should be reported in writing, providing details like the nature of the claim or circumstance, its date, and the identity of any potential claimant.
As a condition under our EPL policy, the insured agrees not to settle or offer to settle any claim, incur any defense costs, or admit any liability without the Insurer’s written consent. Should the insured proceed without this consent, the insurer would not be liable for any settlement, defense cost, assumed obligation or admission.