Do I Need Employment Practices Liability Insurance for My Business?

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If the thought of paying for another insurance policy leaves you wondering if you need employment practices liability insurance (EPLI), consider this:

  • A 2017 study by Hiscox, says that companies in the USA have at least a 10.5 percent chance of having an employment charge filed against them. The odds of having charges filed are higher in some states, with Delaware and Nevada being the highest at 55 percent.
  • Of the total number of claims filed, 24 percent resulted in the employer having to pay damages or settlement costs.
  • In 2016, the average cost of settling those charges was $160,000 each for legal fees and settlement costs, and each claim took an average of 318 days to resolve.

If you do not have insurance that adequately protects your business, a single claim could put you out of business.

What Is Employment Practices Liability Insurance and What Does It Cover?

Employment practices liability insurance, also known as EPL insurance or EPLI, covers employers against claims that employees may make for:

  • Discrimination based on gender or sexual identity, race, age, disability, or another factor
  • Wrongful termination
  • Retaliation
  • Harassment
  • Other employment issues, such as failure to receive a promotion

Small- and medium-size businesses and new businesses are usually most vulnerable to employment claims because they do not have employee handbooks that detail policies and procedures that guide hiring, promotions, disciplinary action, and termination. In some cases, they may not even have policies and procedures in place.

When Is My Business at Risk?

As soon as you begin to interview an employee for a job, your business can be at risk. For example, if you interview a candidate and do not hire them, they could claim that they were the victim of discrimination or other illegal hiring practice.

Or, you could hire the candidate only to have to terminate them later for a performance or attendance issue. If you did that, they could follow up with a claim for wrongful termination. In either case, you could find yourself spending a lot of money for legal representation and a possible settlement payout.

How Can I Lower My Risk?

There are several things you can do to decrease your risk of having a claim filed against you. They include:

  • Talk with your insurance agent and make sure you have the EPLI protection you need.
  • Develop an employee handbook that outlines detailed workplace policies procedures for your business, including attendance, discipline, harassment, a procedure for filing complaints, and a non-retaliation policy. The handbook should also contain an equal employment opportunity statement and an employment-at-will statement.
  • Make sure you have a zero-tolerance policy that covers harassment, discrimination, and substance abuse.
  • Develop a screening and evaluation procedure to help you eliminate poor candidates before you bring them in for an interview.
  • Make sure you use an employment application that includes equal employment opportunity and employment at will statements.
  • Make sure the employment application you sue does not ask for any information that could indicate the applicant’s age, such as the year the graduated high school or college.
  • Conduct background checks on all job applicants.
  • Create job descriptions for every position that outline the duties, responsibilities, and both skill and performance expectations for that position.
  • Create an implement a record-keeping policy that thoroughly documents all employee issues, and what your business did to resolve those uses.

You should consult an employment lawyer before you take any of these steps to ensure that each is done correctly and in compliance with employment law.

What Does Employment Practices Liability Insurance Cover?

EPLI policies vary but the coverage they provide typically covers claims that allege:

  • Wrongful termination
  • Discrimination
  • Harassment, including sexual harassment
  • Retaliation

Some EPLI policies also cover other employment-related claims, such as breach of employment contracts, invasion of privacy, or defamation.

Most EPLI policies do not cover claims of bodily injury or property damage, or contract-based claims. They typically do not cover claims made under the following:

  • Consolidated Omnibus Budget Reconciliation Act (COBRA)
  • Fair Labor Standards Act (FLSA) and comparable state wage and hour laws
  • National Labor Relations Act (NLRA)
  • Occupational Safety and Health Act (OSHA)
  • State unemployment
  • Worker Adjustment and Retraining Notification Act (WARN)
  • Workers’ compensation statutes

Is EPLI Right for My Business?

There is no legal requirement that you purchase employment practices liability insurance for your business. The choice is entirely up to you. However, be sure to keep in mind that a single claim against your business for discrimination or harassment could bankrupt your business.

Give us a call at 215-997-5800 to talk about your business and if you need employment practices liability insurance.

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