Employment practices liability insurance
Employment practices liability insurance
Employment practices liability insurance (EPLI) covers legal expenses if an employee sues your company over harassment, discrimination, or another violation of employee rights.
Why do you need employment practices liability insurance?
Employment practices liability insurance (EPLI) protects your small business if an employee sues over work-related issues, such as age discrimination or wrongful termination.
This coverage ensures your business doesn't have to pay legal costs, including judgments, out of pocket when an employee or group of employees claim their rights have been violated.
Even if you haven't done anything wrong and you find yourself facing a frivolous lawsuit, defense costs can add up and potentially devastate your company. For this reason, having EPLI coverage is key to protecting your business.
EPLI protects companies accused of:
- Discrimination
- Wrongful hiring / firing decisions
- Mismanagement of benefits
- Breach of employment contracts
- Privacy invasion
- Emotional distress
What does employment practices liability insurance cover?
Employment practices liability coverage protects small businesses against lawsuits filed by employees claiming that their rights were violated.
This includes:
Negligent handling of worker benefits
EPLI covers a company when an employee sues over mishandling of employee benefits, like health insurance or a 401k.
Sexual harassment in the workplace
A business can rely on EPLI to cover legal costs when a worker sues over sexual harassment in the office.
Termination without legitimate cause
EPLI protects small businesses when an employee feels as though they were relieved from their position for an invalid reason.
Discrimination
EPLI protects a company if it is accused of discrimination based on a legally protected class, such as age, gender, religion, race, or disability.
Breach of employment contract
When a contract is signed, both parties need to live up to the terms of the contract. If an employee files suit for the company’s failure to fulfill its obligations under the contract, EPLI will cover the costs.
Infringement of privacy
If an employee accuses their employer of breaching their personal privacy, EPLI will cover the associated legal costs.
How much does EPLI cost?
EPLI policyholders pay on average $222 per month, or $2,665 a year, for coverage. Your exact premium may be more or less depending on your risks.
The cost of employment practices liability insurance is based on several factors, including:
- Your profession’s level of risk
- Policy limits and deductible you choose
- Number of employees at your business
- Employee turnover rate
- Hiring and termination practices
- Past claims history
Who needs employment practices liability insurance coverage?
EPLI benefits a variety of small businesses that have a robust employee workforce, from IT companies to food and beverage businesses.
An EPLI policy is especially useful for:
Project managers
A female colleague receives inappropriate messages from a project manager. She asks him to stop, and tells her supervisor about the issue when the messages continue. Her supervisor does not report the activity and takes no action, so the female employee files a lawsuit against the project manager and company. Luckily, the company has employment practices liability insurance to help pay for its legal counsel.
Cybersecurity firms
A chief technology officer (CTO) at a cybersecurity firm instructs his team to put together a presentation for an important investor. The team shows up to the presentation unprepared. When it’s over, the cyber company's higher-ups schedule a meeting with the CTO and fire him because of the team’s performance. The CTO sues, claiming it was not his fault. The cybersecurity firm doesn't face financial loss since it is insured through its EPLI policy.
Software development companies
A software development company is sued by two female employees when they find out they are getting paid less than their male colleagues for the same work. EPLI would then cover the company’s legal costs over this equal pay lawsuit.
Network design businesses
Restaurants
The owner of a restaurant suffering financial losses decides to reduce their workforce to cut costs. An older waitress with an exemplary record is fired, instead of a younger waitress who is constantly being reprimanded for poor behavior. The waitress decides to sue the restaurant owner for ageism and wrongful termination.
What isn't covered by employment practices liability insurance?
While EPLI does provide coverage for financial losses due to an employee suing over an employment-related issue, it does not provide all the protection that a small business might need.
For instance, this policy does not cover:
Worker injuries
If an employee suffers a bodily injury at work, EPLI won’t cover their medical expenses or lost income while they recover.
Instead, you would need workers' compensation insurance, which pays for medical bills from on-the-job injuries. Workers' comp coverage is required in most states for businesses with employees.
Worker’s legal action surrounding an injury
If an employee sues because they blame their employee for an injury or illness, a company would only be covered if they have employer’s liability insurance. This coverage is typically included in a workers’ comp policy.
Third-party defamation suits
If someone outside of your company attempts to sue for libel or slander, a general liability insurance policy would be necessary for that company’s protection, not an EPLI policy.
You can combine your general liability policy with commercial property insurance in a bundle called a business owner’s policy (BOP). This is often less expensive than purchasing these two policies separately.
A lapse in professional duties
A lapse in duty of care, also known as professional negligence, is covered by errors and omissions insurance (E&O). This policy is sometimes called professional liability insurance.
What other policies do small businesses need?
Employment practices liability insurance protects your company when an employee sues over their rights, but it doesn’t provide coverage for other common risks. Small business owners should also consider:
General liability insurance: Pays for expenses related to client injury and property damage, along with accusations of slander
Business owner's policy: Bundles general liability insurance with commercial property insurance, often at a lower rate than if the policies were purchased separately
Professional liability insurance: Also known as errors and omissions insurance, this policy helps pay for legal expenses if your small business is sued for unsatisfactory or negligent work
Directors and officers insurance (D&O): Protects board members and officers if they are sued for a decision they made on behalf of your small business that led to financial loss
Workers’ compensation insurance: Required in nearly every state for small businesses that have employees, workers’ comp helps cover medical costs related to work injuries
Other common questions about EPLI
How do you get a certificate of insurance?
TechInsurance is a trusted insurance expert for all small business owners, including contractors and consultants, with extensive knowledge of the IT sector. Our licensed insurance agents are available to answer your questions and help you find the coverage that's right for your type of business.
With TechInsurance, you can easily download a certificate of liability insurance for your small business, often on the same day you buy EPLI coverage or another insurance product. This comes in handy for companies and consultants that need proof of insurance to sign a contract or a lease and don’t have time to call an insurance company for documentation.
Why do I need employment practices liability insurance?
Employment practices lawsuits are increasingly common for small businesses. In fact, almost half of small business owners (43%) have reported that they have been threatened or involved with a civil lawsuit.
If your business is too small to have a human resources (HR) team, you could face these lawsuits even more frequently. Businesses without HR teams often lack the time, energy, and expertise to resolve employee disputes before they become legal issues.
Employee lawsuits can have a devastating effect on your business's reputation and finances. You shouldn't have to pay these costs out of pocket. EPLI can cover your legal defense, including any settlements or judgments, when potential, current, or former employees sue your business over employment disputes. And it protects your business even if the claims against you are insufficient or fraudulent.
How much do EPLI claims cost?
Unfortunately, employment-related claims can get expensive. This is even more true if your company is too small to have an HR team. Without strong HR representation, small businesses often don't have the time, knowledge, and stamina to deal with employee disputes before they blow up into legal issues.
Not only can employee lawsuits cause reputational damage, but they can result in severe financial loss. The Massachusetts Commission Against Discrimination offers several examples of recent settlements [PDF]:
- $55,000 for an employee terminated based on race, color, and/or sex
- $96,000 for an employee who faced sexual assault from a high level executive
- $140,000 for an employee terminated based on race/color and subsequent retaliation
EPLI coverage protects you from paying these costly expenses out of pocket. It can cover any legal defense costs, including a settlement or judgment if an employee presents a valid claim.
EPLI is usually offered as a claims-made policy. This means that the insurance has to be active both when the incident of wrongdoing was filed and when it took place.
How can I save money on employment practices liability insurance?
EPLI doesn't have to be purchased as stand-alone coverage. To save money on your small business insurance coverage, insurers often suggest pairing EPLI with directors and officers insurance.
EPLI and D&O are two different types of management liability insurance. D&O protects a company’s board members and officers from getting sued over decisions they made on behalf of the company.
A management liability insurance bundle protects your business and its execs from a wide range of liabilities related to decisions about employment, management, and finances.
Another way to keep costs down is to create a solid risk management plan, which includes the establishment of an employee handbook that clearly details harassment and discrimination policies.
What is the difference between employment practices liability insurance and employer's liability insurance?
Though their names are similar, employment practices liability insurance and employer's liability insurance are two separate coverages.
EPLI covers lawsuits related to employment practices, including discrimination or breach of an employment contract.
On the other hand, employer’s liability insurance helps pay for lawsuits filed over workplace injuries. This coverage is often included in workers' compensation insurance.
Both policies offer protection against employee lawsuits. However, employer's liability insurance differs from EPLI in that it protects your small business from legal fees if an employee claims your business's negligence caused a bodily injury or occupational disease.
What do I need to know about EPLI deductibles, limits, and exclusions?
Almost all EPLI policies have a deductible, which is the amount of money you have to pay out of pocket before your insurance coverage kicks in.
Choosing a higher deductible is an easy way to save money on your premium, but make sure to choose a deductible you can easily afford. If you can’t pay it, you can’t collect on a claim.
Some policies limit coverage during acquisitions or major staff reductions. Others insist on choosing your attorney if a claim is filed. That’s because they want someone with a background in workplace issues on the case to give your small business the best results and protection possible.