Employment Practices Liability Insurance (EPLI): A Guide for Business Owners

Employment Practices Liability Insurance

Imagine this: one of your employees feels mistreated at work. Maybe they believe they were wrongfully terminated, harassed, or discriminated against. Unfortunately, these situations can and do happen, and when they do, they can lead to lawsuits.

Employment Practices Liability Insurance (EPLI) is designed to protect your business in these scenarios. It’s not just current employees who can file these suits—former employees can, too. This type of insurance is like a safety net for your business regarding employee-related lawsuits. Let’s dive into EPLI, why you need it, and what it covers.

Common EPLI Claims You Need to Know About

Let’s look at some real-world examples to understand the importance of these issues:

1. WeWork faced lawsuits over age discrimination and gender pay inequity.

2. Nike was sued by former employees, alleging a culture of sexual harassment and gender bias.

3. McDonald’s was targeted for what a former employee described as a pervasive culture of sexual harassment.

4. An Alaskan mining company settled a sex discrimination lawsuit for $690,000 after allegedly denying promotions to a female miner.

Key Areas to Focus On

#1 – Fair Pay

Fair pay is critical to avoid liabilities under the Equal Pay Act. Regular self-audits can help:

• Ensure job descriptions are current and include criteria for skills, education, seniority, and responsibility.

• Assign consistent compensation for similar jobs performed by individuals with equivalent qualifications.

• Equitably distribute projects and clients with commission or bonus potential among employees, regardless of gender or other identifiers such as race, marital status, etc.

#2 – Wage Theft

Wage theft is a significant issue, costing U.S. workers up to $50 billion annually. This can include:

• Forcing employees to work off the clock.

• Inconsistent meal and rest breaks.

• Failure to pay overtime and earned tips.

Implement clear policies and train managers properly to prevent wage theft.

#3 – Worker Classification

Misclassification of workers can lead to EPLI claims. To avoid this:

• Review federal and state labor tests and IRS guidelines.

• Ensure consistency in classifying contractors and employees.

• Conduct regular audits to verify correct classification.

#4 – Gender Identity and Restroom Access

Ensure employees can use restrooms that correspond to their gender identity. OSHA guidelines suggest:

• Allowing employees to use restrooms that match their gender identity.

• Not requiring medical or legal documentation for restroom access.

• Providing gender-neutral restrooms with lockable stalls.

#5 – Effective Compensation

As Millennials and Gen Z increasingly dominate the workforce, a shift from merit-based to value-based compensation is essential. Develop a performance management program that integrates compensation, rewards, and performance to avoid potential EPLI claims.

#6 – Harassment

Claims related to workplace harassment, particularly sexual harassment, are on the rise. These claims often involve unwanted sexual advances or verbal and physical harassment.

#7 – Whistleblower and Retaliation

Employees who allege discrimination or harassment and believe they were punished for speaking out can file retaliation claims. These often involve demotions or pay cuts unrelated to job performance.

#8 – Failure to Hire or Promote

Claims can arise if employees believe they weren’t hired or promoted because they are in a protected class under the ADA, such as having a disability.

#9 – Discrimination

Discrimination claims based on age, race, gender, or ethnicity are increasing, especially as the workforce ages. The tech and finance sectors, which often favor younger workers, are particularly vulnerable.

#10 – Wrongful Termination

Employees who feel they were unlawfully terminated can file wrongful termination claims. These claims involve breaches of the employment contract, which can be a lengthy and costly legal process for employers.

#11 – Invasion of Employee Privacy

Claims related to privacy violations, such as monitoring computer use or office surveillance, are becoming more common.

#12 – Illegal Background Check

Employers must follow the Fair Credit Reporting Act (FCRA) guidelines when conducting background checks and ensure they have written consent from candidates.

#13 – Pregnancy and Lactation Accommodation

The Pregnancy Discrimination Act and the Break Time for Nursing Mothers law protect pregnant and breastfeeding employees. Employers must provide reasonable accommodations and time for mothers to express milk. Staying informed about these trends and implementing proactive measures can help protect your business from EPLI claims. You can create a fair, safe, and compliant workplace by addressing these key areas.

What Does EPLI Cover?

Okay, so you might be wondering what exactly EPLI covers. Here’s a breakdown:

Defense Costs: If you end up in court, your legal defense costs can skyrocket. EPLI helps cover these expenses.

• Judgments and Settlements: If the court rules against your business or you settle out of court, EPLI can also cover these costs.

• Legal Costs Regardless of Outcome: One of the great things about EPLI is that it often covers your legal costs, whether you win or lose the case.

However, it’s crucial to understand that EPLI isn’t a catch-all solution. There are some things it doesn’t cover.

What EPLI Doesn’t Cover

EPLI policies typically exclude the following:

Criminal Fines and Civil Fines: If your business is hit with these fines, EPLI won’t cover them.

Bodily Injury and Property Damage Claims: These are usually covered by commercial general liability insurance.

Workers Compensation Claims: As the name suggests, these are handled by workers compensation insurance.

Pro Tip: While the employment-at-will doctrine can shield companies from certain wrongful termination claims, it doesn’t completely rule out the chance of lawsuits. Wrongful termination is just one piece of the puzzle regarding potential claims against company directors and officers. There are plenty of other legal risks to consider as well.

How to Purchase EPLI: Exploring Your Options

Employment Practices Liability Insurance (EPLI) is an essential safeguard for businesses, offering protection against claims related to employment practices. Whether you’re a small business owner or managing a large corporation, understanding your options for purchasing EPLI is crucial. Let’s dive into how you can get this coverage and what each option entails.

Adding an EPLI Endorsement to an Existing Liability Policy

One straightforward approach is to add an EPLI endorsement to your existing liability policy. This can be a quick and easy way to get protection. However, there are a few downsides you should be aware of:

• Coverage Limits: Endorsements often come with sub-limited coverage, typically around $100k, $250k, or $500k. This amount includes defense costs, which might not be sufficient for more severe claims.

• Basic Protection: The coverage tends to be relatively narrow. For instance, it usually doesn’t cover wage and hour claims, breaches of employment contracts, or third-party claims from clients or vendors.

While an EPLI endorsement might be suitable for small businesses, it’s not ideal for organizations that need more comprehensive coverage. If you’re looking for broad protection, you might want to consider other options.

Packaging EPLI with Directors & Officers (D&O) Insurance

Another popular method is to package EPLI within a Directors & Officers (D&O) insurance policy. This approach is common for several reasons:

• Broad Coverage: D&O policies generally offer extensive coverage, including employment-related claims, constituting a significant portion of the claims against private company directors and officers.

• Convenience: Combining EPLI with D&O insurance simplifies policy management and is often more cost-efficient.

• Comprehensive Protection: By bundling these coverages, you ensure that your directors and officers are well-protected without needing to manage multiple policies.

This option is particularly advantageous for businesses looking to streamline their insurance needs while securing robust protection.

Opting for a Stand-Alone EPLI Policy

A stand-alone EPLI policy might be the best choice for companies seeking the most extensive protection. Here are four main reasons why businesses might prefer this option:

1. Preserve D&O Limits: Some companies want to keep their D&O limits reserved exclusively for D&O claims, ensuring that their directors and officers have maximum protection.

2. Cost Efficiency: Businesses not interested in D&O coverage can find a more cost-efficient stand-alone EPLI policy that focuses solely on liability for employment practices.

3. Prior Claims: Companies with prior claims may find bundling EPLI with D&O insurance challenging. A stand-alone policy can sometimes be easier to purchase and offer better terms.

4. Broader Coverage: Stand-alone policies generally offer the broadest possible coverage with terms that can be negotiated to fit the organization’s specific needs.

Choosing a stand-alone policy allows for tailored coverage, ensuring that all potential employment-related risks are addressed comprehensively.

Making the Right Choice for Your Business

When purchasing EPLI, consider your business size, risk profile, and coverage needs. While endorsements might be sufficient for smaller enterprises, larger organizations or those with specific needs might benefit more from packaged or stand-alone policies.

No matter which route you choose, having the right EPLI coverage is crucial in protecting your business against the risks associated with employment practices. Take the time to evaluate your options and consult with an insurance professional to make the best decision for your organization.

EPLI Insurance: Key Terms You Need to Know

EPLI Insurance: Key Terms You Need To Know

EPLI can seem complex, but understanding a few key terms can make a big difference in ensuring you get the right coverage for your needs. Let’s break down some essential concepts.

Duty vs. Non-Duty to Defend

One crucial aspect of EPLI is whether the policy includes a “duty to defend” or is written on a “non-duty to defend” basis (also known as “duty to indemnify”). So, what does this mean?

• Duty to Defend: With this type of policy, your insurance carrier is responsible for defending you against claims. This means they cover the legal costs and provide a team of experts to handle your case. It’s a massive relief because it takes the burden off your shoulders.

• Non-Duty to Defend (Duty to Indemnify): The insurance company reimburses you for defense costs, but you’re responsible for managing the defense. Most companies prefer to avoid these policies because they can be more stressful and complicated.

Defense Costs: Inside vs. Outside the Limit

When choosing an EPLI policy, how defense costs are handled is a big deal. Policies can be structured in two ways:

1. Defense Costs Included in the Limit: If you have a $1 million policy and defense costs are included, those costs eat into your coverage limit. So, if your defense costs $300,000, you only have $700,000 left for any settlement or judgment.

2. Defense Costs Outside the Limit: In this case, your $1 million policy limit is reserved entirely for settlements or judgments, and the insurance covers defense costs separately. Essentially, it’s like having a higher coverage limit because the funds for defense don’t reduce your policy’s stated limit.

Definition of “Employee”

Another critical aspect of EPLI policies is how they define “employee.” This definition can vary, but it should ideally include:

• Partners, Managers, and LLC Members: These individuals should be covered, as they play vital roles in your business.

• Part-Time Employees, Interns, and Volunteers: Even if they’re not full-time, their actions can still lead to claims.

• Independent Contractors: They might not be on your payroll, but their work for you can still create liabilities.

• Prospective and Former Employees: Claims can arise from job candidates or past employees, so they must be covered, too.

Miscellaneous Exclusions

While we’ve covered some of the main terms, EPLI policies can have various exclusions you need to be aware of. These might include:

• Breach of Employment Contracts: Some policies exclude claims related to breaches of employment contracts, so it’s crucial to check this.

• Regulatory or EEOC Actions: Claims arising from regulatory bodies or the Equal Employment Opportunity Commission (EEOC) might also be excluded, leaving you vulnerable in certain situations.

Understanding and acting upon these terms can significantly impact the level of protection your EPLI policy provides. Make sure to review and negotiate your policy details carefully to ensure you’re adequately covered. If in doubt, consulting with an insurance expert can help you navigate these complexities and choose the best policy for your business.

How Much Does EPLI Cost?

Employment Practices Liability Insurance (EPLI) costs vary based on several factors. The price of EPLI isn’t one-size-fits-all. It’s as unique as your business itself. So, what factors determine how much you’ll pay for this coverage?

The cost of EPLI hinges on several critical factors, including the nature of your business, the number of employees on your payroll, and your history with employment-related lawsuits. If your company has been embroiled in legal battles over employment practices before, then insurers might see you as a higher risk in the future and adjust your premiums accordingly.

So, what’s the bottom line? Investing in EPLI is like putting a safety net under your business. Remember, every business is different, so it’s essential to work with a local insurance agent to get the best policy for your needs.

Tips to Avoid EPLI Claims

In today’s professional landscape, protecting your enterprise requires more than robust operations and a stellar team. It entails a proactive approach to addressing employee concerns, maintaining fair practices, and adhering to legal standards. Let’s explore some practical strategies to fortify your defenses against potential EPLI claims.

Fair Compensation Practices

Compensating employees fairly for their time and contributions is ethically imperative and a strategic move to mitigate the risk of substantial claims. Ensure you pay your employees for all hours worked, including training and overtime. Moreover, familiarize yourself with overtime pay regulations and refrain from pressuring employees to work beyond stipulated hours without proper compensation.

Cultivating a Respectful Work Environment

Creating a comfortable and inclusive workplace culture is paramount in preventing harassment and discrimination claims. Acknowledge and address any complaints promptly, regardless of their nature. Whether it’s sexual harassment or discrimination based on age, sex, or religion, every employee concern warrants thorough investigation and resolution.

Transparent Employment Practices

Navigating employment termination can be challenging, but maintaining transparency throughout the process can significantly reduce the risk of wrongful termination claims. Follow established disciplinary policies consistently and meticulously document all relevant actions. By keeping communication clear and adhering to documented procedures, you can minimize the potential for disputes.

Preventing Discrimination Claims

Discrimination allegations pose a significant threat to businesses, making it essential to adopt stringent hiring and firing protocols. Develop standardized procedures for recruitment and termination, ensuring they align with legal requirements. Avoid asking discriminatory questions during interviews and base hiring decisions solely on qualifications and eligibility criteria.

Combatting Harassment

Instances of workplace harassment demand proactive measures to safeguard employees and the organization’s reputation. Implement comprehensive anti-harassment policies, conduct regular training sessions for staff and supervisors, and maintain vigilant oversight of workplace dynamics. By fostering a culture of respect and accountability, you can mitigate the risk of harassment claims.

Ensuring Privacy Compliance

Respecting employees’ privacy rights is vital in averting claims about invasion of privacy. While conducting background checks or monitoring activities, adhere to legal guidelines and avoid any actions that could be perceived as intrusive or deceptive. Uphold confidentiality standards rigorously to protect employee privacy and minimize liability exposure.

Addressing Wage and Hour Compliance

Staying compliant with wage and hour laws is crucial in preventing compensation disputes. Consult with experts to structure compensation packages and maintain accurate records of employee hours, wages, and contractual agreements. You can mitigate the risk of wage-related claims by proactively addressing potential discrepancies and adhering to legal standards.

Mitigating Breach of Contract Risks

To mitigate the risk of breach of contract claims, clarify employment terms and avoid making promises beyond what is outlined in the contract. Clearly define the nature of employment, compensation terms, and any applicable policies or procedures. By fostering transparency and aligning with contractual obligations, you can minimize the likelihood of disputes arising from perceived breaches.

In conclusion, safeguarding your business against EPLI claims requires a multifaceted approach encompassing fair employment practices, transparent policies, and proactive risk management strategies. By prioritizing employee welfare, adhering to legal standards, and fostering a culture of accountability, you can bolster your defenses and fortify your organization against potential liabilities. Remember, investing in preventive measures today can save you from costly legal battles tomorrow.

Need to learn more about Employment Practices Liability Insurance (EPLI)?

Our agents are ready to help you out, so contact us to learn how we can customize your insurance policies to meet your needs.

*Disclaimer: We offer content for informational purposes; Co-operative Insurance Companies may not provide all the services or products listed here. Please contact your local agent to learn how we can help with your insurance needs.


GB&A Insurance. Employment Practices Liability Insurance. https://www.gbainsurance.com/EPLI-Insurance

Insurance Information Institute. What is employment practices liability insurance (EPLI)? https://www.iii.org/article/what-employment-practices-liability-insurance-epli

Hub International. Employment Practices Liability Insurance (EPLI). https://www.hubinternational.com/products/business-insurance/employment-practices-liability/

Embroker. What Do EPLI Claims Look Like? https://www.embroker.com/blog/epli-claims-examples/

AOA Insurance Alliance. Preventing Employment Practice Liability Claims. https://aoainsurancealliance.com/blog/preventing-employment-practice-liability-claims/

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