Posted On 15 May 2020
Liability is the state of being liable, or your legal obligation or responsibility to someone. Employment practices are a farm’s or business’s actions as they relate to hiring practices, proper training, providing a safe work environment and dismissal or firing practices.
Most farm insurance policies in New York State have an exclusion under their farm liability coverage form; Coverage H – Bodily injury and Property Damage Liability. It reads as follows; excluded are employee’s liability or employment-related practices – Employees injured as a result of employment with the insured; or an employee’s family member that files a claim due to injury to the employee, or injuries arising from employment-related practices.
Where does coverage come from for my farm business? In New York State, we have always been mandated under statuary law to carry a New York State Workers Compensation policy if and when our total payroll was to exceed $1200.00 per year. In the summer of 2019 the governor passed a law removing the minimal $1200.00 threshold. Now any and all farmers with any type of payroll must have a New York State workers compensation policy. Your workers compensation policy responds to injured employees hurt on the job performing their work responsibilities. This policy will pay for 100% of all medical expenses related to the accident or injury such as but are not limited to:
- Ambulance Services
- Emergency Room Care
- Follow-Up Appointments
It also makes a payment to your employee if they cannot work based on a formula and percentage of pay. There is coverage for partial or permanent disability and loss of sight or a limb.
What about this thing called Employment Practices? What if a farm or business becomes legally liable to an employee due to;
- Sexual Harassment
- Wrongful Termination
- Constructive Discharge, when an employee resigns as a result of employees creating a hostile work environment.
- Retaliatory Discharge, when an employee is fired as a form of punishment.
- Breach of employment contract
- Infliction of emotional distress or mental anguish
- Failure to employ or promote
- Wrongful discipline or demotion
- Mismanagement of Employee Benefits
- Reformation of Character
- Privacy Violations
- Violation of Family Medical Leave Act Laws
- Violation of any State or Federal Laws in place to protect employees
Your cost to defend yourself or any financial responsibility for damages is EXCLUDED from your personal or farm liability in your farm owners insurance policy (In fact, excluded from any business or commercial liability type insurance.)
According to The 2017 Hiscox Guide to Employee Lawsuits, businesses in the United States have a greater than 10% chance of being on the end of an employment-related change. On average, it takes 318 days to resolve the issue. Also, the average total cost to the business is $160,000.00. The Equal Employment Opportunity Commissions Office (a.k.a EEOC) find that employee claims of discrimination, harassment and retaliation are high paced and showing no signs of slowing down. In fact, in this area of the law, these lawsuits are increasing year after year.
You can take steps to limit the risk of liability and lawsuits arising out of your employment practices
- Establish clean workplace policies. Employee handbooks with policies and procedures. Including a system for employees to report concerns for management to respond to.
- Evaluate employees and managers. Establish training about ethical and legal workplace practices. New York State now requires specific training on sexual harassment.
- Hire carefully. Screen employees carefully and avoid anything that may appear to be discriminatory.
- Provide written job descriptions with clear expectations. Train to these expectations.
- Perform regular employee job reviews. Not just annually for pay increases.
- Documentation, Documentation, Documentation! Record and keep records from initial interviews, employee handbooks, specific training and all job reviews. Including, verbal or written complaints and responses.
A True Story
I knew a small business that had anywhere from 3 to 5 employees at any one time. This business hired an employee, with expectations that this person could handle their position, had experience and had the ability to handle the position they were hired for.
This business had a formal written interview and hiring procedure. They presented the employee with a written handbook. They had a 30-day review procedure, tracking continuous training and the next 30 day expectations.
The newly hired employee continued to underperform on the written expectations. After a year and a half, there was a review where the business had this employee sign a letter stating that their job and employment with them was in jeopardy. The following 30 days was a disaster and the employee was asked to leave.
The employee then applied for Unemployment Insurance. The New York State labor department did an investigation. The business showed them all the written documentation from the initial interview, the employee handbooks, quarterly reviews and final written warning about the job being in jeopardy letter. Unemployment Insurance was denied as a result. Documentation is incredibly important.
You can purchase Employment Practices Liability Insurance. This insurance would cover damages that you could become legally liable for, to an employee as well as the cost to defend yourself. In some instances the legal costs could be far more costly than the actual financial damages.
Some companies offer an endorsement to add employment practices liability to your current farmowners policy replacing the common exclusion in that policy.
The more common way to cover this excluded exposure is to purchase a stand-alone Employment Practices Liability policy. These policies have their own exclusions such as;
- Violations of the National Labor Relations Act
- Violations of the worker Adjustment and Retraining Notification Act.
- Violations of Occupational Safety and Health Act.
- Violations of Employee Retirement Income Security Act.
- Any Criminal act.
The application for insurance coverage would ask questions such as:
- Length of time in business
- Gross sales of business
- Gross payroll of business
- How many employees
- How many employees are full time and part time.
- Employee turnover in the last 12 months.
- Any downsizing or layoffs in the last 12 months
- Any downsizing or layoffs contemplated.
- In the last 5 years, any complaints for discrimination or harassment
- Are you aware of any circumstances pending that could result in a complaint.
- What kind of written guidelines do you have (employee handbook, specific training, performance reviews, emails and internal use, anti-discrimination, anti-harassment, etc.
We live in a “law suite happy” society. It is expected with the current unemployment levels due to Covid-19 the number of situations and law suits will likely increase.