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Employment-related claims against small businesses are rising

Liability insurance and clear workplace policies essential today

Claims of discrimination, retaliation and wrongful termination aren’t unique to large corporations. Federal discrimination lawsuits against Coca-Cola, Ford Motor Company and Wal-Mart tend to make the headlines with their multimillion-dollar settlements, but under the protection of state laws, California workers at smaller companies, including dental practices, can file lawsuits claiming that their legal rights as employees have been violated.

And they do. Among all U.S. states, California was ranked third in 2017 for employment lawsuit risk to small- and medium-sized businesses, according to the Hiscox report “Guide to Employee Lawsuits,” which pulls data from national and state agencies. In other words, smaller businesses in California had a 46% chance of having an employment charge filed against them compared to the national average of just 10%.

“As long as you have employees, you risk facing allegations of wrongful employment claims,” said Taiba Solaiman, senior risk management analyst at The Dentists Insurance Company.

TDIC received 82 employment-related claims in 2018 — up from 66 in 2017. Solaiman said that increase can be attributed to several factors: The growth of federal and state legislation protecting employees from discrimination and sexual harassment, the changing legal views on wrongful termination and the increasing tendency of employees to turn to the courts for retribution have all contributed to rising claims.

hile large corporations typically survive costly litigation, such lawsuits can overwhelm and even ruin a small business, draining financial resources and employee morale.

And because dental practices don’t often have a general counsel on staff or a human resources department to handle these claims, the time investment can take a toll on the dentist, potentially compromising patient care. According to the 2017 Hiscox report, the average claim requires 318 days to be resolved with an average settlement payment of $160,000.

Case example: Pregnancy disability discrimination

In one claim reported to TDIC, the dentist hired a receptionist who, during her probationary period but before her 30-day review, disclosed to the dentist that she was pregnant. The insured’s alleged response was, "You know you are still on probation, right?”

The dentist’s wife, who also served as the office manager, delivered the employee’s 30-day review a week later. The evaluation contained numerous criticisms of her job performance and identified instances of her failure to work collaboratively within the team. After the review, another staff member discovered a discrepancy in how the employee logged insurance explanation of benefits, which was one of her daily duties.

When the employee became aware of the error, she responded by changing the incoming dates on these documents. Suspecting that these behaviors had been present in her prior employment, the dentist contacted her former employer, who disclosed that the employee was not an office manager as she stated in her application, but rather a receptionist. The previous employer also revealed that she demonstrated the same performance problems during her employment at his office and that she was on the verge of being terminated when she provided her notice of resignation.

Given the dentist’s multiple concerns about the employee, he chose to fire her.

Six months later, the dentist received a demand letter from an attorney representing the former employee. In the letter, the attorney provided a very different account of the employee’s work performance and minimized the issues leading up to her termination. The attorney also claimed the dentist was upset when the employee announced her pregnancy as it meant he would need to find a temporary employee to perform her job duties while she was on maternity leave.

The attorney alleged that the dentist engaged in pregnancy disability discrimination and wrongful termination and issued an opening demand of $175,000. The case eventually settled for a low five-figure amount.

Clearly communicated policies essential

Solaiman said practice owners should ensure they have required training, clearly communicated workplace standards and required posters in place to prevent surprises and false expectations among management and employees.

“Established office guidelines protect you from potential employment practices liability and foster a more productive and creative team,” Solaiman said. “Ultimately it means more profitability for the employer.”

EPL insurance also a must for small employers

Employment Practices Liability insurance provides coverage against claims made by employees alleging wrongful termination acts such as discrimination (based on sex, race, age, disability and other protected classes), retaliation, hostile work environment and sexual harassment.

Coverage under an EPL policy may not respond to all types of employment practices claims, such as wage and hour; carriers will specify the types of claims their EPL policy covers.
The policy will not apply to damages or claims for alleged employment acts that began prior to obtaining coverage, and it also excludes claims based on employment-related incidents the applicant is obligated to disclose when applying for coverage.

If you currently do not have EPL, you may add coverage at the beginning of your policy term or mid-term with a qualifying event, such as at the time of original application for professional liability coverage, at the expiration of an EPL policy with another carrier, or within 30 days of hiring your first employee.

Learn more about Employment Practices Liability insurance through TDIC. Apply or contact an agent.

Coverages written by The Dentists Insurance Company include Professional Liability, Employment Practices Liability, Commercial Property and Cyber Suite Liability. In California, TDIC also underwrites Workers' Compensation. All other insurance products are placed through TDIC Insurance Solutions with outside carriers. CA Lic. #0652783

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