Employment Practices Liability Insurance: 5 Things for Managers to Know

In addition to pursuing clients, establishing contracts and completing day-to-day operations, a large part of running a business is managing its personnel. Occasionally, challenges may arise that require a business to protect itself from legal action. Learn what employment practices liability insurance (EPLI) is, review its most common protections and consider some factors to keep in mind when looking into EPLI for your company. 

 

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What is employment practices liability insurance? 

Employee practices liability insurance is a type of insurance coverage that protects businesses from lawsuits over how they treat current, former or prospective employees. It provides compensation for legal costs should an employee or group of employees bring a lawsuit against the company for unfair treatment in the workplace. Typically, EPLI policies cover:

  • Discrimination: Discrimination is the mistreatment of an individual on the basis of race, sex, sexuality, religious affiliation, age or other characteristics.
  • Wrongful termination: Wrongful termination occurs when a company dismisses an employee in a way that violates the law or the organization’s employment contract. 
  • Wrongful discipline or demotion: Similar to wrongful termination, wrongful discipline or demotion takes place when a business’s punitive measures, including demotion, are not commensurate to the offense. 
  • Sexual harassment: Sexual harassment can range from inappropriate comments to unwanted touching. 

 

Things to know about EPLI

EPLI offers a number of benefits to those businesses that retain a policy. There are a few details you should understand before signing up for coverage, however:

 

Claims-made policy

In most cases, you must have an active EPLI policy when the incident occurs and when you file a claim for coverage in order to receive your benefits. Many EPLI providers won’t cover policyholders who didn’t have EPLI at the time of the incident or if they canceled their coverage prior to needing representation for a lawsuit. 

 

Lawsuit frequency and cost

Employment practices lawsuits are a common occurrence and can cost a substantial amount of money for those companies without insurance to protect them. While it may seem like an unnecessary expense, EPLI can end up saving your company a substantial sum in the case of a lawsuit. 

 

Deductibles and exclusions

The specific terms of your EPLI policy, including elements like deductibles and exclusions, will vary from carrier to carrier and policy to policy. It’s important to note that most policies have a deductible, or an amount of money you’re responsible for paying before insurance will contribute. Read the specifics of any potential policies closely before selecting one. 

 

Limited choice

Depending on the terms of your insurance policy, you may have a lawyer selected for you by the insurance company rather than the option to choose your own attorney. 

 

Bundling options

Some insurance providers allow companies to bundle EPLI with other types of liability insurance or business insurance to ensure protection in the case of a variety of different incidents. If you already have other forms of business liability insurance, like directors and officers insurance, check with your provider to see if you can add EPLI to your policy for a lower fee than an independent policy.

Related: Choosing Insurance for Your Employees: An Intro

 

When does a small business need employment practices liability insurance?

Determining whether you need EPLI coverage for your company depends on several factors. Review these considerations to help you decide whether this insurance is right for your company:

  • Cost: You must consider the amount of money you’ll pay in monthly premiums with the deductible and maximum compensation. Perform a cost-benefit analysis to see if it makes sense financially for your business.
  • Number of employees: Some federal discrimination laws only apply to companies with more than 15 employees, while other state-based regulations apply to any employee. You might forego EPLI with fewer employees if you feel you’re unlikely to face a lawsuit. 
  • History of lawsuits: If your company has faced lawsuits in the past, EPLI can help save you money in the future should you face additional lawsuits. 
  • Employment policies: Many companies have effective employment policies, training and Human Resources representatives to help manage any incidents or disputes before they arise to lawsuit level. 

Most companies can benefit from an EPLI policy. Particularly for small businesses, a single lawsuit can cost a substantial amount of money, leaving the company in difficult financial straits. EPLI provides protection in many employment practice incidents. 

However, if your company has substantial protections and resources in place to address any potential liabilities and methods for mediating employee grievances, you’re less likely to need this type of insurance policy. The decision is personal and one you should make only after careful financial consideration and company review. 

Related: How Much “Should” Small Business Health Insurance Cost?

 

What is typically excluded from EPLI policies? 

Many EPLI policies exclude certain incidents from their coverage. Know about the common exclusions from EPLI policies before you sign up for a policy:

  • Punitive damages: EPLI does not offer coverage for punitive damages. 
  • Criminal acts: EPLI won’t protect you against criminal actions resulting in a lawsuit. Your policy might cover you until you’ve been proven guilty, but not after. 
  • Worker’s compensation: EPLI won’t protect you from worker’s compensation disputes or obligations. 
  • Contractual liability: EPLI usually won’t cover any damages you assume under a contract. 
  • Violations of laws: EPLI is not effective for any violation of federal or state labor laws. 
  • Breach of contract: EPLI doesn’t protect you against your breach of an employment contract. 
  • Strikes: EPLI doesn’t offer liability protection from lockouts, strikes or other labor disputes.

EPLI can be a useful benefit for your business. Consider the costs and benefits carefully to ensure it’s the right choice for your company.

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