How EPLI Can Help Small Business Owners Hire Intelligently
Dan Levenson February 21, 2017
Employment practices liability insurance (EPLI) is a type of optional but highly recommended coverage that insures businesses against claims made by workers stating that their legal rights as employees have been violated.
It is important that small business owners are familiar with this type of insurance, given the fact that the number of lawsuits initiated by employees against their employers has been increasing over the past few years.
Although it is true that the majority of these lawsuits are filed against large corporations, small and medium-sized organizations are certainly not immune to this threat. A study from October 2015 of US-based small and medium-sized businesses found that those employers face about a 12% chance of having a lawsuit filed against them by an employee or former employee. What’s more, that figure can spike dramatically depending on the state in question.
As a response to the need to protect their customers, many insurers are now providing EPLI as an endorsement to their Business Owner Policy (BOP). Other insurers are taking the proactive step of offering EPLI as a standalone policy.
As a small business owner, it is incumbent on you to understand the various risks that accompany the hiring process. By taking a closer look at these different risks, it should become clear why protecting your company with an EPLI makes sound business sense as a method of employment practices risk management.
This type of conduct is defined by the Equal Employment Opportunity Commission as “unwelcome conduct that is based on race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information”. The line where this type of behavior violates the law is when either the employee feels that the conduct in question is required to be tolerated by them in order for them to keep their job, or the behavior is bad enough that an intimidating, hostile, or abusive work environment is created.
Obviously, a situation where harassment is involved and alleged is very subjective. Petty or minor annoyances and isolated incidents (depending on the severity, of course) do not rise to the level of illegality. However, if an employee decides to file a lawsuit against you—whatever the rationale may actually be—it’s up to you to defend yourself against the claims.
This is a second area that can be widely interpreted. If an employee feels that he or she has been treated unfairly because of their race, sex, age, disability, national origin or religion, you could very well find yourself on the receiving end of a discrimination lawsuit.
As is the case with harassment lawsuits, the onus will be on you, as the employer, to prove your innocence. As one could imagine, the cost to defend against one of these lawsuits is quite often prohibitive.
There will come a time as the owner or decision-maker in a small company where it will become necessary to let an employee go. In many instances, a fired employee could harbor ill will toward the action that was taken toward them, regardless of how deserving that action may have been.
In order to fit into the definition of a “wrongful termination”, the employee must have been terminated because of a violation of federal anti-discrimination laws (refer to the previous section) or a breach of contract. In addition, an employee who acted as a “whistleblower” is afforded legal protection in certain instances.
How EPLI Can Help
Employment practices liability insurance is exactly what the term sounds like: an insurance policy that protects your company against a lawsuit that is brought against you by a current or former employee. In addition to the three scenarios outlined above, EPLI also protects against retaliation, defamation, failure to promote, invasion of privacy, denial of a career advancement opportunity, and negligent performance evaluation.
EPLI policies are almost always written on a claims-made basis. An EPLI policy usually contains “shrinking limits” provisions; this means that any payments made by the insurance company toward defense costs—which are very often a significant part of a claim—reduce the policy’s limits.
The cost of an EPLI policy is dependent upon the size of your company. The more employees you have, the greater the risk and, consequently, the higher the premium. Small businesses with under 50 employees generally pay between $1,500-$3,000 per year for a policy. This amount of money pales in comparison to what your business could be liable for if a discrimination or harassment lawsuit goes to trial. In those occurrences, the median judgment is approximately $200,000 for employment lawsuits adjudicated by a court, while 25% of cases ended up with a judgment of $500,000 or more.
It should be abundantly clear to the prudent business owner: Taking out an EPLI policy is an absolute must in order to protect your organization against the possibility of prolonged, expensive lawsuits which could undermine and threaten the future and well-being of your enterprise.