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Employment Practices Liability Insurance for Consultants

Employment Practices Liability Insurance for Consultants

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Your consulting business likely aims to treat employees fairly and provide them with a positive, productive working environment, but it’s impossible to prevent every negative situation that could occur. Your company controls hiring, firing, compensation, and other aspects of employment that have a major effect on employees’ lives. If employees feel they were treated unfairly, they could sue you with claims of wrongful treatment. Whether the claims are legitimate or your company is innocent and has documentation to prove it, the associated lawsuits can be costly, and settlements for this type of case can be very expensive if your company is found to be at fault. If employees sue with allegations related to your employment practices, Employment Practices Liability Insurance can step in to pay for legal fees and settlements, providing valuable financial protection.

What is Employment Practices Liability Insurance for consultants?

Employment Practices Liability Insurance (EPLI) protects your company if current, past, or prospective employees sue with claims of wrongful treatment. EPLI typically covers your company, directors, officers, managers, and current and former employees. In the event of a lawsuit, your insurer will provide funds to cover your legal fees and any settlements or judgments against your company. EPLI policies will cover legal costs regardless of whether you win or lose the lawsuit, but they do not cover punitive damages or fines.


Employment Practices Liability Insurance is available on a standalone basis but is commonly bundled within a management liability insurance package or as an added endorsement on directors and officers liability insurance. Depending on the insurer, EPL coverage can also often include additional benefits and add-ons like HR assistance and risk management consultation services, third-party liability coverage, and coverage for volunteer or unpaid workers.

Why do consultants need Employment Practices Liability Insurance?

Employee claims of discrimination, retaliation, harassment, and other types of wrongful treatment are common across many industries and can be highly damaging. Not only do these lawsuits consume your financial resources as you defend the case, but they can have negative effects on your company’s reputation and the morale of your employees. EPL coverage can protect your company from the many consequences of employment-related lawsuits. In addition to providing funds for lawsuits and settlements, your EPLI insurer may make risk management services available to you. Human resources training or consultations can help companies reduce the likelihood of employees suing.

Smaller consulting firms with fewer employees may feel that they are less at risk for this type of lawsuit, but they can actually be more vulnerable to employment practices claims. Small companies often lack a dedicated HR or legal department and may not have clear procedures for hiring, performance reviews, firing, and disciplinary action. Without comprehensive guidelines in place, there is a higher chance for employees to feel mistreated or for a company to mishandle employee concerns.

Moreover, recent studies have shown that more than half of all employment liability claims are against employers with fewer than 50 employees, with average employment liability suits costing upwards of $270,000. Without the proper coverage in place, a small consulting firm could easily find itself in a deep financial hole when facing an employment-related lawsuit.

What does Employment Practices Liability Insurance cover?

Employment Practices Liability Insurance provides protection for wrongful employment practices claims brought on by prospective, current, and former employees.
Common claims that are covered by EPLI include:

Wrongful demotion, discipline, failure to promote, negligent evaluation, or wrongful refusal to employ

Wrongful dismissal, discharge, or termination

Wrongful denial of training, deprivation of career opportunities, or breach of employment contract



Libel, slander, invasion of privacy, defamation, or humiliation

Verbal, physical, mental, or emotional abuse arising from discrimination

Coercing an employee to commit an unlawful act or omission in the course of their employment

What is excluded from Employment Practices Liability Insurance?

Common exclusions from EPL coverage include:

Is Employment Practices Liability Insurance a claims-made policy?

Employment Practices Liability policies are available both on an occurrence and claims-made basis. However, EPL coverage is typically written on a claims-made basis, which means your policy must be active both when an incident occurs and when a suit is filed in order for your insurer to provide coverage. It’s essential to be aware of this because employment practices lawsuits may be filed long after an alleged incident occurs. If your policy has lapsed when a claim is made, the insurer will not cover it, even if your insurance was active at the time of the incident.

Are legal fees part of the limits of insurance for Employment Practices Liability Insurance?

EPLI policies have “shrinking limits,” which means that legal fees count against your overall limit of liability. If your company is sued, the costs to defend the lawsuit will be subtracted from your limit of liability, which is the total amount of money your insurer has available for you. Because legal costs are a large percentage of the costs associated with EPLI claims, it’s important to keep this in mind when selecting your coverage.

Does Employment Practices Liability Insurance have a deductible?

EPLI policies typically include a deductible. This is a portion of each claim that your company must pay before insurance coverage begins. Policies with lower deductibles will have higher premiums.

How to reduce the risk of Employment Practices Liability claims

EPLI can provide crucial financial protection if you are sued, but it’s also vital to take steps to prevent lawsuits from occurring. Many EPLI insurers will provide resources to help companies reduce their risk of employment practices-related claims. Common strategies include:

Final Word

With employment-related lawsuits on the rise, it’s important for every consulting firm to take a good look at their risk management strategies as it relates to employment practices. Defending against employment practices-related lawsuits can be lengthy and expensive, and these cases can also harm your consulting firm’s morale and reputation. It’s crucial to create a work environment where these claims are unlikely to occur, but it’s impossible to avoid every potential claim of unfair treatment, and it’s possible your firm could be falsely accused as well. Employment Practices Liability Insurance could be a good tool in your firm’s risk management portfolio to financially protect your company in the event that current, former, or prospective employees make a claim that they experienced wrongful treatment.

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