Why do restaurants need employment practices insurance coverage?

By Douglas Powers | October 9, 2006

Employment practices liability claims are on the rise and to date approximately 60 percent of all civil litigation in federal courts is EPL related. The rise in claims activity is a concern for all business owners, including restaurant owners.

Many restaurant owners and managers don’t really understand what EPL is and the broad range of issues it encompasses. Employment practices liability insurance provides businesses and employees with coverage for claims made against them that can happen as a result of wrongful employment practices including: discrimination; harassment; retaliation; termination, constructive discharge; failure to hire, supervise and demote; and personal injury resulting from infliction of emotional distress and humiliation, defamation and invasion of privacy. Restaurants and bars, including mom-and-pop operations, can be at risk for EPLI claims, which could result in total devastation for the small business owner.

Catastrophic consequences
Unfortunately, those who suffer the most are the very ones who can’t afford the debilitating financial impact that can result from even a single EPL lawsuit.

The Equal Employment Opportunity Commission recorded nearly 75,000 charges in 2005, with the average cost of an EEOC lawsuit exceeding $250,000, and the total payout to claimants totaling $3.8 million. Private businesses with 100 or less employees are the most often sued for federal discrimination claims.

Some restaurants and bars may consider going without EPLI coverage to save money. Others mistakenly assume they are covered under their general liability policies. However, most general liability policies have a standard exclusion for employment practices liability exposures. Going without EPLI can be a costly decision. Even if a restaurant or bar has only one employee, they still need EPLI coverage.

It couldn’t happen to me?
The havoc that a single lawsuit can wreak on a restaurant is undeniable. Here are just a few examples of possible EPL complaints.

Gender discrimination. A national restaurant chain paid $360,000 to settle a gender discrimination lawsuit brought by men alleging they were denied more lucrative server positions because of their gender. The restaurant was accused of hiring only women servers.

Retaliation. A server is given a “last chance” warning about coming to work late. The disgruntled employee immediately makes a complaint to the health department about alleged unsanitary food-handling practices. Then, upon being terminated for coming in late again, he alleges he was fired in retaliation for making the complaint to the health department. This is a classic set-up by an employee who knows they are about to be disciplined or terminated for poor work performance.

Sexual harassment. A restaurant franchise paid $400,000 to settle a sexual harassment claim by seven teenage workers who alleged the manager groped them, made vulgar comments and made demands for sex. Several girls complained to the assistant manager and the general manager, but remedial action was not taken immediately.

Fair Labor Standards Act. Several assistant managers formerly employed by a mid-sized restaurant chain filed a class action lawsuit against it. The suit alleged that since these employees were required on occasion to perform “non-managerial tasks” — such as bussing tables, running the cash register or serving customers — they should not have been classified as salaried employees who were not entitled to overtime pay. The court granted class action status to the group of former employees. At that point, the restaurant chain knew it could face legal fees in excess of $750,000 and an uncertain outcome if there were to be a trial. The restaurant chain decided to settle for business reasons. The matter cost more than $1.3 million to resolve.

Third-party ADA claim.A customer threatens to file a class action lawsuit alleging that a restaurant is not Americans with Disability Act compliant, claiming that the handicapped parking spaces are too narrow, or the counters are two inches too high, or the doors are too heavy, or display racks block the aisles. The customer and their attorney often settle for a “bargain” of $15,000 to $20,000 (knowing defense costs could reach six figures) before moving on to the next restaurant down the block.

Finding a solution
The risk for restaurants and bars is real and significant. So is the protection that agents can offer their clients. Restaurant and bar owners can often obtain EPLI coverage for a minimal cost.

A good EPLI policy can offer restaurants protection against claims made by employees, former employees or potential employees. That protection extends to the management and directors as well. Coverage can include part-time, temporary, leased and seasonal employees and independent contractors. Other enhancements can include, but are not limited to, third party liability coverage and EPL education and support in managing their risks.

If a restaurant or bar owner considers the potential impact an EPL lawsuit can have — the time spent away from their business, the emotional toll, the effect on morale and the potential damage to their business reputation — it makes sense for them to take measures to avoid a possible claim and purchase EPLI coverage. Having an EPLI policy that is customized for the unique requirements of the restaurant industry is essential to their risk management practices. Agents would be wise to provide their restaurant clients with information about employment related exposures, as well as to view this as an opportunity to increase their premium income.

Douglas Powers is president and CEO of Monitor Liability Managers Inc., an underwriting management company specializing in professional liability insurance. Monitor’s EPL Restaurant Program insures small to mid-sized clients with five to 2,000 employees. Contact: dpowers@monitorliability.com, or visit: www.monitorliability.com.

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Insurance Journal West October 9, 2006
October 9, 2006
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