Author: Katie Hall, PHR
No business owner wants to believe that their employees might sue them. The reality is that employment-related lawsuits are a growing concern for employers of all sizes. These lawsuits disrupt an employer's day-to-day operations and may derail long-term growth plans. Discrimination, wrongful termination, sexual harassment, and retaliation are just a few risks that can result in employment practices liability and costly litigation. As an employer, you must implement strategies to reduce employment practices liability exposures. Below we’ll explain what employment practices liability insurance (EPLI) is, who should have it and why, and how businesses can help safeguard against employee lawsuits alleging inappropriate or unfair acts.
What is Employment Practices Liability Insurance?
EPLI is an insurance policy that protects an employer against lawsuits from employment-related claims, including wage and hour disputes and allegations of discrimination, harassment, retaliation, and unlawful termination.
As a business owner, do I need employment practices liability insurance?
The short answer is YES! If a business has employees, they have liabilities. According to recent research, three out of five employers will face an employment-related lawsuit at some point in time. Defending against these lawsuits, even if your business is cleared of any wrongdoing, can be distracting and costly.
What does Employment Practices Liability Insurance cover?
EPLI covers claims filed by current employees, former employees, and employment candidates you did not hire. Also, it typically covers claims from seasonal employees, leased employees, and independent contractors. Employment Practices Liability Insurance covers a wide variety of wrongful actions in the workplace that may lead to employer liability, including:
- Mismanagement of benefits
- Sexual harassment
- Wrongful termination, discipline, or demotion
- Discrimination
- Breach of an employment contract
- Emotional distress and mental anguish
- Privacy invasion
- Failure to hire or promote
- Violation of the Family Medical Leave Act or other leave laws
What is not covered by an EPLI policy?
Some common EPLI coverage exclusions include:
- Prior or pending claims (including prior notice or prior knowledge)
- Bodily injury or property damage
- Contractual liability
- Conduct
- Duties under the law
- Nuclear/Radioactivity
- Exclusions for which insurance or extensions are available such as employee benefits, wage & hour, and third-party employment practices liability.
Employment practices lawsuits are rising, and costly lawsuits can take up your business’s valuable resources. An EPLI policy can give a company the financial backing it needs to fend off lawsuits, however groundless, and continue building your business for the future. Taking the following steps will help you reduce your employment practice’s liability risk:
- Review potential loss exposures with your insurance agent and purchase suitable EPLI coverage.
- Create and implement effective screening and hiring programs to avoid discriminatory hiring practices.
- Develop an employee handbook. Be sure to include an employment-at-will statement and an equal employment opportunity statement. In addition, institute handbook auditing procedures—a periodical review to ensure the handbook is current with changes in the law.
- Write a detailed job description for each role. Each job description should clearly define the required skills and performance expectations.
- Develop a code of ethics policy and post it in the workplace to educate and reinforce your stance regarding unacceptable and illegal workplace behavior.
- Conduct performance reviews at least once per year.
- Keep written records of all personnel issues, including the steps you took to address them.
Understanding employees’ rights are paramount to protecting your business. Reynolds + Rowella’s HR-certified professionals and insurance experts are here to help. Contact Katie Hall for more information.
Reynolds + Rowella is a regional accounting and consulting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve. Our mission is to operate as a financial services firm of outstanding quality. Our efforts are directed at serving our clients in the most efficient and responsive manner possible, delivering services that exceed the expectations of those we serve. The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, please contact Elizabeth Bresnan at 203.438.0161 or email.
