WHAT IS EMPLOYMENT
PRACTICES LIABILITY INSURANCE?

If you own a business with employees—especially if your business is growing and hiring—employment practices liability insurance (EPLI) should be on your radar. This kind of business liability insurance can provide a defense for your company in lawsuits brought by employees, even prospective ones, who claim that your company handled their hiring, firing, or career inappropriately. The average cost of defending and settling this kind of lawsuit, you ask? $160,000.1

Follow along as we explain how EPLI can help protect you.

How can an EPLI policy benefit your business assets?

Consider these common scenarios that many employers face:

  • A new college graduate interviews for a position at your company, but your hiring manager chooses a candidate with more experience. The new graduate claims discrimination and sues.
  • An employee with a history of excellent sales numbers but a reputation for a bad temper is let go after a series of written reprimands and other corrective actions. He sues for wrongful termination.
  • A group of former employees from one of your departments files a class-action lawsuit against your company, claiming you failed to stop a manager from sexually harassing them and denying them promotions.

If your company is sued by a current or past employee, or by a prospective hire who didn’t get the job, for wrongful employment practices, an EPLI policy will cover the investigation of these claims, provide a defense and, if necessary, pay out settlements or judgments for which you are found liable within the terms of your coverage.

The cost for an employment practices liability coverage depends on the number of employees your company has, whether your company has been sued for wrongful employment practices before, and other risk factors.

When can wrongful employment practices be claimed?

Any time an employee, past employee, or prospective hire feels that they were wronged by the way your company handles employment matters, they can make a claim against you. Most often, these kinds of claims are due to:

  • Discrimination
  • Retaliation
  • Sexual harassment
  • Wrongful termination

But employment practices liability also often applies to other kinds of claims, such as:3

  • Breach of employment contract
  • Defamation
  • Deprivation of career opportunity
  • Employee benefit plan mismanagement
  • Failure to employ
  • Failure to promote
  • Infliction of emotional distress
  • Invasion of privacy
  • Misleading promises to job candidates
  • Negligent evaluation
  • Wrongful discipline

An EPLI policy can help you if you face one of these claims by providing your company a defense, regardless of whether or not the case has merit.

Who’s responsible?

As an employer, you set the tone for how your company will treat people, and you’re the example everyone observes to determine your company’s culture. You can minimize your risk for unfair treatment claims by:

  • Treating everyone from prospective hires to senior management equitably and with respect
  • Supporting your employees’ career development
  • Stating clearly which behaviors your company will and won’t allow
  • Setting and following through on consequences for unfair treatment of employees

Even when you do everything you can to create a fair workplace, if one manager or employee causes problems, the buck stops with the employer. Companies of any size can and do get sued by employees who feel they have a valid claim. Without insurance, you could face expenses that drain your company’s resources.

Because the costs can be so high for these kinds of claims, it’s not a good idea to assume that your existing business liability policies will cover them; if you don’t know for certain, it’s smart to check. Most other kinds of business liability insurance are designed to protect employers against other kinds of risks, and they may specifically exclude harassment, discrimination claims and other employment-relsted claims.

What’s not covered by employee practices liability insurance?

Despite its coverage for the costs of claims, damages, and legal fees for a wide range of acts, EPLI doesn’t cover every employee-related risk that employers may face. For example, most employer practices liability policies exclude:

  • Bodily injury
  • Civil or criminal fines
  • Intentional or dishonest acts on the part of the employer
  • Property damage
  • Punitive damages

Bodily injury and property damage should be covered under your workers’ compensation policy, an automobile liability policy, or a commercial general liability policy. If you don’t already have those policies in place, it’s a good idea to look into getting them to reduce your overall exposures.

Professional liability, workers’ comp, employer’s liability and EPLI: What are the differences?

There are a lot of liability coverages available to employers, and some are so similar that it’s easy to assume they cover the same risks in the same way. It’s important to understand the differences among these coverages so you know which ones you may need, which ones you don’t, and what each offers.

Professional liability insurance

“You’re doing it wrong.” No one wants to hear that, especially a business owner hearing it from a client. When a client accuses you or your employees of doing inadequate work, or not doing the work at all, a professional liability policy can protect you from the costs of damages, claims, and defending yourself in a lawsuit. However, professional liability doesn’t cover employment practices.

Workers’ compensation insurance

“Boss, I got hurt on the job, and it’s your fault.” Again, not something any employer wants to hear, this time from an employee. But if one of your workers does get injured on the job, workers’ compensation insurance will cover their medical costs and lost wages while they’re recovering. Workers’ comp only covers physical illnesses and injuries, though, not claims of financial harm caused by discrimination or harassment.

Employers’ liability insurance

“Boss, I got hurt on the job. It’s not your fault, but the doctor says it will take me six months to recover.” An employers’ liability policy covers cases like this, where an employee gets hurt and faces high expenses or a long period without income while they recover—regardless of whether the employer was negligent.

Employer’s Liability, not a mandatory coverage, is often bundled into a workers’ compensation policy, which many states require employers to carry. So if it’s not required, why would you get it? Employer’s liability coverage provides coverage for employees who are not covered under workers’ compensation laws.

Like workers’ compensation, employers’ liability typically only covers physical injuries arising out of employment activities,, not other wrongful acts.

EPLI

“Your company wrongfully terminated me.” This kind of claim, and others like it, is what EPLI covers that other policies don’t. Considering the long list of employment practices that can lead to claims, EPLI coverage can be a wise investment for any employer.

Protect your small business from employee rights lawsuit costs

Even when you’re careful to treat employees equitably and follow fair employment rules, there’s always a risk that an employee may file a claim against you. EPLI coverage can take that stress off your plate so you can focus on running your business and taking care of your employees.

Sources: 

SHRM. EPLI: Protection Against Bad Actors at Work

The content on this page has been verified by
Terri Hitchcock, JD
Chief Insurance Officer, Thimble
Terri has 38 years of industry experience and knows a thing or two about insurance, so she reviewed and approved everything on this page.

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