Employment Practices Liability Coverage

Most businesses will agree that one of their greatest assets is their employees.  Any successful business owes a large part of their success their employees who work hard every day to help the business prosper.  While many businesses try to create a good working environment and culture for their employees, sometimes all it takes is one trouble employee or a bad manager to make the workplace an uncomfortable or hostile place for their fellow employees.  If these issues aren’t dealt with, it’s likely the employer could face a lawsuit from one of their own employees.

Many business owners understand the importance of protecting their company from claims and other losses by buying insurance products such as General Liability, Property Insurance, Commercial Auto Insurance and Workers Compensation.  But, how does a business protect itself from their own employees?

One answer is Employment Practices Liability Insurance or EPLI for short.  EPLI is a policy designed to protect an employer from a number of exposures created from employing people.  While each EPLI policy is different, and you should consult with your agent to find a policy that best fits your needs, most provide coverage for claims resulting from:

  • Sexual Harassment
  • Discrimination based on gender, race, age, sexual orientation, etc.
  • Retaliation
  • Violations of FMLA or other federal or state employment laws
  • Failure to promote
  • Wrongful discipline or termination
  • Third Party Claims

Employment Practices Liability Insurance is available for any sized business.  Premium is typically based on the number of employees.  Sometimes this coverage is included in a Management Liability policy that may also provide Directors & Officers and Fiduciary Liability coverage.  Some EPLI policies can also protect your company from third party claims such as customers or others who are in contact with your employees.

To understand what this coverage does, let’s look at some claims examples:

  • An employee sues the company because their manager failed to promote them simply because of their race, even though they were more qualified than any other candidate.
  • A fellow employee constantly makes unwanted advances and inappropriate comments to a female coworker.  The female coworker has brought this up to management several times with no action ever being taken to fix the situation.  She eventually sues the company for sexual harassment.
  • A business fired an employee after they had testified in court against another employee.
  • A woman was laid off after she informed her employer that she was pregnant.  She sues claiming discrimination and wrongful termination.
  • One of your salespeople is accused of harassing a customer, and that customer sues the company.  In this example, your EPLI policy would need to include Third Party Liability coverage.  

Risks associated with employing people affect small businesses all the way up to Fortune 500 companies.  Usually large companies have HR departments and policies in place to help prevent these situations from happening.  But small businesses may face a greater risk since they may not have a dedicated HR department or sophisticated policies and procedures in place to protect the company.

As with most risks businesses face, insurance is only one part of the answer.  Prevention is another key part of protecting your business.  Prevention could include:

  • Hiring an HR manager 
  • Having written policies in your Employee Handbook that communicate what behavior is not acceptable in your workplace
  • Having procedures in place for employees to voice concerns and to quickly resolve problems
  • Providing training for your employees
  • Providing training for your management

There are also many companies and online services that offer affordable HR services, consulting, training and other tools for businesses that can’t afford to have a full time HR staff member or more sophisticated prevention tools. 

Even though having employees can increase the risk to your company, the reward for having good, hard-working employees is even greater.  Employment Practices Liability Insurance is simply another tool to help you protect the business that you and your employees have worked hard to build. 

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