As the world slowly returns to face-to-face work environments, it’s easy to forget how workplaces can be toxic for some employees.
According to data from the U.S. Equal Employment Opportunity Commission, 43.5 percent of all cases filed with the agency involved retaliation after reporting a sexual harassment situation.
Unfortunately, as companies grow, it can be difficult for owners to keep incidents of discrimination, sexual harassment, and wrongful discharge out of the workplace.
When these terrible incidents occur, employment practices liability insurance can save your company from outright disaster.
Here’s how it works...
What Are Employee Lawsuits?
When an employee sues for wrongful termination, discrimination, or harassment, the case is filed under what is known as a “civil action.”
An employee who files a civil lawsuit can seek compensatory damages (money to compensate for lost wages, benefits, and legal fees), punitive damages (assessed as punishment for any egregious wrongdoing), and equitable relief (orders that restore a worker’s rights).
The grounds for lawsuits vary depending on the circumstances, but the most common is wrongful termination. Some employees file suit for unpaid overtime, violations of federal anti-discrimination laws, and discrimination due to age, ethnicity, or religion.
With as much as $2.6 billion of lost productivity due to workplace sexual harassment, companies that experience such issues will likely encounter financial setbacks. Even if the people involved in the lawsuit do not own the business, lawsuits can still litigate businesses for negligent behavior.
Preventing workplace discrimination and sexual harassment is the best resolution.
However, once investigation and litigation roll out, businesses would want to have the protection they need.
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What Is Employment Practices Liability Insurance?
Businesses of all sizes are exposed to employment-related risks.
These include everyday business disputes such as breach of contract, false advertising, and unfair competition. Employers may also be exposed to negligence claims, failure to protect their employees, hiring, firing, and disciplinary practice claims.
These situations can lead to costly legal defense, court costs, and settlements. Companies can incur thousands of dollars in expenses without solid insurance coverage. To protect their investments, business owners should always have this coverage, known as EPLI.
Many employers are wary of insurance premiums, but investing in an EPLI will ensure your company will not have to shell out cash if a former employee files a lawsuit.
Policies are calculated based on factors such as the size of the organization and the industry you’re in. Your premiums will be slightly higher if you’re in a high-risk industry.
What Are The Eligibility Requirements Of EPLI?
Most states require businesses with a certain number of employees to have EPLI coverage. Even if your company is under that limit, it’s essential.
Even if your business is not required by law to get employment practices liability insurance, you want it to protect against potential lawsuits. You can be liable for compensation if an employee gets hurt at work or sexually harassed.
Even smaller companies can benefit from having EPLI. While small businesses are not legally required to have it, it can protect against employment practices lawsuits. Even one employee can sue your company for discrimination or wrongful termination.
However, companies that lack basic human resources policies are usually ineligible for EPLI. Those without policies protect employees from discrimination, sexual and workplace harassment, and accommodations for workers with disabilities.
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What Does EPLI Cover?
EPLI offers coverage for a variety of EPLI claims. Your insurance provider covers an employer who experiences compensation or damages because of a civil suit. If your policy is valid, you won’t have to pay for legal representation or damages.
This includes costs associated with your defense against the employee and the accused. Claims may also include the cost of court judgments, settlement, and injury reparation. This also consists of any fines on your federal or state tax returns.
Types of claims covered by EPLI:
- Sexual harassment
- Discrimination
- Wrongful termination
Depending on your coverage, some policies cover negligence, failure to employ or promote, breach of contract, mismanagement, and even wrongful discipline.
The validity of your claim will depend on the circumstances of the event, your insurance policy, and your insurance. Some policies only cover claims made in the previous three years, so you must check this when shopping.
Which Companies Need EPLI?
Knowing if your company needs this insurance policy can be challenging. If you own a small business, you risk damaging its reputation if there is an allegation of discrimination based on gender, race, or other factors.
Any business can take advantage of employment practices liability insurance, especially companies with consistent hiring practices. Even when taking in potential new hires, interviewees may claim several types of employment discrimination.
If your business is at risk of being ordered to pay settlement or damages in a lawsuit, you will want peace of mind knowing that you have the right insurance policies. You may even want to investigate an employment attorney that you hire.
Small businesses usually don’t have the finances to pay for legal costs. Even if your business is not directly involved, defending against such allegations can drain your finances.
Small and midsized businesses are at a greater risk of being sued. Anyone from employees who feel they were wrongfully terminated or harassed to disgruntled ex-partners can target a company.
Large organizations face different types of employment law and risk management challenges. Although they have the financial backing to hire top attorneys, they can still be sued for their workforce.
Some large companies have numerous locations and many people working for them, which puts them at higher risk of facing misconduct allegations.
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What Affects The Cost Of Employment Practices Liability Insurance
Every business that wants an EPLI would have its cost as a general consideration. EPLI premiums change according to several factors that can affect your business's risk.
Your premium amount will mainly depend on the size of your organization. Larger companies have more workers, which translates to more exposure.
Another area that plays a role in the cost of your premium is if you have any prior lawsuits lodged against your business. Historical risk can be a problem, especially if you’re looking to take on EPLI coverage for the first time.
Your annual revenue also plays a role in determining your yearly or monthly premiums. Organizations with a higher revenue typically have more people, so they are more likely to have a more significant number of claims that could amount to higher costs.
Premiums are also affected by your number of employees. If you have more or fewer, it affects your total cost.
This factor contributes to your exposure to certain risks and the frequency of such claims. Most insurance companies offer discounts to policyholders who implement policies and procedures that help minimize risks of liability.
EPLI Works With A Policy Of Prevention
EPLI doesn’t just invest in companies after they have been sued. It also creates a workplace culture of trust and safety, discouraging employees from resorting to frivolous lawsuits.
Companies are encouraged to establish policies and procedures that are vital in proactively confronting claims that may result due to unlawful discrimination. EPLI policies include coverage designed to pay expenses the organization incurs in complying with specific criteria before a lawsuit is filed.
These policies and procedures may include any recommended actions the organization can take to prevent or resolve a claim. This may include corporate and employee structure, policies, procedures, and workplace compliance documents.
Businesses that demonstrate positive employee relations are less likely to face wrongful termination and discrimination lawsuits. These policies inform staff about sexual harassment, bullying, and other forms of harassment. By setting a tone of trust and education, your business can reduce the number of EPLI claims filed.
The Rub
Every business can face employment practices lawsuits. It doesn’t matter how big or small your company is.
You meet with different people daily, leaving you open to potential discrimination and harassment claims.
At Rogue Risk, we believe a solid commercial insurance program provides the sustainability needed for businesses to take the necessary risks for profitable growth.
If this is the relationship you want with your insurance broker, we would love to talk to you.
- You can call or text us at 518.960.6600
- Click here to contact us via email.
I look forward to introducing you to a new way of viewing your insurance program.
Thank you,
Ryan Hanley
Credits:
- Article by Sophia Young
- Photo by Grzegorz Walczak
