Real Solutions for the Liability of Your California Business

Leap | Carpenter | Kemps Insurance Agency | Jun 16, 2020 | minute read

California Businesses Have a High Probability of Being Sued

Two people sitting outsideNo business owner comes to work thinking that their trusted employees are going to sue the business. However, according to the latest statistics from the State of California, there is about a 40% chance that your business will be involved in an employment liability claim. The State of California has developed a number of laws that protect employee’s rights. These laws make it easy for employees to claim discrimination and sue their employers. The Equal Employment Opportunity Commission ranks California as one of the states with the highest probability of employment litigation.

The Equal Employment Opportunity Commission offers all California employees the resources to get help in developing a case against their employer. There are also State of California agencies that assist employees.

The cost of employment litigation can be staggering to businesses both large and small. According to the Equal Opportunity Employment Commission, the average employment claim takes around 285 days to process—that is from the beginning of the initial report to settlement. Twenty percent of employment claims are settled before they ever get to court. An average employment claim settlement is $125,000, with about twenty percent averaging over $500,000.

Employment liability risks can be insured. reports that absent of insurance, businesses would have had to pay an additional $90,000 per incident.

Some Good News

A large percent of employment liability claims resulted in limited or no, payment. Nonetheless, the businesses still had to defend themselves and incur other legal and investigation expenses.

Here is the most recent ranking of states with the highest probability of having an employment liability issue, according to the Equal Employment Opportunity Commission. In California, on average 40% of businesses have a chance of having an employment liability issue of some kind.

  1. New Mexico 66%
  2. Washington DC 65%
  3. Nevada 47%
  4. Alabama 41%
  5. California 40%

Claims Are Trending Upward

Over the past twenty years, litigation driven by employees has increased over 400%. The most common type of litigation is wrongful termination. It may be hard to believe, but your business has a greater chance of being sued by an employee than it does of having a fire. Do not think that only large businesses have employment liability issues. According to the Independent Insurance Agents of American, about 40% of employee lawsuits involve business with less than 100 employees.

Leading Types of Claims

The latest information we have is for 2016. The leading claims involve employers performing illegal background checks, pregnancy discrimination, use of interns, and other discrimination types of claims.

Employers Most Common Mistakes

Employers often put their heads in the sand when it comes to their employees, and that can lead to disaster. Here are some common misconceptions employers often have:

  1. “My employees love working here and would not sue me.” Generally, employees will turn to litigation if they feel they have been wronged and are not getting any satisfaction.
  2. “We are good people and we would win in court.” A majority of employment cases never get to court.
  3. “The discrimination and employment laws were not intended for my small business.” Incorrect, all discrimination and employment laws are designed to protect the rights of all employees regardless of the size of the business.

Developing Best Practices is the Best Defense Against Employee Claims

The number one action any business can take to limit employment claims is to have a sound set of human resource best practices. The Equal Employment Opportunity Commission offers free education and resources to businesses and non-profits.

Having written policies and procedures in the area of employer-employee relations is very important. We recommend every business have a comprehensive set of employment policies. This might include policies on:

  • Hiring and termination procedures
  • A well defined anti-discrimination policy
  • A sexual harassment policy
  • Progressive discipline procedures
  • Written job descriptions
  • Equal opportunity statement
  • Any State of California laws that may apply
  • Annual employee review and evaluation process
  • Procedures for employee grievances

Take action

Employers should conduct annual anti-discrimination training, as this is a good way to make sure all employees know the company policies. All new employees should be required to review the company employee handbook and sign the acknowledgment form.

Employment Practices Liability Insurance

Every business needs to have an employment practices liability insurance policy (EPLI). EPLI can cover the business from claims and lawsuits brought by employees against the employer. The policy will defend and pay any damages for which the insured are legally liable. Most policies also offer free legal help, which allows the employer to get legal help once an issue arises. EPLI policies typically cover the following kinds of claims:

  • Discrimination
  • Harassment
  • Emotional Distress
  • Wrongful termination
  • Wrongful promotion
  • Compensation issues
  • Negligent hiring
  • Breach of contract
  • Employee benefits administration

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About The Author

LCK Insurance Agency is one of California's most prominent independent insurance agencies. They offer commercial business insurance, employee benefits, life & health insurance, and personal insurance.

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