How to Protect Your Business from Being Sued by Employees

Leap | Carpenter | Kemps Insurance Agency | Jun 17, 2020 | minute read

California Ranks High In Probability Of Litigation

On average, a business in the U.S. has about a 12% chance of being involved in an employment lawsuit. California has very aggressive employment and discrimination laws that increase the chances of litigation for businesses operating in our state. In California employers have a 40% chance of being sued by an employee according to the latest statistics by the EEOC.

Employment Liability Facts

Any worker who feels they have been discriminated against by their employer can go to the U.S. Equal Employment Opportunity Commission (EEOC) or the equivalent state fairness agency. The average days in litigation is 285 and 20% of these get settled prior to any court proceeding. The average cost per incident (out of court) in 2015 was $125,00 according to the EEOC. The average court settlement runs about $225,000 with 20% or more averaging $500,000 or more.

The national average for total costs of claims that resulted in a defense and settlement payout is $125,000. Without Employment Practices Liability insurance, these companies would have had to pay an additional $90,000.  Source

California Laws That Impact Employment Litigation

Employers Are Regulated By Statute In Performing Certain Actions, Including:

  • Anti-discrimination/fair employment practices
  • Pregnancy accommodation
  • Criminal background checks
  • Credit checks

Here Is Where California Ranks (chance of being sued)

  • New Mexico 66%
  • Washington DC 65%
  • Nevada 47%
  • Alabama 41%
  • California 40%


Develop Strong Anti-Discrimination and Employment Policies

  • Conduct harassment training
  • Develop discipline procedures
  • Make sure all supervisors and managers are trained on all policies
  • Evaluate employee performance annually
  • Have written job descriptions
  • Have a clear anti-discrimination policy
  • Develop clear employee conduct, attendance and punctuality policies
  • Know what the law requires you to offer and manage

Employment Practices Liability Insurance

An Employment Practices Liability Insurance (EPLI) policy provides insurance against claims and lawsuits brought against an employer, its officers, directors, employees and managers. An EPLI policy will defend the organization and pay the damages awarded under the terms, conditions, and limits of the policy. A very important benefit of most EPLI policies is, they offer free legal assistance programs. You have the opportunity to contact an experienced legal firm to help assist you through an employee issue before it turns into a claim. EPLI policies are written on a “claims made” form, which means it provides insurance coverage for claims that occurred and are made during the policy term or within an extended reporting period if selected.

These policies generally cover allegations in the following areas:

  • Discrimination - including age, sex, and gender
  • Sexual harassment
  • Invasion of privacy
  • Emotional distress or mental anguish
  • Wrongful termination or discipline
  • Negligent compensation, promotion, or hiring decisions
  • Employee benefits mismanagement
  • Breach of contract for employment

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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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