No business is immune to potential lawsuits. Here’s your guide to understanding employment practices liability insurance.
As employers large and small know, there are a myriad of laws that touch employment in some way in this country. Some of them, like the Americans with Disabilities Act are more well known. Thanks to the debate over vaccines, laws like the ADA that are designed to ensure a fair and equally-accessible workplace for all have been central to popular discourse these days.
Others are straight up labor laws that regulate the parameters of employment in the United States, from wrongful termination to breaching employment contracts and much in between.
When it comes down to it, employers of all sizes can be at risk of being sued by current or former employees for an array of violations to laws designed to protect workers from exploitation. Even if your small business is just a tiny start up idea right now, you’re never immune from legal risk in our litigious society. Generally, as your company grows, the risk only goes up.
Whether you have some risk-taking people in leadership roles or you’re simply looking to make sure you’re as covered as possible, it’s critical that all businesses have at least a basic understanding of employment practices liability insurance, or EPLI.
Employment lawsuits: Understanding the risk
In 2019, Good Jobs First published a report that found that 99% of Fortune 500 companies have made payouts to plaintiffs in at least one employment lawsuit relating to discrimination or harassment since 2000.
Of those with accessible verdicts or settlements, 189 companies have paid $1.9 billion in penalties. These range from $356 million spread across 238 cases that the U.S. Equal Employment Opportunity Commission (EEOC) has resolved, and $65 million spread across 85 cases that have been handled by the Office of Federal Contract Compliance Programs.
Just last year, the EEOC secured $439.2 million for victims of discrimination across the private and public sectors on the state and local levels. In total, the agency responded to more than 470,000 calls to its toll-free number and over 187,000 inquiries made to its field offices. This, the agency said in a February press release, is reflective of “the significant public demand for EEOC’s services.”
Even though the majority of lawsuits between employees and their employers are against large corporations, no business is immune to potential lawsuits. Even though it’s a blow to the bottom line, major corporations can easily absorb these kinds of expenses that a small business can’t.
You might know all of your employees and have close working relationships with them, but you never know what could happen in the future. One lawsuit of this size could mean going out of business for many small businesses around the county
What is EPLI and how can it help?
EPLI is a type of insurance that companies can buy in order to protect themselves financially from potential employment lawsuits.
As the name “employment practices liability insurance” suggests, EPLI is a type of insurance that companies can buy in order to protect themselves financially from potential employment lawsuits. Generally, traditional business liability insurance policies do not govern these kinds of claims. Think of EPLI as a sort of gap coverage that aims to catch the cases that would otherwise fall through the cracks.
Larger corporations have had this kind of coverage for some time. Now that even small businesses are requiring this kind of protection, it’s an addition to standard business owners insurance policies and as well as a stand alone policy.
What does EPLI protect me from?
Depending on the specifics of your policy, EPLI can provide financial protection against lawsuits that range from claims of sexual harassment and discrimination to wrongful termination and even negligent evaluations.
Other potential areas of coverage include the infliction of emotional distress, the failure to properly employ or promote someone, the mismanagement of employee benefit plans, and wrongful discipline.
For context, out of all of the charges filed with the EEOC in 2020, the most common claims were:
- Retaliation: 37,632 cases
- Disability: 24,324 cases
- Race: 22,046 cases
- Sex: 21,398 cases
- Age: 14,183 cases
- National origin: 6,377 cases
- Color: 3,562 cases
- Religion: 2,404 cases
- Equal pay: 980 cases
- Genetic information: 440 cases
How does EPLI work?
Much like other business insurance policies, it all depends. Variables that impact the cost of an EPLI policy include the type of business you’re in and the number of employees you have. Like all other insurances, risk factors like whether or not your company has been sued for similar issues in the past will play a big role in the cost of a plan.
Generally, EPLI works by reimbursing you for the costs associated with a lawsuit, from settlements and judgements to the costs related to showing up to and defending yourself in court. It’s important to note, though, that the majority of policies will not cover punitive damages, civil fines, or criminal fines. EPLI policies also won’t cover issues that other insurance policies cover, like workers compensation.
When you’re deciding between policies and providers, you’ll want to be sure you understand the in’s and out’s of your policy — from who controls the claims process to the adequacy of payout limits.
Another piece of information to consider as you shop around for a policy is the limits on punitive damages outlined by the EEOC. These limits are $50,000 for employers with 15-100 employees, $100,000 for employers with 101-200 employees, $200,000 for employers with 201-500 employees, and $300,000 for employers with more than 500 employees.
What else should I do to keep my company safe from lawsuits?
Think of EPLI as a last resort — it’s a parachute that you can deploy if and when all else fails. Many insurance companies actually won’t cover your business if you don’t already have adequate practices in place to safeguard against potential lawsuits.
The best thing that you can do is keep your company from receiving a lawsuit in the first place. That starts with proper employment practices.
The best thing that you can do is keep your company from receiving a lawsuit in the first place. That starts with proper employment practices. This means that, in addition to adequately adhering to all employment laws, clear documentation and dedicated processes are your best friend.
Any time a dispute comes up, document everything. Whether you’re dealing with a sexual harassment claim or you’re handling an underperforming employee, it’s critical that you have a paper trail. You’ll want all of your processes and decisions documented, and then you’ll want to keep those documents even after the involved parties move on.
You’ll also want to be sure that you have airtight hiring and firing processes you design with fairness and equal opportunity in mind. On top of that, it’s a good idea to ensure that company policies and procedures for filing and handling complaints are readily available to all of your employees. That can take the form of clearly outlined policies in an employee handbook or posters put up throughout the office.
Beyond that, managers and team leads should be having conversations with all of their direct reports about what to do if they’re ever the victim of improper behavior.
Solving things internally: make it an option
Very few people actually want to go to court and endure all of the hassle that comes along with it. Most people would much rather have a positive experience at their job, so they’re likely to try to solve it internally before heading for the courts. So make sure that doing so is an accessible option at your company.