Understanding the Wide Scope of Employment Practices Liability Insurance

We’d all like to believe that our employees reflect the scruples of our companies. Sadly, employees will sometimes conduct themselves in ways that go against corporate and even personal ethics. They may exhibit discriminatory or predatory behavior, mismanage benefit plans, or more. In such instances, it’s difficult to predict the extent of legal woes a company could get exposed to.

Today we live in a hyper-aware environment, more complex and diverse than ever before. This is great– but it also poses complex and tough challenges. Rather than being caught off-guard, it’s best for companies to think ahead to protect themselves.

In a lawsuit-happy environment like ours, many individuals try to misuse the insurance laws laid down by the government that are meant to protect them. There have been many instances of fraudulent cases that have resulted in companies losing millions of dollars and the trust of their customers.

Whether you’re a small shop or a business employing thousands – you’re also vulnerable to opportunistic people who can try to take advantage of you by cooking up incidents and suing you for financial gain.

To prevent that, you need Employment Practices Liability Insurance (EPLI). This protects you from claims that could otherwise bring you to bankruptcy.

You may be wondering how exactly Employment Practices Liability Insurance (EPLI) does this. What is it exactly? What comes under its purview? Let’s explore this policy in detail.

What is Employment Practices Liability Insurance (EPLI)?

EPLI provides insurance coverage to employers against claims made by employees. Large corporations usually have substantial employment practice insurance that protects them from the worst impacts of an employment lawsuit. But small and newer businesses may not enjoy the same. They’re the most vulnerable to fraudulent claims. They don’t usually have a legal department or an official employee handbook detailing the exact processes to hire, discipline, or terminate employees.

What Does an Employment Practices Liability Insurance (EPLI) Do for You?

This policy reimburses you the amount you pay legal counsel to defend you in court from a lawsuit. The best part is this policy reimburses you regardless of whether you lose or win the suit. If your company loses the lawsuit, this insurance covers the judgments and settlements. This is why this insurance is supremely beneficial – especially to those working in high-risk environments.

There are certain companies, such as technology firms, that are at higher risk from lawsuits. These are highly recommended for such companies. You must always get one from a carrier who is well-known and deeply trusted. Hiring insurance experts helps you find the best partners for your needs. Occasionally, EPLI is combined and written under a normal Business Owners Policy (BOP). Larger firms have independent EPLI policies.

What Is the Scope of An Employment Practices Liability Insurance (EPLI)?

This insurance covers lawsuits alleging the following:

  1. Sexual harassment – Using anti-harassment training and guidance has seen an upsurge as we’re in the age of awareness and the #metoo movement. But sometimes, that’s not enough. Did you know that sexual harassment is more prevalent in small businesses than in medium or large ones? Yet 50% of small businesses don’t have policies in place to handle these complaints. Small businesses don’t have the large HR staff nor the employee protocols in place to smoothly navigate such situations. This is why EPLI is their best bet for protection in cases of sexual harassment.
  2. Discrimination – A whopping 61% of employees have said that they’ve faced workplace discrimination. Out of these, only 26% are African-American and 33.4% are from disabled individuals. What’s worse is that lawsuits against employers for discrimination have risen 400%. Businesses annually spend $20,000 solely on lawsuits.
  3. Wrongful termination – This is the most common claim brought up against employers, according to data from the Equal Employment Opportunity Commission (EEOC).

Other EPLI claims that are covered are a breach of employment contract, mismanagement of employee benefit plans, negligent evaluation, wrongful infliction of emotional distress, failure to employ or promote, deprivation of career opportunity, and wrongful discipline. Keep in mind that during FY 2018, the EEOC resolved 90,558 charges of employee discrimination. They awarded $505 million for victims in both the private sector and government workplaces. Adopting a preventative policy is essential to both protecting your employees and your company.

Don’t assume that the new trend of the gig-economy implies fewer lawsuits. According to data under the Fair Labor Standards Act (FLSA), lawsuits have increased dramatically over the last ten years. Many of these lawsuits involve worker classification disputes. This means that employees are sending litigation over increments in hours and wages.

How Can We Avoid a Lawsuit?

At the end of the day, everyone would be the happiest if they could just avoid a lawsuit. There are many measures one can take. You should have clear corporate policies in place. You must have a set of written processes that specifically outline what is unacceptable employee conduct. Your employees must be educated on these policies, and you need to be able to demonstrate that they’re aware of these. You could put in periodic tests or evaluations to test their knowledge.

Even with these in place, there is no surety that you’ll be able to avoid such lawsuits. But if you have an EPLI in place, you’ll be able to shift much of the financial burden off of your shoulders. Remember – even if the lawsuit against you fails, you’ll still have to pay a lawyer or a firm for their work. EPLI pays this on your behalf. The best way forward is to have iron-clad company policies in place that are constantly tested. These must be supported by having an EPLI policy in place, to safeguard you in case of worst-case scenarios. Together, they create a fool-proof guard to protect the finances of your company and give you peace at night.