By Eric Rahn, Managing Director, S2S Insurance Specialists

Harassment, wrongful termination, race, gender and age discrimination, and hostile work environments are wreaking havoc on the cannabis industry, resulting in an upswing of recent lawsuits that are costing companies hundreds of thousands of dollars and causing harm to the workforce and brand damage that is – oftentimes – beyond repair. 

With the average claim costing small-to-mid-sized cannabis companies between $100,000 and $500,000, there needs to be more of a focus on creating a workplace environment free from harassment, discrimination, and bias. Furthermore, cannabis businesses need to be proactive in having the proper insurance policies in place.

You may make a mistake and be exposed to liability. You may do everything right, yet still be sued. Employer’s Protection Liability Insurance (EPLI) is key to protecting your business from employee-related risks and detrimental lawsuits.

What is EPLI and What Does it Cover?

EPLI is a type of management liability insurance that helps safeguard businesses against employee claims alleging inappropriate or unfair treatment. Former, current, and potential employees who believe the company has violated their legal rights can file lawsuits for a variety of reasons. The most frequent types of claims covered under EPLI include sexual harassment, discrimination, and wrongful termination/retaliation. However, EPLI can also cover a broader array of employment issues, such as breach of an employment contract, negligent evaluation, failure to employ or promote, wrongful discipline, deprivation of a career opportunity, wrongful infliction of emotional distress, defamation, invasion of privacy and mismanagement of employee benefit plans.

While policies vary, EPLI generally covers settlement, judgment, legal costs, fines and penalties. EPLI also protects a company’s directors and officers, management, and other employees from being held personally liable in a lawsuit. 

Common Scenarios Resulting in Recent Lawsuits:

Sexual Harassment. According to the 2020 report, Prospects and Pitfalls: Confronting Sexual Harassment in the Legal Cannabis Industry, “sexual discrimination and harassment plague the legal cannabis industry. Moreover, the industry’s past illicit nature threatens to perpetuate employer misconduct.”

Over the past few years, there has been a surge in sexual harassment claims in the cannabis industry. One such suit filed by the U.S. Equal Employment Opportunity Commission (EEOC) alleged that a general manager at a medical marijuana dispensary in Maryland engaged in “unwelcome touching,” made “highly offensive sexual comments to and about staff and customers,” and “showed an employee a nude picture on his phone.” Although employees complained for months about the harassment, the company did not investigate until after it learned a complaint had been filed with the EEOC. The courts ruled in favor of the plaintiff, and the dispensary and its parent company were remanded to pay $175,000 to settle the suit.

The cannabis industry is plagued by many of the same gender issues as other mainstream industries. In a study conducted by WeedMaps, 53% of women in the cannabis industry have experienced workplace harassment with 46% reported feeling sexually harassed. However, it’s not just women and lower-level employees making claims. Last February, a large publicly traded California cannabis flower distributor came under fire when its former Chief Revenue Officer – a male – accused the company of fostering a culture of sexual harassment and coverup. In the official complaint, the executive said he was subject “to severe and pervasive sexual harassment, both hostile work environment and quid pro quo, as a result of unwanted sexual advances and other discriminatory conduct.” The pending court case seeks an unspecified amount of damages from the company and also names three of its related companies liable. 

Discrimination. Title VII is the Federal Civil Rights Law that prohibits employment discrimination on the basis of race, color, gender, national origin, and religion. For women, the cannabis industry remains a harassment-filled boys club. The latest in the battle to fight misogyny in the cannabis growing and retail industry, is a lawsuit filed by two workers at cannabis-growing companies in California who claim they were “wrongly fired after protesting workplace conditions and gender bias, including prohibitions on women working in growing rooms and pregnant women working at the companies.” The complaint also alleges that the companies conducted “a sham investigation of their complaints of bias, to further create pretense for firing them.” The plaintiffs are seeking compensatory and punitive damages, as well as other penalties against the companies.  

Wrongful Termination/Retaliation. According to the EEOC, this is the most common claim brought against employers. The latest case to make headlines was filed in June 2022 by a former employee of a Chicago-based health center who claims she was fired under the pretense that she had bullied a coworker, but in reality she was terminated because she had reported her supervisor’s unwelcome behavior. In the suit, she alleges “violations of Title VII of the Civil Rights Act of 1964 and the Illinois Human Rights Act, and asked the court for damages for emotional distress, humiliation and her loss of employment, as well as punitive damages.”

EPLI – Is it Worth It? Critical Points to Consider:

Navigating employee-related issues can be tricky business. Cannabis companies that land in legal hot water are often more focused on boosting profits and growing their business rather than implementing HR policies and ensuring they have the proper insurances in place to protect themselves against legal claims. The dozens of companies over the years that were embroiled in legal litigation and did not have EPLI learned the hard way that they are solely responsible for paying significant defense fees, compensatory and punitive damages, fines and penalties. 

When considering an EPLI, it is critical to negotiate policy limits, selection of counsel and defense limits, when you are first obtaining EPLI insurance or when you are renewing your policy. A qualified cannabis insurance broker can walk you through all the options and guide you on the policy that best meets your needs and budget.

While EPLI can be offered as a stand-alone policy, it is typically more affordable to combine EPLI with an existing policy, such as Directors & Officers Liability (D&O). Certain policies automatically include sexual harassment, but others do not, or you may be required to get a special endorsement for sexual harassment. Keep in mind that coverage is specific and EPLI cost is based on the business type, employee numbers and past lawsuits associated with the organization. Your broker should do the leg work for you and present coverage options and cost comparisons, so management can make an informed decision.

In Summary

Prevention is the cornerstone of reducing the risk of employee-related lawsuits. However, even if you develop and enforce a zero-tolerance policy for sexual harassment, discrimination, and other harmful issues, and take immediate and appropriate action when a complaint is made, claims can and will happen. 

As you hire more employees, your risk of discrimination and sexual harassment increases. An EPLI policy can help your legal defense and settlement of such claims. In today’s climate, business owners and managers need to be proactive and understand the risk management tools and options available to them to protect their business. 

Eric Rahn, Managing Director of S2S Insurance Specialists, is a highly specialized insurance broker and risk management professional with over 30 years of experience providing C-Suite executives strategies and solutions that protect and safeguard their businesses.

Eric has held several executive positions in the maritime and casino/gaming industries, including CEO of the largest privately own casino concessions company operating on cruise ships around the world. He transitioned his knowledge of corporate business practices in highly regulated industries into the burgeoning cannabis space, establishing S2S Insurance Specialists in 2017.

Eric has served on the National Cannabis Industry Association’s (NCIA) Risk Management Insurance Committee since 2016. He is also a national speaker on cannabis insurance and author of NCIA’s Risk Management and Insurance’s “Introduction into Cannabis Insurance.”