liability insurance document

Employment Practices Liability Insurance and the Employment Process

How do you protect your company when the threat is from the inside?

So many steps in the employment process can go wrong. Without liability insurance, your business is vulnerable to crippling lawsuits worth thousands of dollars. Employment practices liability insurance, or EPLI, protects your company from this risk.

In 2020, there were 67,448 charges of discrimination filed with the Equal Employment Opportunity Commission (EEOC), and over $535.4 million was paid out for these claims. Without EPLI, your business would have to cover these claims from your own funds.

Keep reading to find out how EPLI protects your business.

What Is Employment Practices Liability Insurance?

Employment practices liability insurance gives employers insurance protection from employee complaints. In addition, it covers the legal expenses for settling lawsuits leveled against your business. These lawsuits can come from allegations of discrimination, harassment, or other misdemeanors.

Why Do You Need EPLI?

Employee complaints are harmful to a company’s image and could include major out-of-pocket expenses. A serious lawsuit could be fatal to the business with the rising costs of settling discrimination charges.

Hiring, managing, and terminating employees are regular aspects of the employment process. Complaints can arise from every aspect, so you might as well put a price tag on each complaint.

The average cost of an out-of-court settlement hovers around $75,000. Companies often resort to out-of-court settlements because court cases are usually more expensive to contest. This becomes worse if the case goes to court and you lose.

Most cases filed are against large companies. Despite this, small and new businesses are still more vulnerable.

Large corporations have entire legal teams advising them and likely have every type of liability insurance, while smaller businesses might not even realize the risks. Small businesses are also less structured. Without a legal department or detailed employee handbook, they are easier to take advantage of.

EPLI Coverage

Employment laws provide employees with a lot of ground for complaints. When these complaints go to court, EPLI covers legal defense and damage costs. This includes your attorney’s fees, settlement costs, court costs, and other legal costs.

Employees can claim violations of their civil rights under your employment. Examples of allegations are:

  • Discrimination (based on race, gender, religion, disability, age, etc.)
  • Sexual harassment
  • Wrongful termination
  • Failure to promote
  • Lack of appropriate accommodations (for mental health, pregnancies, and other health risks)
  • Defamation
  • Retaliation (causing harm in response to complaints)
  • Invasion of privacy
  • Negligent evaluation
  • Breach of employment contract
  • Mismanagement of employee benefits

EPLI does not cover:

  • Punitive damages
  • Civil and criminal fines
  • Unpaid wages
  • Damages to employee property
  • Injuries inflicted on employees
  • Union dispute

The insurance policy will reimburse legal costs. This applies whether or not your company wins the case.

Types of EPLI Policies

The type of insurance policy you get will affect the EPLI coverage. It can either be a claims-made EPLI policy or an occurrence-based EPLI policy.

The claims-made policy is more common. Its coverage depends on whether the complaint incident and employee lawsuit happen when the policy is in effect.

The occurrence-based policy covers claims for incidents that occur within the policy’s term. This is regardless of when the employee reports the allegation.

What Determines the Cost of Insuring Your Business?

Costs of business liability insurance vary depending on many factors. These include:

  • The number of employees under your company
  • History of prior lawsuits against your company
  • Rate of employee turnover
  • The established rules and policies in your company regarding misconduct
  • The amount of coverage purchased

You can be a well-to-do corporation or a small business. Either way, if you have employees, they can sue you. When weighing the cost of a lawsuit against insurance, a lawsuit is almost certain to leave you worse off.

Common Problems in the Employment Process

All steps in the employment process pose significant employment liability risk.

During the hiring process, rejected candidates might accuse you of discrimination. For this reason, it’s vital to maintain unbiased hiring standards.

For current employees, there are even more instances of alleged misconduct. Examples include sexual harassment, defamation, or breach of contract.

With terminations, former employees can claim unjust termination, even if you fired them for poor behavior. So, always keep a record of your employees’ performance and attendance.

How to Lessen Your Employment Practices Liability Risk

Business liability insurance can save you from the costs of a lawsuit. It won’t, however, protect you from the lawsuit itself. Nor will it save you from the accompanying damage to your reputation.

You want to avoid employee complaints altogether. To lower the chances of allegations:

1. Respect Your Employees

If proven misconduct led to a lawsuit, insurance can only take you so far. Your company should have a zero-tolerance policy for discrimination and harassment.

2. Know Employment Laws and Policies

Employment laws are necessary for workplace safety and job security. Therefore, make it a point to understand and abide by these laws. This goes for you, the employer, and all of your employees.

3. Develop an Employee Handbook and Detailed Job Descriptions

Create a comprehensive handbook that includes workplace policies and rules. Make sure it’s understood by all employees.

4. Thoroughly Screen Candidates Before Hiring

Develop a non-discriminatory hiring process. Conduct proper background checks on all candidates. Of course, make sure your scope isn’t invasive.

5. Conduct Regular Employee Performance Reviews

When conducting performance reviews, always document it. This record comes in handy in the face of legal complaints.

6. Consult Your Insurance Provider

Check the services of your insurance provider or ask them directly. Some insurance companies offer risk management services. They can identify potential risks and find solutions to help you avoid future losses.

Protect Your Business the Right Way!

A company is only as good as its employees. Therefore, as a business owner, it’s your responsibility to protect your people. However, the moment you start the employment process, you expose your company to certain risks.

This is why it’s important to set safety nets for your business. Acquiring employment practices liability insurance gives you the peace of mind you deserve.

Keep your company and finances safe. Contact us today to learn more about EPLI and other types of business insurance we offer at the Soden Agency.