Avoiding Employment Threats
After over a decade of educating Doctors on the importance of asset protection, we are seeing a noticeable increase in awareness. Unfortunately, the majority of Doctors who fail to employ asset protection planning give the same excuse: “Doctors never lose malpractice lawsuits with awards above coverage limits.” This is wrong for two reasons. First, half of jury awards against physicians are over $1,000,000. Second, malpractice suits are only a small percentage of the awards against Doctors. A less visible but arguably larger concern is that an employee will file a suit against the Doctor. In the larger version of this article, we will discuss the challenges of employment liability, which may result in very expensive defense costs—even in the event of fraudulent cases that you win. We will give some examples of cases that may be of interest, explain increased risks in the information age and offer some solutions.
The Risk Of Employment Lawsuits
Over the past 20 years, there have been monumental changes in the employment arena. There are a host of Federal Laws that have been put in place to protect employees’ rights and open the possibility for lawsuits against employers. Many argue that these laws are appropriate to protect the rights of workers while employers often argue that these laws place undue restrictions on their ability to manage their firms.
Regardless of which side of the issue you sit, the reality is that there are numerous “Laws of the Land” which employers must follow. Inclusive of these are the FLSA [Fair Labor Standards Act]; the ADA [Americans with Disabilities Act]; FMLA [Family Medical Leave Act]; Title VII of the Civil Rights Act of 1964; The Civil Rights Act of 1991; and many more. In addition to the federal law, California’s laws add another layer to these regulations. So what does it all mean? It means that you have to learn how to protect yourself against one of the fastest growing areas of liability.
What many employers—including Doctors—face today is the challenge of working in an ever increasingly complex world of employment regulations and guidelines. Most small business owners may have few resources with which to address human resources concerns and little or no training. This can result in the owner being held financially responsible for any mistakes they may make. It means that age-old established practices may plot a course for a company to end up in ruin. It means that business owners—including Doctors—must pay greater attention to how they hire employees; how they supervise them; and how they terminate them.
This environment has fueled the growth of Human Resources (“HR”) outsourcing. Many firms have established themselves as specialized providers of these functions for businesses, with the intent of alleviating the business owner’s HR headaches. While these firms do provide reliable HR services, they typically do not provide liability coverage for the companies they serve, especially in the realm of employee suits claiming sexual harassment, unlawful termination or discrimination. So, while business owners may benefit from outsourcing some HR tasks, they cannot outsource the risk and their companies are still responsible for their own actions. Insurance policies that address these risks are available to protect against catastrophic liability—one example is EPLI [Employment Practices Liability Insurance], also known as HIRE insurance (see www.hireins.com for more information). If the risk is real, and protective insurance is available, why are the vast majority of small business owners, including Doctors, operating without such coverage?
To small business owners, this type of coverage has historically been out of reach due to cost restrictions. Thankfully, this is now beginning the change. More affordable coverage solutions are making their way into the market. In fact, low deductible policies with coverage amounts as high as one million dollars can now be found. These more accessible policies, coupled with employment risk management services, provide a shield that can protect small business owners—including Doctors—from these potentially devastating claims.
Protecting Your Practice
There are two ways to protect your practice assets from risks. First, you can insure against the risk, effectively sharing the risk and passing it along to someone else. Second, you can assume the risk yourself and use asset protection and risk management strategies to protect assets from the threats. The second strategy is covered in Lesson 6. Here we will focus on passing off all of that risk to other people through insurance.
Fewer than 5% of small businesses (and, we imagine, even fewer medical practices) have any insurance coverage providing protection from employment-related lawsuit risks. This is despite government statistics clearly indicating that this threat is a growing problem. Additionally, recent federal court rulings have begun finding owners and management “personally liable.” This means that just incorporating a business will NOT, by itself, protect a business owner from being found personally and financially liable in employment-related suits. Thus, insurance coverage is key to protecting a business owner’s interests.
A solid EPLI policy coupled with a comprehensive risk management course can be obtained today for under $2,500 (sample for businesses of 10 employees or less). Retaining these services provides small business owners with the tools necessary to enforce the protections of the insurance coverage. By coordinating an insurance policy and consulting services, the small business owner/Doctor can expect to see a significant reduction in the threat posed by an employment lawsuit. Contact the authors at 877-656-4362 for more information.
Risks In The Information Age
Information is the currency of modern America. The role of the Internet—and its ability to locate and distribute information—has exploded in recent years. It has become the source of much of our information—our de facto provider of answers, so much so that the first thing a person will do when faced with a potentially life-changing issue is often to “Google it.”
What else, then, would you expect of an employee that feels they were treated unfairly? Most likely, they will explore the information available online and learn that they may have options available to them. In the past, individuals seeking to file a complaint would have to first take the step of consulting an attorney. But in the spirit of today’s “instant information” culture, the EEOG’s website now features a simple form for initiating a federal claim without requiring any legal consultation.
The wealth of information and ease with which claims can be filed may partly explain why the number of claims filed with the EEOC jumped from 77,990 in 1997 to over 84,400 in 2003, following a period of decline from 1995, when the number had exceeded 91,000. Coincidentally, this appears to correlate to the number of Americans that consider themselves “web-centric,” which has consistently grown since the late 1990s.
Federal courts are also getting into the act and ruling more consistently to hold the individual business owner liable in employment cases.
The solution for small business owners today is to be educated about the risks and take reasonable steps to lower their overall risk of complaints in the employment field. However there is no substitute for obtaining proper insurance coverage to protect one’s assets. This can be accomplished by instituting a Risk Management course and appropriate EPLI coverage. When a small business can get both at the same time in a cost effective manner then he or she is truly protected.
The bottom line is that the potential exposure to small business owners, including Doctors, is increasing and the federal courts are more consistently holding owners personally liable. Therefore, it is more important than ever for small business owners to protect their assets and get serious about the HR world like their big business counterparts.
Life insurance can protect a family from a premature death. Disability income insurance can protect a family from an injury that reduces a breadwinner’s ability to earn a living. Long-term care insurance can protect a retiree from losing retirement funds and can help protect a family’s estate. Various annuities can help protect a retiree from running out of money. If you want to avoid the financial disasters that have stopped many families from achieving their desired levels of wealth, you must consider all of these tools in your planning with your advisory team. Once you have protected your family so you can “do no financial harm,” you will be ready to learn more advanced lessons in asset protection and wealth accumulation.
The next Lesson discusses how to turn your practice into a financial Fortress and wealth-building Engine. Since a Doctor’s income and liability almost always start at the practice level, this is a very valuable lesson you need to understand and embrace before you begin protecting personal assets or learning how to build greater wealth.
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