Employment Practices Liability

by Preston Cavignac, CPCU, CIC, CRM
Employment Practices Liability is a serious issue for all restaurant owners. Why? Restaurants can have 25+ employees working over the course of a week. More employees lead to a greater probability of employee-related issues. When restaurants enter their busy season they have to hire help, and do it quickly. The hiring process can be shortened due to immediate needs, making it easier for troubled employees to enter the workforce. Employees could potentially harass or discriminate against a customer or vendor. Managers might feel obligated to terminate their employment agreement, but this action could put the restaurant at risk as well. This article discusses how to prevent personnel claims and minimize the effects of these claims once they occur.

Problem – Employee Issues
According to Trusted Choice, discrimination, harassment, termination, retaliation, wage and hour, breach of contract, etc. claims have risen 400% in the last 20 years. 42% of these lawsuits were brought against private employers with fewer than 100 employees. Employment Practices Liability is a legitimate concern for restaurants. Whether these claims are accurate or fraudulent, they have to be fought and defense costs are on the rise (according to Trusted Choice the average cost to settle out of court is $75,000). There are a couple ways to manage this risk. One, you can finance it by purchasing an Employment Practices Liability policy. But this will only help you once a claim is made. How can you prevent a risk from occurring? How can you mitigate the side effects once it does occur?

Human Resources: Your workforce can be your greatest asset, but can also be your greatest liability. Combating EPL claims starts with the hiring process. This process, from the creation of job descriptions to final offers, should be documented and followed. Although a process like the one outlined earlier may take a while, it may also weed out a potential claim from being hired on. An ounce of prevention is worth a pound of cure. Once an employee is hired they have to be trained and managed. Management is critical. How often is their work reviewed? Does every employee have their own employee file? How are workplace issues dealt with? We are huge advocates of real-time management. If there is an issue, address professionally and address it immediately. Have an updated handbook that outlines action plans for specific situations. Always document employee interactions and don’t be afraid to get an attorney involved early on in the process. Responding to charges quickly with full documentation has been shown to lessen the severity of a potential judgment. Employees are the lifeblood of any organization and the happier the employee the more successful company.

The restaurant industry has unique set of risks and challenges. Employment related issues are one of many. It’s important to understand that insurance is just one way to manage risk. Preventing, mitigating, and transferring risk contractually are just as important. We’ve seen businesses save significant amounts of money by implementing the programs discussed in this article, and following “Best Practices” in the industry. We have also seen business lose money by ignoring it. Having a proactive plan to manage risk will save you money and make your business more profitable.