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Learn Why Your Business Needs Employment Practices Liability Insurance

A Deep Dive into Employment Practices Liability Insurance

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Highlights

  • Every business is exposed to potential claims and lawsuits, which can be very costly to defend against and may result in significant financial damage.
  • EPL insurance protects companies from employment-related claims and covers the legal costs derived from them.
  • At EmPower HR, we provide risk management and compliance services to keep your business safe and help you get the right EPLI coverage. Reach out to get started!

No business is exempt from suffering legal claims or lawsuits. Equal pay claims and lawsuits alleging workplace discrimination and harassment are on the rise, so keeping your business protected is vital. That’s where Employment Practices Liability Insurance (EPLI) comes in.

Whether you have a large or small business, having EPL insurance can help you handle costly defense costs and avoid financial damage.

In this article, we’ll dive into the main aspects of EPLI so you can learn why it’s important, its main components, and how to reduce risks and be proactive.

Let’s get started!

Understanding Employment Practices Liability Insurance (EPLI)

Employment Practices Liability Insurance, known as EPL insurance or EPLI, is a type of insurance coverage that protects employers from employment-related claims and lawsuits. The most common allegations against employers include:

  • Wrongful termination
  • Discrimination
  • Sexual harassment
  • Defamation

EPL insurance covers the costs of legal defense, settlements, and judgments incurred by companies as a result of a claim, despite the outcome.

According to the U.S. Equal Employment Opportunity Commission (EEOC), discrimination or harassment lawsuits have increased up to 50% from 2022 to 2023.

The industries that received a higher number of lawsuits were hospitality, health care, and retail, SHRM reports.

EPLI vs Employer’s Liability Insurance vs Workers’ Compensation: What’s the Difference?

It might be confusing to understand the differences among EPLI, Employer’s Liability Insurance, and Workers’ Compensation.

But these are the basics you need to know: While EPLI focuses on claims related to employment practices, Employer’s Liability Insurance and Workers’ Comp protect businesses in the event of workplace injuries or employee illness.

In the case of a health issue or job-related injury, Workers’ Compensation provides coverage for medical expenses, rehabilitation services, and lost wages. Employer’s Liability Insurance, on the other hand, pays for legal expenses when an employee sues their employer for their workplace injury.

While business owners are required by law to provide Workers’ Compensation in most states, EPLI is optional — though it’s a smart business decision to have it.

Discover How EPLI Can Benefit Businesses of All Sizes and Sectors

Why Every Business Needs EPLI

Every business, regardless of its size, is exposed to potential claims and lawsuits. In fact, U.S companies have at least a 10.5% chance of having an employment charge filed against them, according to Hiscox research.

Employee claims can occur at any stage of the employment cycle, from hiring to termination. For example:

  • A job candidate that has been asked illegal questions regarding religion, citizenship, or marital status during the hiring process presents a claim alleging discrimination and unequal treatment.
  • Workers who have been misclassified as contractors instead of employees and have unpaid wages and overtime present a lawsuit.
  • An employee who has been denied a promotion after filing a complaint presents retaliation charges.

Without adequate business insurance, these kinds of employment-related claims can be very costly to defend against and may result in significant financial damage if found liable, especially for small businesses.

“The average cost for a small business to defend and settle a claim is $160,000.”

Hiscox

With EPL insurance, companies can benefit from:

  • Being protected against lawsuits
  • Preventing financial losses
  • Gaining access to legal resources and expert advice
  • Implementing risk management strategies

Having EPLI coverage provides peace of mind for business owners and executives, knowing that they have financial protection in place in case of employment-related lawsuits. That way, they can focus on running and growing their business without the constant fear of litigation hanging over their heads.

Key Components of EPLI

EPLI’s coverage can vary across insurance providers and might be different based on your company size and specific state regulations.

Here’s what most EPL insurance policies include:

  • Coverage for employment-related claims: EPLI provides coverage for various claims made by employees alleging wrongful employment practices, including but not limited to discrimination, harassment, wrongful termination, retaliation, defamation, and failure to promote.
  • Legal defense costs: EPLI covers the costs of defending against employment-related lawsuits, including attorney fees, court costs, and other legal expenses. This coverage applies whether the claim goes to trial or is settled out of court.
  • Settlements and judgments: EPLI policies typically cover settlements and judgments arising from covered claims. This includes payments to employees for damages, back pay, front pay, and other compensatory relief ordered by a court or agreed upon in a settlement.
  • Third-party coverage: Some EPLI policies also provide coverage for claims brought by third parties, such as customers, clients, vendors, or business partners, alleging employment-related misconduct by employees of the insured business.
  • Policy limits and deductibles: Like other insurance policies, EPLI typically has coverage limits, which represent the maximum amount the insurer will pay for covered claims during the policy period. Policies may also include deductibles, requiring the insured business to pay a certain amount out of pocket before the insurance coverage kicks in.
  • Exclusions: EPLI policies often contain specific exclusions, detailing situations or circumstances for which coverage is not provided. Common exclusions may include claims arising from intentional misconduct, criminal acts, bodily injury or property damage, and certain types of contractual disputes.

Risk Management Strategies

While EPL insurance protects businesses in the event of an employment-related claim, there’s a more proactive approach that companies should take: implementing risk management strategies.

Being able to manage risks and be prepared reduces the likelihood of employment-related claims and keeps your business safe from financial losses.

Here’s how businesses can effectively address risk exposure:

  • Develop comprehensive policies and procedures. Keep your business compliant with federal, state, and local laws. These policies should cover areas such as equal employment opportunity, anti-discrimination, harassment prevention, and more.
  • Provide regular training and education. Educate employees and managers on their rights and responsibilities related to company policies and employment laws. Focus on preventing discrimination and harassment, as well as handling complaints and conflicts effectively.
  • Maintain detailed records of employment-related decisions, actions, and communications. Document performance evaluations, disciplinary actions, complaints, and investigations. Consistent and well-documented policies and actions can help defend against allegations of discrimination, harassment, or wrongful termination.
  • Foster open and transparent communication between management and employees. Encourage employees to report concerns or complaints promptly through accessible and confidential channels. Respond promptly and appropriately to all complaints and take them seriously, conducting thorough and impartial investigations as needed.
  • Ensure that employment practices are fair, consistent, and applied uniformly across all employees. Avoid favoritism or disparate treatment based on protected characteristics such as race, gender, age, religion, disability, or sexual orientation.

EmPower HR: We’ve Got Your Blind Spots Covered

Keeping your business compliant and safe is one of the biggest challenges for every company, especially if you have a small HR team.

By partnering with a PEO, you can delegate the heavy lifting to experienced compliance professionals who will make sure you are always up-to-date with the latest regulations and requirements.

At EmPower HR, we provide risk management & compliance services to help you navigate every legal aspect of your business, from creating company policies and employee handbooks to filing taxes accordingly.

Employment Practices Liability Insurance Final Key Points

Every business is exposed to potential claims and lawsuits that can harm your finances and reputation. Hiring EPL insurance can be a wise decision to keep your company covered and minimize the impact of employment-related claims.

Likewise, implementing risk management strategies is a proactive approach that allows you to identify situations that might cause damage to your company and take preventive measures.

Not sure which is the right EPLI coverage for your business? At EmPower HR we help you find the right option for your business and implement risk management strategies to stay one step ahead of potential issues.

Contact us to learn how we can help your business stay safe and compliant!


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