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How Leadership and Culture Impact EPLI Risk

Director of People at HNI

EPLIThere are certainly advanced algorithms and actuarial science that underlie premiums set by underwriters.  But equally important is the “soft side” of risk – the kinds of things that are hard to quantify, such as leadership, brand, and culture.

Employment practices liability insurance (EPLI) protects your business from claims that arise when current, former, or potential employees believe they have been mistreated and file job-related law suits and claims.

This is one of the exposures where the “soft side” stuff can have a major impact on your EPLI claims experience.  Here are three areas to consider when evaluating your organization’s risk in this area:

1) Stress Levels Involved in Daily Work

Employment practice charges generally stem from an emotional situation where employees feel hurt and mistreated. High-stress organizations should be particularly careful about any EPL risks.

When we think of high-stress jobs, the things that first come to mind are things like air traffic controllers, emergency room personnel, labor negotiators, and stock brokers. However, stress can exist in any industry, and the levels of it really depend on your company culture.

To some extent, stress can be good for an organization – it motivates people to perform and to keep the company moving forward. At the same time, situations where things become confrontational and personal often inflame emotions.

If employees are struggling to keep their emotions in check and doing their job requires a special effort to do so, an EPL accusation may stem from this. If an employee feels like she was treated unfairly, a claim can be a way for her to “get back” at the person who allegedly did the slighting.

2) Internal Culture of Your Organization

The internal culture of your organization and general morale is another big factor in your risk. Claims are less likely in cultures that are warm, welcoming, and nurturing. All employees should feel like their employer and co-workers have their best interests at heart and are invested in their success.

Does each employee feel like he has an equal opportunity for advancement? Does your organization set standards as to how employees are supposed to treat their colleagues?

Many organizations expect proper behaviors to arise naturally out of common courtesy. This hopefully is the case, but it’s also a good idea to clearly define standards of employee behavior in your handbook. What’s acceptable in behaviors, business practices, the level of integrity, morals, and ethics should be very specific.

Codifying what appropriate behavior looks like also sets up a framework for addressing any problems that do arise in inter-employee interactions. By setting clear expectations, you can hold all of your people accountable for the standards that you set.

Even companies with the strongest of cultures should still carry EPLI. In cultures with high morale, camaraderie, and clear standards of behavior there is a lower risk, but the potential for unanticipated issues and claims by people outside of your company (like applicants or customers) always remains.

3) Leadership of Your Organization

Organizations need dynamic leaders to grow, but the same strong-willed executives that propel your company forward can be a source of risk when it comes to employment practices issues.

A dominant personality in the leadership position may inadvertently discourage people from speaking up about things that concern them, including disagreements with promotions and employment decisions, a hostile work environment, or other concerns.

When it comes to business ethics, employees may feel pressured by a strong-willed leader to do something that they find unsavory that may later result in an employment practices complaint. Even if they don’t mean to exert this kind of influence, leaders with the stance that it’s “their way or the highway” can have this effect.

Having a person in a leadership position that is receptive to employees’ concerns is essential to avoid employment practices claims.

To get your organization to the next level, your people should expect to work hard. But they also should always expect to be treated with respect and fairness. Evaluating how your organization performs on those "soft side" risks of brand, leadership, and culture will help steer your ship away from employment practice issues.

5 Signs You NEED Employment Practices Liability Insurance   [Free 5-page White Paper] 

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