One of the most common sources of liability for small businesses is their own employees. From discrimination suits to sexual harassment claims, your company could be held labile for a host of workplace issues. Employment Practices Liability Insurance can help protect your company from these and other employee lawsuits.

What is Employment Practices Liability Insurance?

Employment Practices Liability Insurance (EPLI) provides financial protection for your business against lawsuits by current, past, or prospective employees accusing your business of wrongful treatment such as discrimination, harassment, or other employment-related issues. EPLI can reimburse your business for the cost of defending a lawsuit in court, as well as any judgments and settlements against you. It covers legal costs whether you win or lose a lawsuit, but it does not cover any punitive damages or civil or criminal fines.

Example:

• Your head of sales recently fired his administrative assistant. She later files suit against your company, claiming she was sexually harassed and then subsequently fired because she spoke up about the incident. Your EPLI policy would cover any legal expenses to defend the suit and cover any resulting judgement.

Employment Practices Liability Insurance can be added to a commercial general liability insurance policy or a business owner’s policy. It can also be written on a standalone basis.

Why do I need Employment Practices Liability Insurance?

According to recent research, three out of five employers will face an employment-related lawsuit at some point in time. Defending against these lawsuits, even if your business is cleared of any wrongdoing, can be distracting and costly.

For small businesses, in particular, the time and money spent to fight a lawsuit can be financially crippling. And although most people think of employees suing large employers when they think of discrimination lawsuits, in reality, small businesses are the most vulnerable to employment claims. Most small businesses lack a legal department, employee handbook, or other procedures to help reduce the risk of claims.

Many EPLI policies not only offer financial coverage, but they also provide add-on services to help mitigate the risk of employment-related claims. Some policies will offer consultation and HR assistance, which can assist small businesses who may have less experience with employment issues.

What does Employment Practices Liability Insurance cover?

An EPL policy covers your company as well as directors, officers, managers, employees, and former employees. EPLI covers claims filed by your current employees, former employees, and employment candidates whom you did not hire. Also, it typically covers claims from seasonal employees, leased employees, and independent contractors.

Employment Practices Liability Insurance covers a wide variety of wrongful actions in the workplace that may lead to employer liability, including:

• Wrongful termination
• Illegal discrimination based on sex, race, age, disability, pregnancy, religion, or national origin
• Sexual harassment
• Retaliation
• Breach of an employment contract
• Wrongful discipline
• Wrongful infliction of emotional distress
• Defamation
• Invasion of privacy
• Failure to hire or employ
• Failure to promote
• Deprivation of a career opportunity
• Negligent evaluation
• Violation of the Family Medical Leave Act or other leave laws

Examples of EPLI Claims

Sexual Harassment

A woman claims that she was the victim of sexual harassment over a two-year period at her company. She presents evidence for her claim including specific incidences of harassment and her daily encounters with abusive language. The woman sues the company for damages.

Disability Discrimination

A job applicant who is unable to walk and uses a wheelchair is not hired for any of several positions at a retail store. The applicant is qualified for all the positions, but the store manager tells the applicant that he won’t hire anyone who uses a wheelchair. The applicant sues the company.

Racial Discrimination

Employees belonging to a racial minority feel they are being denied promotions at a regional restaurant chain due to their race. The employees file a class-action lawsuit against the employer.

Retaliation

An employee is injured at work and files a workers’ compensation claim against the company. The employee takes time to recover and returns to his job. However, a month after he returns to work, he is fired. He sues the company for retaliating against him for filing the claim.

What are the exclusions to Employment Practices Liability Insurance?

There are a number of common exclusions to Employment Practices Liability Insurance. These include:

• Criminal, fraudulent, or malicious acts.
• Contractual liability. If a company has signed a contract or agreement that requires it to pay damages, the insurer will not pay for it.
• Workers’ compensation, disability, or unemployment claims.
• Punitive damages or fines.
• Wage and hour claims. EPLI will not pay for claims that your business has underpaid employees or failed to pay overtime.
• ERISA violations. The Employee Retirement Income Security Act of 1974 (ERISA) establishes standards for health and pension plans run by private companies.
• COBRA violations. The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides regulations so that employees who leave a job can continue their health insurance coverage for a limited time after leaving.
• WARN Act violations. The Worker Adjustment and Retraining Notification Act of 1988 (WARN Act) requires employers who lay off 50 or more workers at one time to provide 60-day advance notifications to employees and labor unions.
• Strikes and lockouts. EPLI does not cover wrongful acts that occur against employees who are striking, locked-out, or have been replaced due to labor disputes.
• Prior litigation and claims. EPLI won’t cover lawsuits that were already in progress or pending before the prior or pending litigation date given in the declarations section of your policy. It also won’t cover claims of wrongful acts that have already been reported in the past to an insurer providing similar coverage.

How much does Employment Practices Liability Insurance cost?

AdvisorSmith found that the average cost of Employment Practices Liability Insurance for small businesses was $1,824 per year. This cost survey included small businesses with less than 20 employees and revenue under $500k, for coverage of $500k and a deductible of $2,500.

Pricing does, however, vary depending on a number of factors, including:

• Number of employees. The more employees your business has, the higher the likelihood of a claim being filed.
• Industry. Businesses that operate in high-risk industries can expect to pay more in premiums.
• Turnover rate. Businesses with higher turnover rates are riskier to insure, as high employee turnover may indicate poor employment practices.
• Claims history. As with most insurance policies, a history of frequent claims will inevitably increase your premiums.
• Risk management practices. Your premiums may be reduced if you have established employment rules and practices in place for your employees.
• Coverage limits. The higher your coverage limits are, the more you’ll pay in premiums.
• Deductible amount. The higher your deductible, the lower your premium will be.

In order to get an accurate estimate on pricing, it’s best to get a quote from a reputable insurance company. Below we’ve highlighted a few of our trusted partners who offer Employment Practices Liability Insurance:

Provider	Employment Practices Liability	General Liability	Professional Liability
CoverageSmith	✔️	✔️	✔️
CoverWallet	✔️	✔️	✔️
Embroker	✔️	✔️	✔️
Hiscox	✔️	✔️	✔️

Is Employment Practices Liability the same as professional liability?

EPLI coverage is not the same as professional liability coverage, though they both protect your business in some way. Professional liability focuses on protecting individuals and companies from the costs of lawsuits and damages related to their professional advice and services. If a dissatisfied client brings a suit against you claiming negligence, poor performance, or any failing of your professional duties, Professional Liability Insurance would pay for any legal defense costs, judgements, or settlements. EPLI, on the other hand, protects your company if current, past, or prospective employees sue for alleged wrongful treatment.

What are other important conditions of EPLI?

Claims-made Basis

Employment Practices Liability Insurance is usually written on a claims-made basis. Claims against a policy are only valid if both the incident causing the claim as well as the reporting of a claim occur while the policy is still active. Once you cancel an EPLI policy, you no longer have coverage for actions that occurred while the policy was active.

It is especially important to be aware of the claims-made provision of EPLI coverage because employment claims sometimes may not be filed until months or years after an alleged incident. If your coverage is not continuous, you may not have coverage for events that occurred in the past.

Shrinking Limits

Employment Practices Liability Insurance features “shrinking limits” of insurance. This means the costs of legal defense reduces your limit of liability. For most general liability policies, legal fees are not counted towards your limit of liability. However, since legal fees account for a high proportion of the cost of EPLI claims, they are counted towards your insurance limits.

Deductible

Employment Practices Liability Insurance usually includes a deductible. The deductible is the amount of each claim your business is responsible for before the insurance company’s coverage begins. This is a form of risk sharing and provides a financial incentive for your company to avoid claims. You can usually choose your deductible, and the higher the deductible, the lower your insurance premiums will be.

Reducing the Risk of an EPLI Claim

Although Employment Practices Liability Insurance can protect your business financially in the event of a lawsuit, there are steps you can take to reduce the risk of a lawsuit in the first place. Preventing lawsuits will lower your EPLI premiums and will also save you from the distractions of having to defend against employment-related lawsuits.

Some recommended steps to reduce your risks include:

• Create a written employee handbook and keep it up to date. In your handbook, be sure to detail company policies and procedures, including policies on attendance, discipline, and employee complaints. Your employee handbook should include a statement informing employees that their employment is at-will, meaning they can be terminated at any time for any legal reason. It should also contain an equal opportunity employment statement, which states all qualified applicants will receive consideration for employment regardless of factors such as age, sex, race, or disability.
• Have written job descriptions for each job in which you clearly define your expectations for the job. The job description should include a description of required skills and expected performance.
• Conduct performance reviews with your employees on a regular basis, and write down the evaluations of your employees in an employee file.
• Before bringing candidates in for interviews, establish a screening program to eliminate unqualified candidates based on an evaluation of their written application or resume. Conduct background checks on all candidates before hiring them.
• Require your applicants to complete an employment application. Include on your application an equal opportunity employment statement. Also, include an at-will statement that informs employees that they can be terminated for any legal reason at any time. It is also important to ensure your employment application doesn’t have fields that could indirectly be used for age discrimination, such as high school graduation year.
• Post your corporate policies in visible locations in your workplace.
• Implement a zero-tolerance policy for any kind of harassment, discrimination, or substance abuse. Create procedures so that employees can report harassment or discrimination without any fear of retribution or negative consequences for their careers. Document every employee complaint as well as what steps the company took to address their complaints.

Discrimination and Labor Laws

A number of federal laws have been enacted to prohibit different types of discrimination. Having some familiarity with the key anti-discrimination and labor laws will help your business reduce the chance of encountering an employment practices claim. Some of the key laws are:

• Title VII of the Civil Rights Act of 1964 prohibits discrimination based on race, color, religion, sex or national origin.
• The Equal Pay Act of 1963 requires men and women who perform the same work to receive the same pay.
• The Age Discrimination in Employment Act of 1967 prohibits age discrimination against workers aged 40 and older.
• The Americans with Disabilities Act of 1990 prohibits discrimination against workers that have disabilities.
• The Genetic Information Nondiscrimination Act of 2008 prohibits discrimination against candidates or employees based on genetic information.

Final Word

Employment Practices Liability Insurance can financially protect your company if current, former, or prospective employees make a claim that they experienced wrongful treatment. It’s important to maintain good employment practices to reduce the risk of claims, but even companies that have done nothing wrong could be sued by an employee. Employment practices lawsuits are on the rise, and these costly lawsuits can take up your business’s valuable resources. An EPLI policy can give your company the financial backing it needs to fend off lawsuits, however groundless, and continue building your business for the future.