Household Employee Exposure an Opportunity to Go Beyond Typical Sale

Homeowners may be at risk when employing housekeepers, maids, cooks, babysitters and other domestic employees

We want to trust those whom we hire to work in our homes. Who prepare our meals. Clean our treasured possessions. Drive our children to and from school. Over time, some of these people become extended members of the family.

Unfortunately, we can’t let our guard down. Once a housekeeper, maid, cook or even the occasional babysitter passes through our front door, they are employees. And just like employees in the business world, they can and do steal from and sue their employers.

Household employees can provide an insurance agent or broker with an opportunity to get beyond the property and more mundane liability exposures their clients face. The topic enables an agent to assume the role of a risk adviser by obtaining a better understanding of their client’s lifestyle and taking a more comprehensive approach to containing exposures and their potential financial consequences. It also provides an avenue for rounding an account and generating additional revenue.

It’s a great differentiator, which should be of interest to more clients than ever before. Many of today’s nearly 30 million two-income families can’t watch their children during the day and may not have the time to cook, clean and garden. According to the U.S. Department of Labor, homeowners employed 896,000 maids and housekeepers in 2003.

Risks in the Home

Accusations of harassment and discrimination have worried office employees for years, but now employment practices risks have entered the home. More homeowners today are exposed to wrongful employment allegations. Maids, nannies, housekeepers, cooks and other domestic workers are filing lawsuits against their employers, claiming sexual harassment, discrimination, and wrongful termination. Although allegations are surfacing all over the country, many cases don’t make the headlines because they are settled privately. And even if a case is judged to have no merit, the defense costs alone can run into thousands of dollars.

Workers, of course, can also sue when they are hurt on the job. This may especially be the case when the homeowner failed to purchase legally required workers’ compensation coverage. And even when such coverage is in place, one can still be held liable for negligence.

No one really knows the full extent of theft committed by household employees. In some cases, it’s not detected. In other cases, it’s not reported to the police, although the homeowner fired the employee. The problem here is that homeowners tend to be too trusting. More than 50 percent of employers do not conduct background checks before hiring domestic help, and more than 40 percent trust their workers with keys to their homes, according to a Chubb-sponsored survey of 600 people.

Insurance agents and brokers can help their clients recognize the wide variety of risks surrounding the employment of domestic employees. They can begin by pointing out to their clients that the minute a domestic employee walks through the door for the first time, the household becomes a place of employment, and the homeowner becomes an employer who can be held liable for obscene, discriminatory or offensive conduct. A homeowner can often misunderstand his/her responsibilities as an employer because the household is an informal space and they have only a verbal agreement with their workers regarding pay, hours and responsibilities.

Homeowners need to realize that the work environment is not totally in their control. A child, friend, neighbor or guest can discriminate against and harass an employee. Homeowners may be held liable for anyone who commits such acts. And over a period of time, a handful of seemingly innocent jokes can create a hostile working environment.

Affluent individuals have a greater risk of domestic employment litigation. Domestic workers may be more likely to sue affluent employers because they think their employers have deep pockets. If the case goes to court, juries can easily side with the underdog instead of the wealthy employer.

Domestic lawsuits that make the front page can damage one’s social standing and reputation within the community and even the workplace. Accusations of wrongful employment acts can cause the accused’s business to lose clients. Even if the allegations are false, there is no guarantee that the employers will fully recover from their damaged reputations.

Employment Practices

Despite this wide variety of risks, homeowners can reduce their exposure by adopting some corporate-like practices with help from an attorney. They can begin by drafting job descriptions for their household employees. The descriptions, which should include all major responsibilities, should be shared and discussed with potential employees prior to or during the interview process.

Potential employees should be asked to fill out employment applications on which they should indicate prior employment and references. In addition to checking references, the homeowner should consider conducting background checks before making offers of employment. These checks should include criminal records and credit histories.

All new employees should be asked to sign an agreement that clarifies the terms of employment. Agreements should specify weekly work hours, amount of pay and vacation time. They should also include other terms, such as the amount of notice both parties must give before terminating the relationship and the conditions under which the employee can be fired. To help avoid a wrongful termination suit, the agreement should contain a clause that allows the employer to terminate the employee without cause or reason.

As employees enter the household, the homeowner should review the responsibilities with them. To the extent possible, employees’ access to different rooms should be based on their responsibilities. The homeowner also should remove temptations by not leaving out jewelry, cash and financial statements. And make sure to install passwords on computers.

As with any employment relationship, it’s important for the employer to provide feedback to employees. As problems develop, they should be addressed with the employees. At least annually, more formal, written reviews should be provided to, and discussed with, the employees. Furthermore, periodic background rechecks should be conducted, since an employee’s financial situation can change over time.

Finally, employers should educate family members about the way to treat household employees. Family members should understand which actions and kinds of speech are inappropriate in the presence of domestic employees. For example, racial slurs and jokes, sexual activity and material can create a hostile working environment for the domestic employee.

In states with clean indoor air acts like New York and California, even smoking can spoil a comfortable workplace.

Insurance Protection

Agents also should educate their clients on appropriate insurance protection. Make sure that the client has purchased workers’ compensation. Furthermore, make sure that clients know that homeowners and umbrella liability coverages exclude employment-related issues. When available, the agent may recommend that the client purchase employment practices liability insurance. Adapted from the world of commercial insurance, this relatively new personal insurance coverage is offered by a few select insurance companies.

Employment practices liability insurance provides coverage for settlements, legal fees and jury awards for insured employers accused or convicted of wrongful employment acts. In addition, this insurance can help pay public relations expenses to minimize the damage to the homeowner’s reputation. Personal employment practices liability coverage typically costs less than $1,000 per year. Depending on the specific policy, damages can be covered between $250,000 and $500,000 with a $10,000 deductible. Additionally, some policies may provide between $10,000 and $25,000 in reputational injury coverage.

Any successful employee-employer relationship must be built on trust, especially one right under our own roof. With the help of the agent, the homeowner can ensure that the home remains a comfortable and trusting place.

Topics Lawsuits Agencies Homeowners