What is Employment Practices Liability Insurance (EPLI)? Coverage, Benefits & Costs Explained

Managing employees and maintaining workplace compliance are essential parts of running a business. However, even organizations with strong HR policies can face employee-related legal claims. Employment Practices Liability Insurance (EPLI) helps businesses protect themselves against financial losses arising from workplace disputes such as discrimination, wrongful termination, harassment, and retaliation.

Employment practices liability policy offers an insurance cover to companies for defense against employment-related claims raised by employees (current, past, and future). With a rapidly evolving legal framework governing the employment landscape, businesses of all sizes have started considering the EPLI insurance policy as a key part of their risk mitigation plan.

Understanding Employment Practices Liability Insurance

Employment Practices Liability Insurance (EPLI) is a form of business liability insurance, that protects employers against claims arising from work practices and workplace behavior. It generally covers all legal defense costs, as well as settlements and judgments that are the result of lawsuits.

According to the Insurance Information Institute (III), EPLI offers companies protection from claims of wrongful termination, discrimination, sexual harassment, and breach of employment contracts, among others (III). Many businesses make the assumption that their general liability policy provides coverage for employment-related claims; however, most policies of this kind have exclusions for work-related actions, and it is a separate choice of coverage.

What is EPLI Coverage?

Businesses often ask, what is EPLI coverage, and why is it necessary?

The primary purpose of EPLI coverage is to shield employers from workplace-related litigation. Several typical claims that EPLI insurance would pay on would be:

• Wrongful termination
• Employment discrimination
• Harassment/sexual harassment charges
• Poor treatment based on sex, race, age, religion, or disability
• Retaliation against workers
• Failure to promote
• Violation of employment contract
• Defamation and invasion of privacy
• Poor supervision/evaluation

Forbes Advisor and NerdWallet, two firms operating in the financial arena, indicate that EPLI would generally cover defense costs, filing fees, court fees and settlement awards in employment litigation.

Lawsuits related to the workplace are very costly to litigate, even when the company wins the lawsuit.

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Why Businesses Need an EPLI Insurance Policy

There is a large number of laws governing the workplace nowadays, and employees are more aware of their legal rights. Any lawsuit may occur in any company, regardless of whether it has many or just a few employees.

EPLI insurance can provide benefits to a business such as:

1. Protection of your assets

Legal expenses alone may be costly. Lawsuits and settlements may require financial expenses, but EPLI insurance may reduce them.

2. Management of reputation

Any disputes related to employment issues may damage a company's reputation. Companies would manage claims better if they had the proper insurance coverage.

3. Coverage of small and medium businesses

Since smaller companies often lack an HR department and/or a legal office, they become more vulnerable to employment claims.

4. Assistance with compliance

In order to minimize liability, some insurers will provide additional assistance such as HR resources, consultation about the employee handbook, and on-site training.

According to ADP, even those companies that comply with all employment laws may face lawsuits filed by dissatisfied employees. Thus, EPLI insurance becomes increasingly necessary.

What Does EPLI Not Cover?

However, Employment Practices Liability Insurance covers a wide range of situations, although not all of them. The majority of Employment Practices Liability Insurance policies do not cover:

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• Injury to an employee
• Worker's compensation claims
• committing crimes or fraud
• Some violations of wage and hour laws.
• Property damage claims
• Negligent acts in the workplace
• Intentional violation of the law

Companies must always read the fine print since the benefits vary by insurer. 

Who Should Consider Employment Practices Liability Insurance?

Every business employing staff should give serious thought to Employment Practices Liability Insurance. Once an employer begins searching for new staff, the risks of an EPLI event begin.

Some of the business entities that benefit from EPLI:

• New businesses
• SME's
• Retail shops
• Health care clinics
• IT Businesses
• Hotels and resorts
• Manufacturing businesses
• Service providers

Every business, regardless of how clear its HR policies may be, may face a legal claim of this nature. A single claim can result in costs, court proceedings, and significant workplace stress.

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How Much Does EPLI Insurance Cost?

The cost of EPLI insurance is determined by several factors, including the following:

• Size of the company
• Number of employees
• Industry
• Employee turnover rate
• Claim history
• Human resource management practices currently in place
• Location of operations

According to Forbes Advisor, EPLI premiums are significantly influenced by the riskiness of the company and its hiring process. Discounted insurance rates may be offered to businesses that have well-defined human resource management policies and training programs for employees.

Tips to Reduce Employment Liability Risks

Besides seeking protection, businesses must also concentrate on prevention measures, even though EPLI provides adequate coverage.

1. Establish sound policies for human resources management.

Organizations should retain and revise their employees’ manuals and guidelines concerning workplace behavior.

2. Organize training sessions for the employees.

Training on workplace ethics, harassment prevention, and detection of discrimination will greatly reduce vulnerability.

3. Keep good records of employees.

Organizations should keep proper records on recruitment, promotion, discipline, and termination of employment.

4. Have fair recruitment procedures.

Organizations should have fair and legal recruiting and appraisal procedures.

5. Collaborate with insurance experts.

An experienced insurance broker will advise organizations on selecting an adequate EPLI insurance policy to cover identified business exposures. 

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Key Takeaway

Any business, regardless of its size and how well it treats its employees, may experience employment issues. Any business must be covered by Employment Practices Liability Insurance to protect itself from expensive lawsuits. A good EPLI insurance policy will help the company manage litigation expenses and other related risks.

The business can protect itself from financial risks as well as improve its workplace practices by knowing EPLI insurance.