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Downsizing In Downturns, EPL Insurance Considerations


Key Takeaways

Jonathan Selby - Founder Shield
Jonathan Selby

General Manager

Employment practices liability (EPL) insurance responds when employees sue companies, alleging discrimination, wrongful termination, breach of contract, etc. Naturally, onboarding and offboarding processes commonly trigger this particular coverage. With the global market’s current state of downsizing in downturns, we expect (and hope!) company directors and officers prioritize EPL insurance considerations. Here’s why. 

Understanding the Current Landscape

The world is changing at a pace that many of us find challenging to keep up with. It’s unsurprising that industry leaders, such as the popular venture capital firm Sequoia Capital, have opinions about what the future holds. So, when Sequoia introduced its Adapting to Endure memo earlier this year, we scooted to the edge of our seats. 

Among the firm’s many helpful nuggets of advice, Sequoia foretold a cost-cutting kind of future. And we agree; we’ve already seen a handful of notable clients pursue layoffs. 

Here’s the thing; rapid scaling isn’t what it used to be. Businesses are lengthening their runway, prioritizing profits over growth. Where we used to see massive hiring sprees, we might now experience leaders whittling away their workforce to a few key members. 

Pro Tip ↓

For more insights about what to expect in the future, read this: 5 Key Takeaways from the Sequoia Memo — Y Combinator & LightSpeed Chime In

Downsizing Risks

As businesses struggle to source the capital they need to grow, they’re making the vital decision to cut out non-essential activities. As we explained in our post about key takeaways from the Sequoia memo, companies are now preparing for layoffs and cutbacks. The number of companies cutting back hiring budgets has increased, making freezing hires another hurdle to navigate.

LightSpeed cleverly said, “The boom times of the last decade are unambiguously over.” 

The firm explained further, “Today’s downturn not only affords CEOs the ability to hit the reset button on accelerating compensation; it also allows them to reduce the pace of hiring, focus more on quality, and gain access to people who weren’t necessarily ‘recruitable’ before. Where necessary, CEOs can rationalize headcount and refocus their company’s culture around performance.”

As mentioned earlier, layoffs and cutbacks can snowball into significant problems if leaders don’t handle the offboarding process properly. Employment-related lawsuits often surface during downsizing, making litigation one of the most critical risks of decision making during these tough times.

EPL Considerations During Downsizing

EPL insurance protects companies against employee lawsuits surfacing from their employment conduct practices including potential EPLI claims. I. If an employee files a lawsuit against you — even if the allegation is baseless — EPL insurance covers your defense costs. Companies frequently couple EPL insurance with directors and officers (D&O) insurance for secure, 360-degree protection.

During downturns, news about layoffs can quickly send people into a less-than-perfect mindset. While many downturns are seemingly unavoidable, employers typically find them challenging to navigate. That said, some of the most common accusations in EPL are:

  • Discrimination
  • Sexual (or another workplace) harassment
  • Wrongful termination
  • Failure to employ or promote
  • Breach of terms of an employment contract
  • Negligent evaluation
  • Wrongful discipline, bullying
  • Wrongful infliction of emotional distress

Having employees creates more vulnerabilities for company leaders to manage, especially when downsizing puts your company in a vulnerable position. Keep in mind that government regulations provide employees with access to administrative claims and litigation. A successful plaintiff using the laws to back up their claims can have their legal costs paid by the employer even if they only win $1. Our litigious society usually accepts this approach without reserve.

Understanding the details of what coverage your company needs can be confusing. Founder Shield specializes in knowing the risks your industry faces to make sure you have adequate protection. Feel free to reach out to us, and we’ll walk you through the process of finding the right policy for you.

What to know more about EPL insurance? Talk to us! Please contact us at info@foundershield.com or create an account here to get started on a quote.

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