The Small Business Guide To Employment Practice Liability Insurance (EPLI)
In the business world, you want your employees to be happy, healthy, and safe. But all too often workplace situations can grow tenuous and an employee might sue based on inappropriate employment practices (like discrimination or wrongful termination). Employment practices liability insurance (EPLI) covers claims by workers of wrongful acts by employers in the employment process.
Read on to learn how this insurance policy can protect your business.
Table of Contents
What Is Employment Practices Liability Insurance?
Liability insurance policies protect your small business when you encounter a lawsuit and claims against your business. Employment practices liability insurance (EPLI) is a policy that specifically helps your company cover claims of workplace discrimination based on age, sex, race; wrongful termination; harassment; or failure to promote. Most insurance policies will also provide assistance with legal and human resource needs, and help you design company policies that mitigate opportunities for workplace harassment and discrimination to occur.
Insurance companies, like Nationwide or Coverwallet, provide their clients with risk management tools — lessons on creating company culture, websites to host HR resources, and free legal advice.
What EPLI Covers
Employment practices liability covers lawsuits and damages that arise from wrongful workplace processes. An employee might sue you for some of the situations listed below, and EPLI will cover the cost to litigate these claims, provide you with legal assistance, and help pay damages. As with all insurance, if it is discovered you broke the law purposefully or set out to treat your employees illegally, your EPLI insurance will not help. Here are the situations an EPLI policy will help you navigate in a legal setting if you are sued for:
- Discrimination: The law dictates that you cannot discriminate in your hiring practices on the basis on race, sex, ethnicity, age, or sexual orientation and that workplace environments must be safe places for people all races, sexes, ethnicities, ages, and sexual orientations. It is the expectation that you protect your employees from hiring practices or workplace practices that discriminate.
- Retaliation: Tale as old as time: Someone speaks to HR or the boss about shady behavior of a supervisor or a co-worker, and receives retaliatory measures meant to intimidate.
- Wrongful Termination: If an employee feels as though he/she was fired unfairly, they might bring a wrongful termination suit. An EPLI expert will help with employee documents and the law, to help you understand your state’s termination policies.
- Failure to Promote/Employ: If an employee is being held back in a position or not promoted on a timeline that matches his/her peers, then your company might be in violation of labor practices.
- Sexual Harassment: Sexual harassment is an issue all employees should be trained to understand. Unwanted lewd humor or sexual advances by employees of all levels could end up in a lawsuit.
- Harassment: Workplace harassment comes in all shapes and sizes, but if you have a bully working on your team, prepare for a harassment lawsuit.
- Invasion of Privacy: Leaking private information about employees is illegal and insured under this policy.
- Negligent Evaluations: Proper paperwork of employees is necessary to show transparency in hiring and firing practices.
What EPLI Doesn’t Cover
An EPLI policy is specific in covering liability related to employment practices. Any other liability claim is excluded from this specific policy. Here are some things an EPLI won’t cover:
- Employee Injury Or Accident: If your employee is injured on the job, that injury is covered under worker’s compensation insurance, not professional liability insurance policy.
- Property Damage: Third-party property damage is covered under a general liability plan or a commercial property plan.
- False Advertising: A general liability policy would also be enough to cover your business against a false advertising claim.
- Bodily Injury To A Client: Once again, general liability, also called “slip and fall” insurance, is the coverage needed to protect yourself from a lawsuit if someone is injured on your property.
- Data-Breach Protection: If you have access to private client information, protecting that information is crucial. Data-breach insurance or cyber insurance are the policies to look for to protect your business from irresponsibility with information.
Who Needs Employment Practices Liability Insurance?
According to Insureon, the average EPLI claim is over $125,000. Human resources and discrimination-related lawsuits often settle for large amounts of money. If you have employees, employment practices liability insurance should be a must for your risk management plan.
Large corporations and larger businesses have the luxury of coverage and a legal department to deal with potential lawsuits resulting from employee practices. However, a small business without a hefty legal department needs another avenue of protection. If you purchase employment practices liability insurance, you may also receive legal and human resource help to navigate potential lawsuits. All businesses should look into this policy.
How Employment Practices Liability Insurance Works
The first way employment practices liability insurance works is by offering your company resources so you can make sound decisions regarding your company’s employee practices. Fortunately, you are not entitled to treat your employees however you wish. There are legal consequences for falling short in protecting employee rights. If you are sued, employment practices liability covers the damages and costs to litigate the claim.
Education is the key to eliminating or mitigating issues of workplace harassment. Your insurance company will help in the event that you are sued, but their first action is to try to prevent lawsuits. Most EPLI plans include work with lawyers and human resources experts to help you build a business on solid legal footing.
The second way the policy works is by covering you in the event of a lawsuit. There are many scenarios that would fall under an employment practices liability claim. If a woman is terminated because her boss learns she is pregnant, that employee would sue for wrongful termination. Issues of sexual harassment and discrimination based on race, age, sex, or sexual orientation would also fall under employment practices liability. At that point, the policy will help with a legal defense and claims.
Additional Types of Liability Insurance
There are many different types of liability insurance options for your company. Each policy is designed to cover a specific area of need for your business. Here are the main liability insurance policies available:
|Insurance Type||What It Does||Who It's For|
Often called "slip and fall" insurance, this insurance protects your business from the threat of a lawsuit.
Directors & Officers Liability
This insurance protects the company and its directors from frivolous lawsuits.
A business with figureheads that could attract legal attention
Protects your business from the costs of a data breach or hacking or other cyber crimes.
Businesses that gather information about clients and store it online
Protects your buildings and things inside your buildings from damage and accidents.
Businsses with a physical property site and products located in those physical locations
Protects a business from a lawsuit related specifically to the product it sells.
Any business that manufactures, sells, or distributes a product
Pays your workers salary and medical bills in the event of an on-the-job accident or injury.
All businesses with one or more employees
If your business has to stop because of property damage, this will cover the cost of moving your business to a new location.
Businesses that need a specific location to keep open
Talk with an insurance expert to see which policies are right for your business.
How Much Does Employment Practices Liability Insurance Cost?
Employment practices liability insurance isn’t cheap. While a general liability policy can cost you roughly a dollar a day to protect your business, most lawsuits involving employee practices are extremely costly with substantial payout of damages. Without insurance, a business is unlikely to recover.
Depending on your insurance provider, you may be able to include employee practices liability as an endorsement to your business owner’s policy (BOP). However, the price of your policy will come down to the following factors:
- How many people you employ
- Any prior lawsuits brought against your company
- Percentage of employee turnover
- What kind of standards and procedures you have in place at your company
The average for small business can run anywhere between $300-$5,000 annually depending on risk and company size. Contact an insurance expert for more information.
The process for finding a great policy boils down to research. Knowing the averages for your industry and comparing competing rates will help you make the best decision for your business. Start with an idea of the risks your business might face and then come equipped to your first meeting with an insurance company with the knowledge of what type of coverage you need. Because EPLI policies are technical and deal with many legal matters, don’t settle for the cheapest policy without doing research. Check insurers ratings and see if they provide extra help (legal advice, HR compliance advice).
When you meet with an insurance expert, discuss whether it is cost effective to bundle your business insurance policies with a business owner’s plan. If not, go shopping for the best policy! Many sites like Coverwallet, Coverhound, and Insureon will comparison shop for you and walk you through the steps required to make an insurance purchase.
But as always, protecting your company from these lawsuits starts with educating employees and supervisors about their rights. Train your staff regularly and insist upon maintaining ethical standards.