Many businesses in the food and hospitality industry rely on healthy relationships with employees to function successfully. However, if an employee believes their legal rights have been violated, businesses may face allegations related to their employment practices. It is crucial to consider Employment Practices Liability Insurance to help protect your company from employment-related lawsuits.

What is Employment Practices Liability Insurance?

Employment Practices Liability Insurance (EPLI) provides financial protection for your business if you are sued by current, past, or prospective employees for wrongful treatment such as discrimination, harassment, or other employment-related issues. EPLI policies cover the cost of defending a lawsuit in court, as well as any judgments and settlements against you. Your insurer will cover legal costs regardless of whether you win or lose the lawsuit, but punitive damages or fines are not covered.

Example: 

• One of your chefs files a suit against your restaurant, claiming he has not received a well-deserved promotion because he belongs to a racial minority group. Your Employment Practices Liability Insurance would cover the cost of the lawsuit and any associated damages against your company.

Why do food and hospitality businesses need Employment Practices Liability Insurance?

Any business that hires employees would be wise to consider Employment Practices Liability Insurance. This is especially true for smaller food and hospitality businesses. These small businesses are more vulnerable to EPLI claims because they are less likely to have a human resources or legal department to handle employee-related issues. 

Bakeries, restaurants, food trucks, and other small businesses are also less likely to have an employee handbook or clear procedures for hiring and firing employees. With a small staff, employee performance may not be documented as carefully as it should be. All of these circumstances increase an employer’s risk of being unable to protect themselves in an EPLI lawsuit.  

Employee-related lawsuits can be detrimental to your finances and your company’s overall reputation. EPLI is essential in providing you with funds for lawsuits and settlements, as well as risk management services.

Example:

• A past employee of your ice cream parlor sues your company for damages, alleging that she was fired from her job in retaliation for previous complaints of sexual harassment. Your insurer would cover the legal fees associated with this 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 or discipline, failure to promote, negligent evaluation, or wrongful refusal to employ

• Example: You have just interviewed a candidate who has all the proper qualifications to work as one of your deli’s cashiers. The candidate overhears two of your employees laughing about how difficult it would be to work with her because of her epilepsy. When you inform the candidate that you are going to hire a more experienced cashier, she believes it is because of her medical condition and she files a lawsuit against your deli for failure to hire based on a protected category.

Wrongful dismissal, discharge, or termination

• Example: Your former employee sues your catering business, alleging she was fired due to her pregnancy, which is in violation of the Pregnancy Discrimination Act.

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

• Example: One of your chefs alleges that she was not given the opportunity to cater a major client’s event because she is deaf. This reduced her earning potential and she sues because she has been deprived of career opportunities. 

Retaliation

• Example: An employee of your food truck asks for Sundays off to accommodate his religious beliefs. Although the request is granted, he discovers he is given fewer shifts on other days as well. Your employee sues the company, alleging the large cut in work hours was in retaliation for his request. 

Harassment

• Example: A server at your restaurant experiences sexual harassment from her shift manager in the form of inappropriate verbal comments and texts. She sues the restaurant for damages. 

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

• Example: You install a hidden camera in the break room of your coffee shop to monitor your staff’s break time. One of your employees believes she was demoted because of something she said to a coworker in the break room about her political affiliation. She sues for the invasion of privacy. 

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

• Example: A former employee of your brewery claims he was verbally abused by his coworkers for several months after they discovered his sexual orientation. He sues your company for emotional abuse. 

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

• Example: An employee of your bakery claims she was consistently pressured to turn a blind eye when her manager would bribe the local health inspector to give the bakery a passing health grade. 

What is excluded from 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 law violations. 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.
• Coverage limits. The higher your coverage limits are, the more you’ll pay in premiums.

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 Insurance a claims-made policy?

Although some Employment Practices Liability Insurance policies are available on an occurrence basis, most EPLI policies are written on a claims-made basis. This means that claims are only valid if both the incident and the reporting of the claim occur while the policy is still active. It is important to keep in mind that once you cancel an EPLI policy, you no longer have coverage for actions that occurred while the policy was active. Employment claims may not be filed until months or years after an alleged incident, so it is essential to keep your policy active. 

Shrinking Limits

Employment Practices Liability Insurance features “shrinking limits” of insurance, which 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, but since legal fees make up much of the cost of EPLI claims, they are counted towards your insurance limits.

Does Employment Practices Liability Insurance have a deductible?

A deductible is typically included in Employment Practices Liability Insurance. This is the amount of each claim that your company is responsible for paying before your insurance coverage begins. Like other forms of insurance, policies with lower deductibles will have higher premiums.

How to reduce the risk of Employment Practices Liability claims

There are several steps you can take to lessen the likelihood of an EPLI lawsuit. EPLI insurers will often provide resources to help you reduce your risk of employment practices-related claims. Some common strategies include:

• Create an employee handbook detailing all company procedures and policies. Make corporate policies easily available and perform orientations with all new hires to explain policies.
• Provide routine seminars on workplace harassment and discrimination for all employees.
• Include statements that employment is at-will and employees can be fired for any legal reason at any time, as well as an equal opportunity employment statement as part of your employee handbook and job applications.
• Provide a written job description for each position, clearly defining required skills and expected performance.
• Perform regular, objective employee performance evaluations and keep records of evaluations in employee files.
• Conduct routine surveys to learn how your employees feel about the company environment.
• Establish a zero-tolerance policy for harassment and discrimination. Have clear procedures for reporting violations. Thoroughly investigate and document any complaints and what steps were taken to address complaints.
• Train employees and managers on sexual harassment and other common issues. Teach anyone who will interview job applicants what questions are inappropriate to ask.
• Standardize procedures for promotions, demotions, disciplinary action, and termination.
• Develop a code of ethics policy that lists those activities all employees should avoid.

Final Word

It is crucial to maintain good employment practices to reduce the risk of claims, but there is no way to guarantee that a current, past, or prospective employee won’t sue your business. These costly employment practices-related lawsuits can take up valuable resources and tarnish your reputation. Make sure you financially protect your company with Employment Practices Liability Insurance in the event that a current, former, or prospective employee sues your company for wrongful treatment.