Businesses vulnerable to EPLI claims in wake of McDonald’s racism case

Businesses vulnerable to EPLI claims in wake of McDonald’s racism case

Businesses vulnerable to EPLI claims in wake of McDonald’s racism case Industry figures have reiterated the importance of specialized liability insurance following the filing of a new wrongful-termination lawsuit brought by 10 former McDonald’s workers.

According to a Wall Street Journal report, the complaint alleges that a Virginia McDonald’s franchise owner either fired or forced out the minority employees in an effort to “get the ghetto out of the store” and attract more white workers.

Michael Simon, who took over the franchise in 2013, also frequently complained it was “too dark” in the restaurant, the filed complaint says.

While Simon has denied firing employees based on race, the lawsuits underline the importance of specialized liability policies—particularly for small and midsize companies that may not have the financial resources to deal with potential class-action lawsuits.

“Small or new businesses are often the most vulnerable to employment claims…particularly in today’s economy where [employment practice suits] are on the rise,” said Loretta Worters, a spokesperson for the Insurance Information Institute. “That’s because they usually lack a legal department or company handbook detailing the policies and procedures that guide hiring, disciplining, or terminating employees.”

Ann Longmore, executive vice president of Willis’s Finex North America Practice, added that the increased litigation process also contributes to steep legal costs for companies.

“[Class-action lawsuits] involve large groups of employees and are very complex. Just having to litigate something for six, eight, 10 years naturally generates significant defense costs,” said Longmore. “Is $10m enough? $25m? These are significant costs and the bills are still being paid years later.”

Employment practices liability policies pay, up to policy limits, damages for which an employer is legally liable for violating civil and other legal rights of its employees. These policies also pay for legal defense costs, which are especially steep for small companies without legal departments.

According to Worters, most EPLI policies come with limits ranging from $1m to $25m, though larger companies usually have higher limits.  Because “everyone starts with some exposure,” as Longmore says, EPL policies are almost always a good investment for even the smallest businesses.

EPLI policies also offer a large degree of risk management resources, including training materials on employment practices regarding race, sex, age, disability, and other qualifiers.

“The bad news is that most employers don’t take advantage of that,” Longmore said. “The reason is the division of responsibility within the organization. Typically, HR departments are responsible for purchasing risk management materials, not the folks who purchase the insurance.”