Your IT business has control over many aspects of employment, including hiring, firing, promotions, compensation, and what kind of environment your employees work in. This makes your company vulnerable to the risk that employees could accuse you of wrongful treatment. Employees may make claims of discrimination, sexual harassment, or retaliation. Candidates for a job could also sue your company, alleging that they were rejected for discriminatory reasons. Employment Practices Liability Insurance can financially protect companies from these risks by paying for legal fees and settlements in the event that they are sued over their employment practices.

What is Employment Practices Liability Insurance?

Employment Practices Liability Insurance (also known as EPLI) protects your company if current, past, or prospective employees sue for alleged wrongful treatment. It covers legal fees and any settlements or judgments against your company. Insurers cover legal costs whether you win or lose the lawsuit, but punitive damages or fines are not covered. EPLI policies typically include coverage for your company, directors, officers, managers, and current and former employees.

Example:

• Your software development firm interviews a software engineer for an open position. She is highly qualified for the role but is not offered the position. During the interview, your interviewer asks several questions about whether she has children and her childcare arrangements. These questions are considered discriminatory towards female applicants, and the applicant sues, alleging that she was not offered the position because of her sex.

Why is Employment Practices Liability Insurance important?

Any company that hires employees could be held liable for the wrongful treatment claims covered by EPLI. Lawsuits related to employment practices are often lengthy and expensive to defend, and settlement costs can be significant. It’s a good idea to consider EPLI coverage to protect your company in the event of an employment practices claim.

Although smaller companies may feel that they are less at risk for employment practices lawsuits, they can actually be more vulnerable to this type of claim. Smaller companies are less likely to have HR or legal departments to respond to employee issues and complaints. They may lack an employee handbook or clear procedures for hiring, firing, and documenting issues. Because they have fewer employees, they might not document employee performance as carefully. Employees are more likely to feel that they have been treated wrongfully and bring a suit if the regulations that affected the company’s decision are unclear, and it’s harder for employers to prove a claim invalid in court if their procedures aren’t clearly documented.

In addition to covering lawsuits and settlements, some insurers may provide, as part of their EPLI policy, risk management services such as human resources training or consultations to help companies reduce the likelihood of employees suing them.

What does Employment Practices Liability Insurance cover?

EPLI covers a variety of wrongful employment practices claims. It covers claims made by current and former employees and job applicants.

Common claims that are covered by EPLI include:

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

• Example: An employee at your web hosting company who belongs to a racial minority doesn’t receive a promotion, while a less-qualified coworker is promoted. The employee sues, alleging that your company failed to promote him because of his race.

Wrongful termination

• Example: An employee at your mobile app development company takes unpaid leave because of a serious medical condition. His leave is protected under the Family and Medical Leave Act. When he returns to work, he is fired. He sues your company, alleging that he was fired because he took legally protected FMLA leave.

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

• Example: A salesperson at your IT consulting firm uses a wheelchair. The employee alleges that she was not given the opportunity to go on sales trips because of her disability, which reduced her earning potential. She sues for disability discrimination because she has been deprived of career opportunities.

Retaliation

• Example: An employee at your IT staffing company reports experiencing multiple incidents of racial harassment. Soon after making the complaint, the employee is fired. He sues the company for retaliating against him for making the complaint.

Harassment

• Example: An employee at your web development company files a claim saying that her supervisor sexually harassed her. She provides evidence of inappropriate emails, texts, and verbal comments she received over a period of several months and sues the company for damages.

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

• Example: Your digital marketing company offers a free health evaluation to employees through its health insurer. Employees’ individual results are inadvertently emailed to everyone who participated in the evaluation, revealing private medical information.

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

• Example: An employee at your network security company claims that several of her coworkers frequently mocked and verbally abused her for her religion over a period of several months. She sues for emotional distress.

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

• Example: The administrative assistant to your VP of Sales claims that she was pressured to falsify expense reports from his business trips in order to hide spending on lavish dinners, recreational drugs, and adult entertainment.

What is excluded from Employment Practices Liability Insurance?

There are a number of common exclusions from EPLI coverage. Exclusions 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.
• Violations of laws regulating employers. There are a number of laws that set standards and responsibilities for employers, such as ERISA, COBRA, or the WARN Act. Violations of these laws are not covered by EPLI.
• 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.

Is Employment Practices Liability Insurance a claims-made policy?

EPLI policies are typically written on a claims-made basis, which means your insurer will only cover claims if the policy was active both when the incident occurred and when the claim was made. It’s important to keep this in mind because employment practices lawsuits may be filed long after the alleged incident occurred. 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?

Because legal costs are a large percentage of the costs associated with EPLI claims, legal fees count against your overall limit of liability in these policies. This is known as “shrinking limits.” 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. It’s important to keep this in mind when selecting your coverage.

Does Employment Practices Liability Insurance have a deductible?

Employment Practices Liability Insurance typically includes a deductible, which is the amount of each claim that your company is responsible for paying before insurance coverage begins. Policies with lower deductibles will have higher premiums.

How to reduce the risk of Employment Practices Liability claims

Although it’s important to have the financial protection of EPLI in the event of a lawsuit, you can also take steps to make it less likely that your company will be sued. Many EPLI insurers will provide resources to help companies reduce their risk of employment practices-related claims. 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. Include statements that employment is at-will and employees can be fired for any legal reason at any time.
• Include 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.
• 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.
• Provide employees and managers with training on sexual harassment and other common issues. Train anyone who will interview job applicants on what questions are inappropriate to ask.
• Have standard procedures for promotions, demotions, disciplinary action, and termination.

Pricing and Quotes

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.

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	??	??	??

Final Word

Like most companies, IT companies could be sued if current, former, or potential employees feel that they have been discriminated against or treated unfairly by the company. 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, and employment practices lawsuits are costly and take up your company’s resources. EPLI policies are an important type of insurance for IT companies to consider in order to protect themselves against these risks.