This year’s sexual harassment claim numbers aren’t in, but with the visibility of sexual harassment and movements like Time’ s Up and #MeToo empowering both men and women to come forward, more than 70 percent of human-resource leaders recently polled by the HR Certification Institute believe sexual harassment claims will be higher in 2018.
By Dan Mello and Fernando Morales
Since big corporations like Fidelity, Uber, and Fox News have been dominating the headlines on this topic, it wouldn’t be surprising if, as a small business owner, you felt like this is really a Fortune 1,000 problem. However, you could actually be at a greater risk than are large firms.
Here’s why: Your business has a much smaller financial cushion, compared to those of large corporations. And if you’re a small, single-office location, it’s likely you don’t have the luxury of an HR department. A sexual-harassment dispute between two of your employees could result in a lawsuit, governmental investigations, and penalties, putting your business at serious risk of bankruptcy, not to mention the diversion away from the business at hand, poor company morale, and a potential hit to your most important asset of all—your reputation.
You can’t afford to ignore this risk—there’s too much at stake. As you ask yourself the question Are we doing everything possible to minimize sexual harassment risk?, it’s time to consider a two-pronged approach that integrates a more aggressive, targeted risk strategy.
An Ounce of Prevention…
The best place to start is by educating your employees on what constitutes harassment and how to prevent claims. Since the tone and culture of an organization is always set at the top, it’s your responsibility as a small-business owner to demonstrate a genuine commitment to maintaining a safe work environment, with zero tolerance for unacceptable behavior.
Definition of Sexual Harassment*
The EEOC states that sexual harassment includes unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature constitute sexual harassment when this conduct explicitly or implicitly affects an individual’s employment, unreasonably interferes with an individual’s work performance, or creates an intimidating, hostile, or offensive work environment.
*The definition of sexual harassment may vary by state and governing body. Employers should familiarize themselves with the particular details of the definition(s) applicable to their workplace.
Almost 80 percent of HR leaders reported training and risk mitigation will be a top priority in 2018. Though not an exhaustive list, your business should do the following:
- Prominently post corporate policies on harassment and discrimination in the employee handbook and throughout the workplace. If the policies have not been reviewed recently, consider having them updated by outside (independent) professionals.
- Conduct annual training sessions for all management and staff (required by statute in most states).
- Reinforce the organization’s attitudes toward maintaining a sexual harassment-free culture at employee gatherings throughout the year.
- Clearly explain what steps an employee can take if they believe they have been a victim, including a statement of no retaliation.
- Document incidents that occur, as well as the steps the company has taken to resolve disputes.
Insurance: Your Financial Backstop
Even with best efforts at prevention, a claim might still arise. You should evaluate whether to add coverage extension through Employment Practices Liability Insurance (EPLI) and Directors’ & Officers’ Liability Insurance (D&O) policies.
EPLI typically provides coverage for sexual harassment claims, as well as a range of other employee actions, such as discrimination, wrongful termination, breach of employment contract, failure to promote, and wrongful discipline. While this can be an important safeguard, only about three percent of companies with fewer than 50 employees have it.
Further, having an ELPI policy doesn’t necessarily mean you are covered—not all EPLI policies include coverage for sexual harassment claims from third parties (e.g., customers, vendors, and/or consultants). You should review these policies and consider adding the coverage extension.
Historically, the uptake on this coverage has so far been low, but interest is increasing.
D&O insurance provides financial protection for the directors and officers—who can be held personally liable in many states—in conjunction with claims arising from the alleged negligent execution of their fiduciary duties to the company. D&O policies are frequently triggered in sexual-harassment claim scenarios.
EPLI and D&O can be purchased separately, together, or, along with Fiduciary Liability, as a single-management liability package program. It’s worth noting that ELPI and D&O insurance policy terms, definitions, exclusions, and conditions can vary from carrier to carrier. It’s important to look at forms carefully and not simply base your decision on price alone.
Also, insurers often offer value-added risk management services in addition to insurance that can help you reduce your exposure.
The issue of sexual harassment is front and center and likely will remain that way indefinitely. As a small-business owner, you have a responsibility to maintain a workplace that is free of sexual harassment. Now is the time to take a closer look at protecting your business. It’s not only a legal obligation—it also makes good business sense.
Daniel Mello is a Vice President at Pan American Insurance Services in Stockton, CA – A Relation Insurance with an expertise in construction, agriculture, and manufacturing. He is a licensed California Fire and Casualty Broker/Agent. He holds insurance designations for Certified Insurance Counselor, Construction Risk Insurance Specialist and Agribusiness and Farm Specialist.
Fernando Morales is a Vice President of Sales at Pan American Insurance Services in Fresno, California – A Relation Company. He is a licensed Accident and Health, Life-Only, and Fire and Casualty Broker/Agent transacting insurance business in California and Arizona since 1998.