Employment practices liability is a type of insurance that renders coverage to employers against claims made by employees alleging harassment, wrongful termination, discrimination, and other employment-related issues. Big companies usually have extensive employment practices insurance coverage in place and are equipped to deal with any employment lawsuit. However, small businesses or startups are often vulnerable to employment claims. This may be because they don’t have a legal department or employee handbook that lists the policies and procedures that supervise hiring, disciplining, or firing employees.
You may be wondering when to purchase employment practices liability insurance? From a risk standpoint, as a company, you are vulnerable to an employment claim before you even hire someone. Yes, you heard it right! The risk starts the moment you interview a prospective employee. Worst-case scenario, let’s suppose you choose not to hire someone; the candidate could allege some sort of discrimination. In case, you hire someone and then choose to terminate their services due to poor performance; that employee could claim wrongful termination under some circumstances.
Reasons to Purchase Employment Practices Liability
- Employment Practices Liability insurance not only protects your company against actual but also alleged acts of harassment, discrimination, wrongful termination, retaliation, and other similar acts.
- Certain federal and state employment laws are applicable to all employers – companies of all size are at risk.
- The financial implications of not having EPL insurance can be bad, especially for small companies since they don’t have the rolling budgets to handle the defense costs, let alone the settlements of uninsured claims.
- Other insurance policies, such as general liability do not provide EPL coverage. Other policy endorsements provide inadequate limits and erode the limit available for general liability exposure. They do not offer the volume of coverage of a separate EPL policy.
Statistics suggest that three out of five employers are sued by former employees every year. Gender discrimination, age discrimination, and retaliation claims are on the rise. The Equal Employment Opportunity Commission (EEOC) recorded nearly 85,000 charges in 2017 and proposed more than $398 million in settlements for claimants. It is also interesting to note that over 40 percent of EPL claims are against companies with fewer than 100 employees.
Know More About Employment Practices Liability Insurance
Now that you know the importance of having an employment practices liability insurance, let’s understand how this policy works.
The cost of EPLI coverage depends on a variety of factors, such as:
- The number of individuals you employ
- Whether or not you’ve had prior lawsuits filed against your company
- The employee turnover percentage
- Whether you have defined rules and practices in place
EPLI coverage is usually drafted on a claims-made basis. This implies the conflict resulting in the claim, had to take place during the term of the coverage. Since employment claims often come months or even years after the alleged event, your firm might be at risk if your insurance coverage was dropped or if tail coverage (liability insurance that stretches past the end of the policy period) wasn’t bought.
Apart from providing the necessary peace of mind and security to companies, employment practices liability coverage also often comes with online support. This could give you access to sample forms and policy drafts. You may find checklists that allow you to self-audit checklists. You could also consume web-based training modules that address important issues like the prevention of harassment, discrimination, and other employment situations.
It is vital to remember that, while Employment Practices Liability insurance is a valuable investment for many companies, it is critically important to understand and carefully follow employment laws. Several laws exist to protect the rights of the people you hire or are considering hiring. A few of them include the Title VII of the Civil Rights Act of 1964, Equal Pay Act of 1963, Civil Rights Act of 1966, Immigration Reform and Control Act of 1986, The Americans with Disabilities Act of 1990, Bankruptcy Code, Equal Employment Opportunity Act of 1972, Age Discrimination in Employment Act. It’s always wise to stay updated on the current statutes that apply and keep an eye out for changes that may be announced.
Our advice is that Employment Practices Liability insurance is a must. While you cannot guarantee that your company will face an employment lawsuit, you can reduce your stress in case such a situation ever arises. EPLI helps you protect your company to reduce risk. Employee Practices Liability insurance is just a smart move -even for small companies.