The world in which we live and work is becoming increasingly diverse. As a small business owner, you’re likely exposed to employees or potential employees from different races, backgrounds, beliefs, age groups and more. The increase in diversity brings many benefits to the workplace, but if you’re not mindful of the law, you can increase the risk of costly lawsuits involving allegations of discrimination.

The Equal Employment Opportunity Commission (EEOC) received 81,055 new charges of discrimination in 2023, which was more than a 10% increase from 2022. Such charges may lead to litigation, and the financial impact can be staggering to a small business owner. Even unfounded claims can cost tens of thousands of dollars in attorney’s fees and be a drain on business productivity. Business insurance can provide financial protection if you’re sued, but to minimize the chances of a lawsuit, it’s important to make sure you understand and abide by anti-discrimination laws.

“As you will see from some of the scenarios set out below, people are often surprised to learn how seemingly innocent mistakes can lead to claims of discrimination,” says Joe Coppola, assistant vice president of Hartford Claims Management.

What’s Wrong with these Scenarios?

  • You publish an employment ad seeking a “handyman” to attend to the ongoing maintenance of your facility.

What’s the risk? Use of the term “handyman” implies that gender may be a factor in the hiring process. While it may never have entered your mind, it’s better to use a generic term such as “facilities manager” to avoid the implication altogether.

  • You’re expanding your business into new territory and one of your top performers applies for the job of branch manager. She’s a top contender but you give the job to another staff person who, in your estimation, better fits the racial profile of that part of the state.

What’s the risk? This constitutes racial discrimination. Employment law prohibits you from using race as a factor in employment decisions.

  • One of your employees recently became wheelchair bound. You feel it’s in the best interest of your business to alter this person’s duties to involve less face-to-face interaction with the public.

What’s the risk? It’s illegal to limit the opportunities and assignments offered to an employee because of that employee’s disability if they’re qualified to perform the task.

  • You’ve come to realize you have no choice but to downsize your workforce. You choose to terminate an employee who holds an essential position but just doesn’t quite fit in with the rest of your small team.

What’s the risk? Without a legitimate business reason for an employee’s termination, such as failure to meet performance standards or violation of company policies, you’re increasing the risk that you could be found liable for wrongful termination due to discrimination.

  • Your workplace is lively, usually with lots of repartee being bantered about. Sometimes it gets a little risqué but it’s all in good fun.

What’s the risk? What may seem like innocent banter to one person may feel threatening and uncomfortable to another. By allowing questionable banter to continue, you could be setting yourself up for more than just a gender discrimination claim.

  • You’ve had your company’s policies for anti-discrimination reviewed by outside counsel and follow them to the letter, faithfully factoring them into every decision and interaction with your employees. Even so, a 55-year old employee sues you for age discrimination, claiming she was more qualified for the promotion that was awarded to a younger member of your staff.

What’s the risk? You don’t need to do anything wrong to be sued. Strict adherence to the most impeccable anti-discrimination policies and procedures can help prevent lawsuits, but it’s not a guarantee.

What’s An Employer to Do?

Allegations of discrimination can arise at any phase of the employment process — from decisions involving hiring, termination and leave-taking to issues of advancement, compensation, training and the application of benefits. As the employer, you need to be informed, aware, responsive and diligent in order to prevent even the appearance of discrimination in your actions and decisions and within the workplace. These recommendations can help:

  • Know the laws. Federal and state laws prohibit discrimination in employment based on factors such as race, color, gender, religion, national origin, physical disability, genetic information and age. The Small Business Administration provides online resources about U.S. employment laws and how to comply with them. An employment attorney can also be invaluable in helping you understand and comply with the laws that apply to your workplace.
  • Have a written employee handbook. Document your anti-discrimination/equal opportunity policies and have them reviewed and revised, if necessary, by an experienced employment attorney. Make sure your policies are understandable and fair, and updated regularly. Upon initial hire, ask employees to acknowledge in writing that they have received and understood your anti-discrimination policies. Periodically review your policies with employees thereafter. Post them in a visible spot within the workplace.
  • Apply the rules consistently. Be fair and unbiased in all of your employee-related actions and decisions. Apply the same practices consistently with all of your employees.
  • Document, document, document. If you’re named in a discrimination charge or lawsuit, you must be prepared to show that your hiring, promotion, termination and other employee-related decisions have been based on fair and objective criteria. Keep records of employee performance and the factors behind all of your decisions. They can serve as evidence before the EEOC and in a mediation, arbitration or court of law.
  • Make it easy for employees to report issues. Provide employees with a mechanism for reporting claims of discrimination. Respond to complaints quickly, consistently and in a helpful, supportive manner. This can help prevent matters from escalating to a lawsuit.

Also talk to your insurance agent about Employment Practices Liability Insurance (EPLI). EPLI offers financial protection against employment-related lawsuits filed for a range of reasons, from discrimination to wrongful termination and harassment. Many business owner’s policies (BOPs) include EPLI with a $10,000 limit at no extra cost, and offer higher limits for an additional premium. Standalone EPLI coverage is also available.