Managing household employee lawsuit risk

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We examine the liability issues every doctor needs to be aware of when utilizing household employees like housekeepers, nannies, and personal assistants.

Physicians, and two-income couples in particular, are increasingly relying on household employees to help manage their work-life demands. Unfortunately, many of these relationships are not handled with same level of legal compliance and risk management that control professional employment relationships at your practice. Last week, we covered the tax reporting issues for nannies and housekeepers every employer should be aware of, this week we take a look at some of risk management and legal issues that should be part of your plan.

Who is at risk?

The frequency and exposure of lawsuits by various domestic help is a serious and growing threat. I have seen a significant and increasing number of claims by domestic staff including maids, nannies, housekeepers, cooks, gardeners, personal trainers and etc. over the last 20 years.

What are employers getting sued for?

Claims include wage and labor issues, sexual harassment, personal injury, wrongful termination, and discrimination, in other words, all the usual and most common employment law claims. These claims can range from tens of thousands to hundreds of thousands of dollars or more, depending on the alleged harm to the employee, and they routinely cost five or six figures in legal fees to defend yourself against.

For those that are financially successful and/or famous, even locally, the stakes are even higher as the reputational damage and media attention that comes from these claims can be damaging in many ways beyond just a lawsuit judgment itself. See the headlines for big cases with nasty allegations against celebrities and CEOs as two glaring examples. We’ve seen it affect contracts, endorsement deals and even stock prices.

I advise all my HNW clients that have domestic employees to consider the following asset protection issues:

1. Use caution when hiring people who will be the closest to you and your family and pay for a professional background check.
2. Consider a written employment agreement that includes dispute resolution provisions as well as a confidentiality agreement. This person will see and hear everything that happens in your home.
3. Be fully insured in all the right ways.

Defensive insurance planning for household employers

I once again turned to liability insurance expert David Moore, a Partner with independent insurance brokerage Shepherd Insurance, for help with my questions on how to properly insure against this risk. Here is a bullet point summary of key issues we discussed, and that he has previously helped me address.

1. Contact your agent and ask if you have “contingent workers comp coverage” for household employees and what the limits are.
2. Have a high limit (including high limits of med-pay for injuries on your premises) personal liability umbrella policy on your home and cars of at least $2MM.
3. Be aware that an adjuster could deny a significant claim for injuries to a regular employee that arguably should have been covered by other insurance, especially if injury is due to the homeowner’s own negligence.
4. Workers comp insurance specifically for injuries incurred by household employees can often be had for less than $1,000. I strongly suggest you make this expense part of your budget if you have regular, long term household help.
5. Add them to your auto policies as a driver if they will regularly be using your vehicles in the course of their employment. Employees with past bad driving records, tickets, DUIs etc. might raise your risk and your rates, but it’s always cheaper than being exposed to a massive lawsuit in a crisis.
6. EPLI insurance, which I have previously recommended for protecting your practice from employee lawsuits, is also available in a home employment setting.
7. Will your umbrella protect you if your employee harms another? It depends on your policy language and whether or not a household employee is considered an ‘member of the household” and is an “insured” as defined by your policy.David warned that they can be but may not be if they don’t live on site or meet other required qualifications in the language of your specific policy.

As always, this is a preliminary look at the only the most predictable, recuring and widely applicable risks; it cannot substitute for personalized counsel based on your facts with experienced CPAs, attorney and insurance brokers.