Employment practices liability insurance (EPLI)

In an increasingly litigious society, the threat of a lawsuit hangs over every business, large and small. Even employers who adhere to the letter of the law at all times could be sued by an aggrieved employee. Defending against these lawsuits is costly and time-consuming, which is why many businesses carry employment practices liability insurance (EPLI).

What is EPLI insurance?

EPLI provides financial protection against employment-related claims of wrongful termination, discrimination, harassment or workplace torts. Its necessity has grown with the number of federal, state and local employment laws on the books. These statutes include, but are not limited to:

• Title VII of the Civil Rights Act of 1964
• The Age Discrimination in Employment Act
• The Rehabilitation Act of 1973
• The Equal Pay Act
• The Civil Rights Act of 1991
• The Americans with Disabilities Act
• The Family and Medical Leave Act
• The Reconstruction Era Civil Rights Act
• The Immigration Reform Control Act of 1986
• The Older Workers’ Benefit Protection Act
• The Model Employment Termination Act

What is the difference between EPLI and workers' compensation insurance?

Workers’ compensation provides coverage when employees suffer work-related injuries or illnesses. It pays for their medical treatment, rehabilitation and disability benefits. Lawsuits resulting from employment practices, e.g., wrongful termination, discrimination, etc., are not covered under these plans. In addition, carrying workers’ compensation is required in most states, whereas EPLI is optional.

Is EPLI the same as errors and omissions coverage?

Errors and omission coverage, or professional liability insurance, protects business owners against claims of harm or mistakes resulting from their advice or services. It is not the same as EPLI and does not cover lawsuits resulting from employment practices.

What is the difference between EPLI and directors and officers (D&O) coverage?

D&O insurance is narrower in scope than EPLI. It applies specifically to directors and officers, protecting them from lawsuits regarding their position-related decisions and actions. Examples of potential claims include reporting errors, misuse of funds, inaccurate disclosures or other management errors and omissions. D&O policies are often used as a recruitment tool to attract executive and board talent.

What does EPLI cover?

Common employment issues that EPLI may cover include the following:

• Sexual harassment
• Wrongful discipline or demotion
• Wrongful termination
• Slander or libel
• Discrimination based on age, gender, religion, race or other protected classes
• Breach of an employment contract
• Privacy invasion
• Emotional or mental distress
• Negligent decisions related to hiring, promotions or compensation

Who needs employment practices liability coverage?

All organizations with employees, regardless of their size or their diligence and commitment to adhering to applicable employment laws, may need EPLI. Even employers who have not yet hired their first employee could be at risk for an employment practice lawsuit. For example, people who don’t work for the business could claim they were denied employment due to discrimination based on age, sex or other factors.

How much does employment practices liability insurance cost?

EPLI standalone coverage can be costly, depending on the insurance carrier. However, some professional employer organizations (PEO) offer EPLI to their clients at no additional charge. Other liability protections that may be included with co-employment include:

• Workers’ compensation insurance
• Accident investigations
• Safety training and recommendations
• Termination assistance
• Liability management training
• Policy acknowledgements

How an EPLI policy can aid a business

Defending a single employment discrimination claim without EPLI can be a serious financial setback and may even bankrupt a small business. With the proper coverage, however, employers may see gains in the following areas:

• Revenue
  Workplace claims take significant time and effort to resolve and can drain resources from revenue-driving activities. EPLI provides employers with additional options for handling covered employment claims in the most efficient and effective manner.
• Cost of goods sold (COGS)
  Employment practice claims and settlements may drive up an employer’s COGS. EPLI coverage can help minimize costs related to these claims and protect profit margins.
• Non-operating expenses
  Lawsuits are unplanned and costly expenses for business owners. Robust coverage via an EPLI plan helps curtail financial losses if an employment practice claim occurs.

How to reduce EPLI claims

There’s no way to guarantee an employment lawsuit won’t happen. However, employers can take these steps to help reduce their risk:

• Obtain EPLI
  Look for an insurance company with a proven track record of implementing EPLI coverage for the business’s specific industry.
• Create policies
  Ensure that all employees and new hires understand there is zero tolerance for harassment and discrimination.
• Provide training
  Mandate sexual harassment training that explains the behavior acceptable in the workplace.
• Gather evidence
  Document conversations and any other relevant evidence when an employee reports an incident or concern.

Frequently asked questions about EPLI

Is EPLI insurance worth it?

Having the right EPLI plan is an integral part of risk management strategy. It can cover court costs, attorney fees, expert witness testimony expenses and judgments against a business up to the policy limit.

What is the difference between general liability and EPLI?

General liability insurance covers losses to property or physical injuries caused to third parties by a business’s operations, products or employees. EPLI, on the other hand, covers a business’s legal expenses if it is sued over an employment-related issue, such as discrimination, harassment, wrongful termination or workplace torts.

What does EPLI not cover?

EPLI may limit coverage for certain claims, such as unpaid wages and intentional wrongdoing. Employers should ask their insurance agent about any possible exclusions in their business insurance policies.

Does EPLI cover owners?

EPLI provides organization-wide coverage. Owners, directors and officers who want additional liability protections specific to their role may want to purchase D&O insurance.

Why is EPLI so expensive?

The EPLI insurance cost depends on various factors, including the industry, the number of people employed and the amount of risk within the organization. Employers should review their needs with an insurance agent before purchasing a policy to ensure it provides adequate coverage to protect their business.

This article is intended to be used as a starting point in analyzing the EPLI insurance meaning and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.