What Is Employment Practice Liability Insurance?

Employment practice(s) liability insurance (EPLI) covers your business in the event of an employee lawsuit. Whether a lawsuit is filed by a current, former or prospective employee, an EPLI policy will protect the company, as well as its current/former directors, officers and other employees. This article will walk you through the must-know information about this type of policy and how to use it to protect your business. 

What is Employment Practices Liability Insurance?

Employment Practices Liability Insurance is a crucial component of comprehensive business insurance policies, protecting companies from financial losses that arise from employment-related claims. This specialized coverage, which many insurance companies offer, safeguards businesses against allegations of wrongful employment practices (e.g., discrimination, harassment, wrongful termination, and retaliation). EPLI coverage typically extends to both current and former employees as well as job applicants, providing a safety net for businesses in an increasingly litigious workplace environment.

This type of coverage is particularly valuable for small to medium-sized businesses, which may lack the extensive human resources departments and legal teams of larger corporations. By investing in EPLI coverage, businesses can mitigate the potentially devastating financial impact of employment-related claims and focus on their core operations with greater peace of mind.

What Does Employment Practice Liability Insurance Cover?

EPLI coverage goes beyond traditional business insurance policies by addressing the unique risks associated with managing a workforce. It can cover legal defense costs, settlements, and judgments resulting from employment-related lawsuits.

Businesses can purchase employment practices liability coverage through an insurance company as a standalone policy or add it to a commercial insurance package. Either way, your policy should include coverage for settlements and other legal expenses incurred due to a variety of claims. These include:

• Wrongful termination
• Sexual harassment
• Discrimination
• Failure to employ or promote
• Breach of employment contract
• Mismanagement of employee benefits
• Privacy violations

How Can I Reduce The Risk of Employee Lawsuits?

Even with professional liability insurance, workers’ compensation insurance, and EPLI coverage under your belt, it’s important to take strategic measures to reduce your company’s risk of employment practice claims. These include, but are certainly not limited to:

• Creating a thorough employee handbook that explains the company’s policies and procedures;
• Clearly defining all job requirements preemptively so employees know what’s expected of them;
• Conducting regular employee performance reviews and accurately documenting the results;
• Thoroughly screening all prospective employees before interviewing/hiring them; and
• Instituting zero-tolerance policies regarding discrimination, harassment, substance abuse, etc.

Also, once you acquire an EPLI policy to complement your professional liability insurance and workers’ compensation insurance, don’t drop it. Any gaps in your insurance history could be exploited in the case of an employment practice claim. Many employment-related claims don’t arise until months or years after the alleged incidents, so avoid dropping your coverage without a carefully constructed backup plan.

Should I Get Employment Practice Liability Insurance?

While large corporations typically have employment attorneys and in-depth employment practice policies, small businesses are much less likely to have resources like these at their disposal. With the average settlement being $40,000, an event like this could be detrimental to your business without the proper coverage.

For these reasons, it’s a wise idea for most small businesses with employees to invest in EPLI — especially considering employee lawsuits are on the rise in recent years. Consider purchasing an EPLI policy and taking other strategic steps to ensure a worry-free future for your company today.