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Does Your Business Need Employment Practice Liability Insurance?

May 16, 2018 3:19:37 PM / by Leap | Carpenter | Kemps Insurance Agency

business liability insuranceEmployment practice liability, or EPL, is a set of United States laws that protect employees from mistreatment. It deals with claims of illegal discrimination based on things like sex, race, age, or disability, invasion of privacy, emotional distress, wage and hour violations, wrongful termination, failure to promote, sexual harassment, and more.

EPL insurance, or EPLI, might not be the first insurance you consider for your business, but it’s becoming more important for companies to protect themselves from potential litigation.

Learn how to determine if you need EPL insurance.

Employment Practice Liability

It’s essential for business owners to understand the law regarding Employment Practice Liability (EPL). Let’s take a look at how these lawsuits happen and how to keep your company out of trouble when they do.

For instance, did you know your business is at risk for a lawsuit the moment you interview a potential employee?

If your company doesn’t hire someone after an interview, they can allege discrimination. In fact, there are plenty of situations when the law is on the side of the individual instead of the business.

EPLI can help protect against these types of claims and also covers fees and penalties from employment-related lawsuits.

Who Needs EPL Insurance?

Large corporations typically invest in hefty EPLI coverage because they are more at risk due to sheer numbers. A bigger company means more employees. More employees simply mean more risk. Though a large company may not be financially vulnerable, there is an increase in instances that require attention.

However, medium- and small-sized businesses are even more vulnerable than are the large companies. This is primarily because they are less likely to have the correct insurance coverage to handle employment issues and may lack the HR policies and tools in place that help prevent discriminatory activity. Not having a legal department to deal directly with employment claims is also a factor that leaves companies exposed when things go wrong during hiring, discipline issues, and terminations.

Mitigating EPL Risk

Businesses of all sizes can put in the work up front to reduce the risk of being targeted for an employment claim.

First, companies can avoid questionable and illegal behavior. The cases tend to be activities that are completely avoidable. Unpaid internships, illegal background checks, and discrimination based on health or pregnancy are the most numerous claims.

Second, clean up your human resources strategy. Develop and distribute an employee handbook that explains policies and procedures. Make sure it includes an at-will employment statement and an equal opportunity statement so that everybody is on the same page.

Keep job descriptions and performance reviews up-to-date and on-the-level. Track any employee dissatisfaction or complaints and keep detailed records of how your company resolves problems.

The final way to mitigate EPL issues in your company is to purchase adequate employment practices liability insurance.

EPL Is a Fact of Life

Though steps can be taken to reduce your company’s risk, claims can still occu. Employees may take action that is against company procedure. Or they could make a simple mistake that reflects poorly on the business. Either way, people are not perfect. Just because the handbook is written doesn’t mean it gets followed to the letter. These laws are in place for a reason.

As the business owner, you have a responsibility to protect your business and your employees and EPLI insurance is a good first step.

Some industries are more at risk than others. The finance industry, for example, has a history of such high exposure that it has become “best-in-class” at managing EPL hazards. From a major investment bank paying out gender discrimination class-action settlements totaling over $500 million to a cool $18 million sexual harassment verdict against a private equity firm, the finance world knows that handling EPL is a part of doing big business.

Just as some industries are more likely to have a high volume of claims, there are even geographic locations where the claims counts are higher. Still, it’s important to note that if you are in business, you are vulnerable to an EPL claim. All businesses have the potential for making a mistake with an employee. 

Better Protections Against Employee Lawsuits

In 2017, the Equal Employment Opportunity Commission recorded over 84,000 EPL-related charges in the country  including discrimination, retaliation, and harassment.

When an employee charges your company with a legitimate employment practice claim, insurance is there to cover your assets and protect the business from the damage of the employee at fault. Without insurance, one employee could have the capability to take down your entire company.

Final Thought

The bottom line about EPLI is simple. If you are in business, you need to be covered.

Remember: Business liability insurance and EPLI are not the same. Most business liability policies specifically exclude EPLI or have coverage limits that put company assets at risk.

An insurance agent familiar with business law will be able to explain the difference and clearly outline the coverage that you need based on the size of your business.

To speak to an insurance agent in the Central Valley about a business owner’s package that includes the coverage you need, contact LCK Insurance.

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