How to make sure your clients are protected with EPLI
Hiring contractors as opposed to full time employees is a rising trend. According to Forbes, freelancers now make up 35 percent of the U.S. workforce1. Although this staffing approach provides business owners with greater flexibility and lower costs, it can also lead to unrest within organizations.
For example, Uber, the popular ride-sharing service, employs 160,000 contractors and only 2,000 actual employees2. In 2016, Uber reached a landmark settlement of $100 million to contractors represented in three cases brought against the company. Courts ruled in favor of the plaintiffs (contract drivers) who argued they should be classified as employees and entitled to benefits under their state labor laws.
As a part of the settlement, Uber will be allowed to continue categorizing its drivers as independent contractors, rather than employees. However, the company will also be required to better communicate with its drivers, and of course, pay up to $100 million.
With contractor hiring on the rise, how can employers avoid paying out of pocket expenses to cover defense and indemnity costs from lawsuits like the one Uber just experienced?
“Employment Practices Liability Insurance (EPLI),” said Dario Nalli, Director of Executive Lines, Burns & Wilcox. “EPLI provides coverage to employers against claims made by employees alleging discrimination, wrongful termination and harassment, but can also be extended to cover contractors.”
Clearly Define Employee
Insurance carriers tend to exclude contractors due to uncertainty of the employers control with that individual. “Employment Practice policies can define an employee differently, which can be misleading to a client,” said Nalli. “It is important for brokers and agents to ensure contractors are included in this definition for coverage to be triggered.”
If an employer decides to terminate a contracted employee, they could find themselves defending a wrongful termination claim. If their EPLI policy does not define a contractor as an employee, then defense and indemnity costs may not be picked up by the insurance carrier.
“It can be difficult to get insurance carriers to add this coverage, due to the lack of federal and state guidelines around contractors and how much control, care and responsibility employers have over these individuals,” Nalli said. “Employers are not held to the same employment laws and regulations when it comes to contractors. Employment benefits, income, workers compensation, and unemployment, are benefits and protections that are provided to direct employees,” said Nalli. “More and more contractors are fighting for these types of benefits and laws to extend to them as well.”
Avoid Gaps in Coverage
In the wake of the Uber settlement, the employment landscape has changed. Organizations that hire a large percentage of contractors need to make sure there are no gaps in their coverage. Nalli recommends brokers and agents work with their clients to ensure their Employment Practice policy covers their actual exposure, and contractors are included.
“In order to provide an insurance policy to employers with contractors, carriers would like to see that contractors are held to the same standard of care as employees,” said Nalli. “For example, a contractor employed at a senior living community would need to undergo a background check, just the same as an employee would. Employers should take the same steps when hiring a contractor as they would for hiring an employee. This mitigates the potential for an EPLI claim.”
Nalli recommends brokers and agents take the following steps when working with a client that requires coverage for contractors:
- Seek legal counsel that has experience in both employment law and human resource procedures in the state where the insured operates and has employees and contractors.
- Work with the client to ensure that they have the same hiring and training practices in place for both contractors and employees.
- Stress to clients the importance of documenting interactions with contractors as much as they would an employee to aid in defense of a potential claim.
Despite potential complications, employing contractors can be cost effective and beneficial, and this hiring trend will most likely continue to grow in the near-term. Brokers and agents are encouraged to take advantage of this trend and work closely with clients to ensure they are properly covered for liabilities as their ratio of contractors to employees shifts.