Employment practices liability insurance, often referred to as EPL insurance or EPLI, provides insurance coverage to employers against claims made by employees and prospective employees. This could be based on claims of many things such as discrimination based on sex, race, age or disability. Claims can be for wrongful termination, harassment and other employment-related issues, such as breach of contract. It covers your firm, including its directors and officers.
If you have outside investors or directors, they may require that you carry this coverage as part of your Directors and Officers Liability Insurance since they can also be held liable in suits relating to employment practices.
Large companies may have employment practices insurance coverage in place and are generally better prepared to deal with employment lawsuits. However, having a program and insurance protection in place is important to all businesses, regardless of size.
The Risks
The risk starts as soon as you start the hiring process. A prospective employee may sue because you don’t hire them, and they believe the reason was discrimination. The risk is ongoing once you hire an individual, for example if you terminate their employment and they claim wrongful termination.
The Need for this Coverage
Cases filed against employers continue to rise and with larger and larger awards. It is estimated that about 60% of firms will be sued by an employee at some time. Companies are vulnerable from the pre-hiring process through the exit interview, even if the employee was never hired, or only at the company for a very short time.
Unfortunately, it can happen to any business. Even just an innocent joke told in the break room can open your business to a lawsuit. Suits can be files by past, present and prospective employees. Even though many claims are groundless or fraudulent, the defense of a suit can be expensive in time and money. In addition to the financial implications, a lawsuit can cause irreparable damage to an organization’s reputation and image.
What Can You Do?
In addition to having a sound insurance program in place, it is important to have a plan to minimize any risk of employment practices exposure. Consider:
- Have a screening program to eliminate unsuitable candidates before calling them to interview.
- Conduct background checks.
- For each position have a job description that clearly defines roles, responsibilities and expectations of skills and performance.
- Have a handbook detailing your company's employment policies and procedures for disciplining or terminating an employee. Make sure all employees sign a statement that they understand the policies of the company.
- Conduct regular performance reviews and document them in the employee's file.
- Have a zero tolerance policy regarding discrimination, substance abuse and any form of harassment. Make sure you have an "open door" policy in which employees can report infractions without fear of retribution.
Insurance Coverage
The cost of insuring your business depends on a many factors including the number of people you employ, if you've had prior lawsuits, employee turnover and rules and practices in place. Depending on your situation EPLI can often be an endorsement to a Business Owner's Policy (BOP), or as a specific stand-alone policy.
If you have questions, we have answers. Contact us for more information about how we can help protect your business from employment issues.