Owners of small businesses, including independent insurance agencies, oftentimes are so focused on growth efforts that they may be lacking in sound employment practices. Many agencies may only have one to a small handful of employees. They may not see the need for developing such policies and procedures. However, any business with at least one employee and growth aspirations may be vulnerable to future problems if such standards are not put into place. The good news is by considering your agency’s employment practice liability risk and standards sooner than later, agency owners may see a positive return in the future for the time invested.
Potential Risks
Consider first that small businesses are susceptible to employee lawsuits. Citing a 2024 Small Business Trends Report by Counterpart (an AI-driven Insure Tech), 37% of small businesses were “hit with an employee lawsuit in the last year”. Many employee lawsuits come from wrongful termination, discrimination, harassment, and other related charges. And while the employee threshold for federal anti-discrimination laws typically starts at 15 employees, meaning many smaller insurance agencies are typically exempt from federal discrimination laws, Ohio’s employee threshold is considerably lower at four (4) in-state employees. Also, not all employee lawsuits are grounded in discrimination. So, even agencies with just one employee could be sued for other potential employment practice violations.
Knowing the potential risks, agency owners should educate themselves on all relevant and applicable federal, state, and local employment practice regulations. Building on that knowledge, agency owners can establish written policies and procedures specific to all aspects of interactions with employees. This includes how agency owners approach employee interactions. Practices such as recruiting and interviewing, hiring, onboarding and training, day-to-day management, time and payroll, performance reviews, and terminations. Documenting these processes will help create standardization and protect the business against potential employee lawsuits.
Job Descriptions
Written job descriptions that detail roles and key responsibilities are essential in helping employees understand what is expected of them. Regular performance reviews that are documented not only provide clarity to the employee. But, it will also protect the agency should there be concerns about the employee that needs addressed in the future.
Employee Handbook
Developing and maintaining a comprehensive employee handbook is another ideal way to set expectations. It also provides clarity around employment practice standards. Beyond employment practices of the business, employee handbooks should also provide expectations on how employees should behave with other employees, customers, or vendors. In addition to the policies and procedures mentioned, agency owners can also provide a process for which an employee can bring potential concerns and complaints to ownership. Owners need to ensure these concerns and complaints are handled appropriately. And that employees do not face unfair retaliation in the process.
HR Tools and Resources
While developing policies and procedures, job descriptions, and employee handbooks may seem time-consuming. There are considerable resources available online (including AI tools) to help provide guidance in the process. Templates from relevant associations (legal, HR, or industry) may also be available as a starting point. SIA of Northern Ohio has created a few templates that are available for independent agency members upon request. Templates include agency procedures, job descriptions, and an employee handbook. Regardless of how these documents are created, seeking proper legal advice is highly recommended.
Employment Practices Liability Insurance (EPLI)
Establishing these employment practice standards will help protect an agency’s business but will not eliminate the possibility of employee lawsuits. While that risk may be reduced, it is advisable for insurance agencies to protect themselves with appropriate employment practices liability insurance (EPLI) coverage.
Unfortunately, many small businesses, including insurance agencies, may not carry EPLI. Standard commercial general liability insurance will exclude employment practice liability claims unless otherwise endorsed. Adding EPLI coverage (as an endorsement or stand-alone policy) will help provide for defense expenses and settlement claims for covered “wrongful acts.” This may include employees filing claims against a business for wrongful termination, harassment, discrimination, retaliation, and other related employment practice incidents. EPLI policies vary by company, so it is important to review policies for details on what is covered.
An additional benefit for insurance agency owners that model employment best practices is they can provide useful advice to help their small business clients. Benefits that are beyond just offering EPLI insurance. Creating a checklist of some of the items mentioned above could be a valuable refence guide for small business owners. As a result, the agency owner also increases their role as a trusted advisor to their client.
Learn how to protect your agency or how to help your clients with their employment practice liability concerns. Contact SIA of Northern Ohio today for more information.