As an employer, protecting your business from the growing risk of employee claims is more important than ever. The number of lawsuits employees have filed against their employers is rising, and no business is immune. In 2023 alone, the Equal Employment Opportunity Commission (EEOC) filed 143 new discrimination lawsuits—a 50% increase from the previous year.
This trend is expected to continue through 2024 and 2025. So, you need to know what Employment Practices Liability Insurance (EPLI) is and how it can help you avoid costly legal battles.
Why Is EPLI Important to You as an Employer?
The costs of defending against claims like discrimination, wrongful termination, or harassment—whether you run a large corporation or a small business—can be overwhelming, especially for smaller businesses.
That’s where Employment Practices Liability Insurance (EPLI) comes in. EPLI protects you by covering legal expenses and potential settlements arising from employee lawsuits. To make this coverage more accessible, many insurers now offer EPLI as an endorsement of Business Owners Policies (BOP).
How Employment Practices Liability Insurance (EPLI) Works
EPLI protects your business from claims made by current, former, or prospective employees for issues like discrimination, harassment, or wrongful termination. Some policies also cover discrimination claims from third parties, such as customers or vendors.
EPLI covers both the cost of legal defense and any settlements or damages awarded. It may also protect against regulatory actions by agencies like the EEOC. Some policies provide separate coverage for defense costs, while others include it within the policy limit.
Most EPLI policies are “claims-made,” meaning they cover claims filed while the policy is active. Claims made after the policy expires are not covered, and all claims must be reported during the policy period.
Policies may exclude claims for incidents that occurred before the policy started, though some provide coverage for earlier incidents if they happened after the retroactive date listed in the policy.
What Types of Claims Does EPLI Cover?
EPLI provides protection against a wide range of employee lawsuits, helping you defend against claims such as:
- Sexual harassment: Claims of inappropriate conduct in the workplace.
- Discrimination: Allegations of unfair treatment based on race, gender, age, disability, or other protected characteristics.
- Wrongful termination: Claims that an employee was fired for unlawful reasons.
- Breach of employment contract: Disputes over the terms of employment agreements.
- Negligent evaluation: Claims that inaccurate or unfair performance reviews led to negative employment decisions.
- Failure to employ or promote: Allegations that a company unfairly denied a position or promotion.
- Wrongful discipline: Claims of unfair or excessive punishment in the workplace.
- Deprivation of career opportunity: Claims that actions taken by the employer hindered an employee’s career advancement.
- Wrongful infliction of emotional distress: Allegations of actions causing undue mental suffering in the workplace.
- Mismanagement of employee benefit plans: Claims of mishandling employee benefits such as retirement or health plans.
Remember, these claims can arise from current, former, or prospective employees, making EPLI a crucial shield for any business facing workplace-related legal disputes.
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Common Exclusions in Employment Practices Liability Insurance (EPLI)
Employment Practices Liability Insurance (EPLI) typically does not cover claims related to the following:
- Bodily injury or property damage: Claims involving physical injuries or damage to property are excluded.
- Wage and hour violations: Issues regarding wage payment and overtime laws are not covered.
- Workers’ compensation claims: Any claims related to workers’ compensation laws are excluded.
- Labor disputes: EPLI does not cover disputes arising from labor negotiations or collective bargaining.
- Fraud or dishonesty: Claims involving fraudulent activities or dishonest conduct are not included.
- Federal law violations: Violations of certain federal regulations, such as the Occupational Safety and Health Act or the Worker Adjustment and Retraining Notification Act, are excluded.
- Unemployment insurance claims: Claims related to unemployment insurance are not covered.
- Punitive damages: Any punitive damages awarded as part of a lawsuit are typically excluded.
- Criminal or civil fines and penalties: The policy does not cover fines or penalties resulting from criminal or civil actions.
What Does EPLI Cost?
The cost of Employment Practices Liability Insurance (EPLI) for your business depends on factors like your industry, how many employees you have, and your risk profile, including any history of employment-related lawsuits.
In 2021, EPLI premiums increased by 10-25% due to social movements and COVID-19 claims. By 2022, businesses saw further increases—5-15% for those with favorable loss histories and 25-50% for those with poorer records.
However, in 2023, the market stabilized, with average rate increases of around 3-7%, allowing many clients to enjoy flat renewals or small decreases. In 2024, these rates remained stable between 0-10%.
If your business is in a high-risk state like California or a sector like healthcare and retail, you may pay higher premiums.
Without this protection, you’d bear substantial out-of-pocket costs for discrimination claims, with average settlements of around $75,000 and jury awards averaging $217,000. EPLI policies cover legal defense costs and will reimburse you regardless of the case’s outcome.
How to Prevent Employee Lawsuits in Your Business
To prevent employee lawsuits, educate your managers and employees on how to minimize potential issues from the outset. Here are key strategies to implement:
Develop Robust Hiring and Screening Processes
Create effective hiring and screening programs to prevent discrimination and ensure a diverse workplace. This involves training hiring managers on fair practices and using standardized interview questions.
Communicate Corporate Policies Clearly
Post your company’s policies throughout the workplace and include them in employee handbooks. This transparency ensures that all employees know their rights and responsibilities and can keep each other accountable.
Provide Clear Reporting Procedures
Clearly outline the steps employees should take if they experience sexual harassment or discrimination, particularly from supervisors. Ensure that employees understand their options and feel safe reporting incidents without fear of retaliation.
Train Supervisors on Acceptable Behaviors
Ensure your supervisors are well-informed about the company’s stance on unacceptable behaviors. Regular training sessions can help reinforce what constitutes harassment or discrimination and promote a respectful workplace environment.
Document Everything
Keep thorough documentation of all incidents, employee complaints, and the steps your company is taking to prevent and address disputes. This not only helps in resolving conflicts but also provides a record that can be useful if legal issues arise.
Secure Your Business With The Provant Group
At The Provant Group, we are committed to delivering insurance solutions tailored to protect your business. As a business owner, you understand the importance of minimizing risks and ensuring a safe work environment.
Our team of professionals is dedicated to helping you understand the complexities of Employment Practices Liability Insurance (EPLI) and other essential coverages.
With our experience across various industries—including healthcare, retail, construction, and more—we provide knowledgeable advice that will allow you make informed decisions.
Don’t wait for a problem to arise. Contact us today to discover how we can help you create a secure workplace and business.