What Is Employment Practices Liability Insurance (EPLI)?
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Employment practices liability insurance (EPLI) is a type of commercial insurance that provides protection for employers against claims made by employees, former employees or potential employees for wrongful termination, discrimination, harassment and other employment-related issues. Any business with employees should consider EPLI. While allegations may be proven false in court, lawsuits are expensive — EPLI will cover your legal costs so you don’t have to pay out of pocket.
Keep reading to see what isn’t covered along with tips on how to avoid claims from your employees.
What Does EPLI Cover?
Employment practices liability insurance is a must-have for any business that has employees. EPLI will pay for costs incurred as a result of:
- Wrongful termination: Past employees can file allegations against the company or employer stating they were unjustly removed from their position.
- Discrimination: This can include claims based on race, gender, age, religion and other protected characteristics.
- Harassment: Harassment can take many forms, such as harassment based on sex, ability, age or religious affiliation.
- Retaliation: Employees can file claims if they felt they were punished for reporting discrimination or harassment — a demotion or reduction in hours, for instance.
- Breach of employment contract: Employees may file a claim if their employer didn’t uphold some contractual obligation, such as providing computer equipment or failing to issue a paycheck timely.
- Deprivation of career opportunity: Your company is covered if an employee alleges a failure to provide specific types of training that will advance their career.
What Isn’t Covered by EPLI?
EPLI coverage is not an all-encompassing form of insurance. Things typically not covered are as follows:
- Intentional misconduct
- Punitive damages
- Breach of fiduciary responsibilities
- Bodily injury or property damage
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How Does Employment Practices Liability Insurance Work?
Employment practices liability coverage can cover legal defense costs, settlements and judgments related to employees filing a claim against their employer.
For example, say a former employee sues their last employer for wrongful termination. The employer contacts the insurance company and reports the claim. The insurance company investigates the claim to determine if it will be covered under the policy. The insurance company covers the employer’s attorney fees plus the cost of any settlements or judgments up to the policy limit.
Without EPLI, the employer would be responsible for paying their own legal fees and any settlements or judgments. For some, the cost of a lawsuit can be extensive and can potentially bankrupt a business without financial reserves.
How Much Does Employment Practices Liability Insurance Cost?
The cost of EPLI can be as low as $400 annually when added as an endorsement to an existing general liability policy. Standalone policies offer higher limits but typically increase the cost between $800 to $5,000 per year. The actual premium will vary depending on several factors, including:
- Number of employees: The more employees a company has, the higher the risk of a claim being made and the higher the cost of the insurance.
- Industry: Companies in certain industries, such as finance, healthcare and retail, may be at a higher risk for employment-related claims and may pay more for EPLI.
- Claims history: A company with a history of employment-related claims will typically pay more for EPLI than a company without such claims.
- Coverage limits: The higher the coverage limits, the more expensive the policy will be.
- Deductibles: A higher deductible means you will be paying a lower premium and vice versa.
Who Is EPLI Best For?
EPLI coverage is generally recommended for any employer, regardless of size or industry. This is because any employer can be at risk of employment-related claims, such as wrongful termination, discrimination or harassment.
Employment practices liability insurance is particularly important for employers in industries that have a higher risk of employment-related claims. These industries include finance, healthcare, retail and service industries. Employers with a high number of employees or with a history of employment-related claims may want to consider EPLI, as well.
Small and medium-sized businesses that may not have the resources to handle an employment-related lawsuit should also consider employment practices liability insurance coverage as it can help to cover attorney fees, settlements, judgments and administrative penalties.
How Can I Avoid Employment Practices Liability Claims?
The first thing to remember when it comes to avoiding claims is it starts with you, the company. How you treat your employees and handle their professional affairs can help mitigate litigation. The following tips can help ensure you stay compliant with good employment practices.
- Pay employees for the time they work. The people who work for your company are there for a reason; they provide a service to your business and they deserve proper compensation for the time they put into their labor. This includes fair salaries, hourly wages and overtime pay.
- Keep a comfortable work environment. Be proactive about addressing employee concerns especially when it comes to harassment (i.e. sexual harassment) claims in the workplace.
- Create a process for terminating employees. Depending on the type of worker, you should have steps that lead up to the termination of an employee. This can include a series of disciplinary actions, such as a verbal warning, written write-up and then termination. Employers should also have documentation if they are terminating an employee for performance.
- Hire good HR professionals. HR professionals are responsible for creating workplace safety policies and ensure the company is compliant with federal and state labor laws.
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