What do you need to know about employment practices liability insurance (EPLI)?

What are your risks associated with Employment Practices Liability Insurance? Check out this scorecard to see where your company falls.

What is EPLI?

EPLI, or Employment Practices Liability Insurance, is insurance specifically held to cover costs associated with alleged or actual employment related claims made by employees, past or present, of the company.

EPLI helps protect organizations not only by covering the costs of actual wrongful acts, but alleged acts as well. Claims related to discrimination, harassment, retaliation and wrongful termination don’t have to sink your business if you have the right kind of insurance.  With Employment practices liability insurance, your response to lawsuits can be timely, with funds for lawyers fees to handle the claim ready. Some policies even include access to legal resources and risk management strategies so your company is better prepared.  

What are your risks associated with Employment practices liability? Check out this scorecard to see where your company falls.

What is the difference between EPLI coverage and D&O?

D&O insurance, or Directors and Officers insurance, covers claims made by customers and clients. D&O helps cover legal fees that those clients make against the business, or against specific individuals leading the business.

Employment practices liability coverage, on the other hand, covers claims that are filed from past or current employees. EPLI covers legal fees and other costs associated with alleged or actual discrimination, sexual harassment, wrongful termination, etc.

D&O is to protect from lawsuits coming from the public, EPLI is there to protect from employment related claims.

Does Your Business Need EPLI?

All businesses are expected to comply with the equal pay act, and so if you have two employees, one female and one male, who do roughly the same thing, and the female employee finds that she is paid less than her equal male counterpart, she could sue your company.

You may think your company is too small to worry about employee claims like that, but it does happen. Juries and judges often don’t have a cap for the amount awarded, either, so you could end up with a six-figure pay out for your little three-person business.

By the time you have twenty or more employees, your business is expected to comply with most discrimination laws, like the age discrimination act and the Americans with Disabilities act, both a type of employment act. Plus, it doesn’t matter how many employees you have, things like sexual harassment and wrongful termination can be made by employees past or present in any size company.

So yes, your business does need EPLI coverage, unless you want to expose your company to a sudden five or six figure settlement cost and lawyers’ fees. Very few small businesses protect themselves with employment practices liability coverage, even though around 10% of businesses will have a claim opened against them. It can be tempting to think of your employees and your company as a family—but they are not your family. An employee you got along with may end up suing you for any number of things.  

What does employment practices liability insurance cover?

Organizations and insured people within the organization, like officers, directors, independent contractors and employees, are covered under Employment practices liability for legal defense costs, judgements and settlements that come out of claims that allege:

  • sexual harassment, hostile work environment, or bullying
  • age discrimination, sex discrimination, racial discrimination
  • coercion or humiliation in relation to race, marital status, gender, age, physical or mental impairments, pregnancy, sexual orientation, or any other federal, state, or locally protected class
  • wrongful termination, discharge or discipline
  • breach of employment contract, deprivation of a career opportunity, or failure to employ or promote 
  • employment related defamation, misrepresentation, libel, slander, humiliation or privacy violations 
  • punitive damages
  • mismanagement of employee benefits, and 
  • violations of common employment laws.

EPLI coverage protects against most federal, state, and local employment laws. Remember that some coverage comes with risk assessment and legal resources right off the bat. Avoiding a lawsuit is always preferable to learning the hard way. Being able to document your company's employment practices so you can defend against alleged claims can also help your company get back to business faster.

Your EPLI policy also offer other add-ons like these:

  • Consultation, HR assistance and other risk management consultative services.
  • Coverage for defense costs outside the policy limits
  • Third-party liability coverage
  • Wage and hour coverage for claims alleging wage and hour violations
  • Volunteer workers can be added as additional insureds
  • Extended reporting periods may be added.

Coverage may be triggered not only be direct lawsuits, but also by Equal Employment Opportunity Commission (EEOC) charges and written demands.

What's not covered by Employment Practices Liability Insurance?

Employment practices liability insurance only covers certain things. Look to other types of insurance coverage to help you manage other situations. For instance:

  • Management decisions: improper use of company funds or failure to follow company bylaws are not covered by EPLI. Look to D&O insurance coverage instead.
  • Professional errors: if you run a health care organization, it’s likely you’ll have specific insurance to cover malpractice or professional liability insurance. If you have a tech company, some professional errors might be covered under your cyber insurance policy.
  • Employee theft and dishonesty: This situation is generally covered under a fidelity bond or a large commercial crime insurance policy
  • Unemployment insurance claims: Most states have agencies to handle unemployment benefit claims.
  • Employee illnesses and injuries: worker’s compensation insurance covers employee related injuries.
  • Union disputes and claims: EPL insurance doesn't cover union disputes.

Breach of contract claims and wage and hour claims may not be fully covered under most EPLI plans either, so talk to your insurance agent about your coverage needs.

Prepare Your Company for All Contingencies

The Equal Employment Opportunity Commission handled over ninety thousand discrimination cases and recovered over five hundred million dollars for claimants in 2018. Small or new businesses don't have the resources of large corporations, who probably have a large HR department and EPLI coverage plan in place, so that they're prepared. Because small businesses aren't prepared, they're often the most vulnerable. They hire, discipline, and fire employees from the heart, instead of following a policies and procedures guide to help steer them away from potential claims. Small companies don't' have an HR team to help them navigate and create a workspace appropriate for everyone, either.

Remember, making sure your company follows best practices to reduce the potential for claims means your business will be healthier and more stable in the long run. Having a good EPLI insurance policy will help you weather any storm, and get you back to business, faster.

Montgomery Insurance can help you pull together the right types of coverage to fit your business. Contact us today!

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