What is Employment Practices Insurance?

If you own a small business, you probably already know the ways General Liability Insurance and Property Insurance can protect your business. But how well do you know Employment Practice Liability Insurance, or EPLI? If you employ other persons, an Employment Practices Liability policy is a helpful coverage in the event of employee claims against you and your business. This blog covers what EPLI is, why it is especially important to small businesses, and some of Layr’s employment best practices to help you minimize EPLI risk.

Employment Practices Liability Insurance provides protection for you as the employer against employee claims alleging discrimination, wrongful termination, harassment, and other employment-related issues, including failure to promote. Large companies typically have sufficient insurance in place to respond to these types of claims and have legal departments prepared to deal with employee-initiated lawsuits. However, new ventures and small companies are also at risk of employee-related claims and should prepare with the proper coverage.

Small Businesses are Especially Vulnerable

2019 Workplace Complaints

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EEOC

U.S. Equal Opportunity Employment Commission

The reason new or smaller businesses run a similar risk of employment-related claims is simple: small businesses do not have formal processes and structures in place to prevent unwanted behavior. Because small companies usually lack a legal branch, a human resource department, and an employee handbook detailing policies and procedures regarding hiring, disciplining, and terminating employees, they are left exposed to lawsuits by their employees.

Even interviewing prospective employees can expose your business to employment risk. Let’s take this scenario as an example: your business interviews a candidate for the position of Senior Software Engineer. After interviewing the candidate in question, you decide to promote a current employee instead–it’s a better fit for your business. If that first individual was resentful enough, they could retaliate by claiming they were not hired as a result of discrimination on your part (age, race, gender, sexual orientation). Whether their claim is valid or not, as the business owner, you will need to retain an attorney and defend yourself and your company in court. As a small or new business, this kind of legal battle could cause serious financial setbacks to the growth of your business.

Employment Practices Insurance to the Rescue

The situation described above is just one example of many in which an Employment Practices Insurance policy would respond to protect your small business. Like all types of insurance, an EPLI policy contains a specific amount of coverage that can be allocated towards expenses like defense costs, which are usually the most substantial part of a claim.

However, financial protection is not the only benefit an EPLI policy offers. Many insurance carriers offer free online support to help you train your employees, forms to help you with your policies and procedures, and free legal advice regarding employment law, such as the proper way to terminate an employee or how to correctly draft an employment agreement.

Employment Best Practices

In addition to putting the proper insurance coverage in place, there are additional steps you can take to help reduce your risk of both malicious and justified employee lawsuits.

• Review all potential loss exposures with your insurance agent so that they can recommend the proper amount of insurance coverage from the best carrier for your company.
• Develop an employee handbook establishing formal policies and procedures including attendance, discipline, and complaints. In the handbook, include employment-at-will and equal employment opportunity statements.
• Create clear and well-documented job descriptions and conduct periodic written and in-person performance reviews with all of your employees.
• Use employment applications without age-indicating questions like high school or college graduation date. These types of questions can increase your chances for an age discrimination claim. Your business’s application should also have an equal employment opportunity statement.
• Implement an official zero-tolerance policy for discrimination, substance abuse, and all forms of harassment. Create an environment and processes where employees can report infractions anonymously or without fear of retribution.
• Regularly review the employment laws in the specific states your company operates in and consult an attorney regarding the laws when you prepare to hire your first employee.

So, what does Employment Practices Liability insurance cost? The premium you pay will depend on a variety factors including the total number of persons you employ, prior claims, and your turnover rate. Even the formal workplace rules and policies you have in place can be a factor. Finally, depending on the size of your company, EPLI can often be added as an endorsement to your current General Liability policy (GL) or Business Owner’s Policy (BOP).

If you’re a current Layr customer with employees and you don’t have this type of policy in place, our online proposal can get you covered with a policy from a top-rated insurance carrier, all in about 10 minutes. Not a current customer, but still have questions about EPLI or another business insurance policy? Our Customer Success Team is always available via phone or email with answers and advice. That’s #BetterBusinessInsurance.