Employment lawsuits are expensive, even if you win the costs of defense can be very high.
Sometimes just the threat of a employment lawsuit is enough to bankrupt a franchise owner. The underlying complaint could be baseless, but you cannot afford to defende the employment lawsuit.
As reported at the website Agents and Broker, a couple of years ago,
"Workplace discrimination claims are at an all-time high, and small-business owners feel vulnerable.
With a difficult economy, Employment laws are making lawsuits more likely, employment practices employment liability insurance, EPL, is evolving from a high-priced option to an affordable necessity for smaller companies.
A recent survey of small-business owners conducted for Hartford Steam Boiler found that 66 percent were concerned their employees would file an employment-related charge against them, 2010."
This number has probably increased since then!
At the same time, a recent industry study by MarketStance in Middletown, Conn., indicates that only 1.1 percent of small businesses have purchased EPL insurance
"One of the chief advantages of purchasing EPL is that the insurer has a duty to defend, even when the insurer is not going to indemnify you - the insurance may not pay the legal damages, if you are found liable."
The cost of defending even an ordinary employment lawsuit could run well over $100,000, which is beyond the reach of most franchise owners.
One possible solution is to purchase EPL at an affordable rate, which will give you the piece of mind that should you be sued even for a frivolous claim, your insurer pay to defend you.
I am not licensed to pratice law in the United States, and so I may be completely off-base, but it appears to me that the Department of Labor is keen on inflicting heavy penalties on franchise brands for their collective failure to pay fair wages.
Many franchise owners don't look at insurance as a business strategy to protect their business but as a necessary & expensive evil.