Protecting Your Company with Employment Practices Liability Insurance
Dan Levenson August 13, 2015
Being a business owner is an immense responsibility. Providing valuable services, paying comparable wages, having a well-trained staff, and organizing written procedures are among the many obligations on your plate.
Despite your best efforts, a wide variety of unexpected situations may arise—and legal action might be one of them. In the event that you are facing legal issues, protecting your company with Employment Practices Liability (EPL) provides coverage for your assets and maintains the respectable name of your company.
Imagine, for example, you run a computer staffing and technology company that places IT professionals at client sites. You may utilize recruiters, and many times those recruiters are offshore. One day, a recruiter tells a prospective temp employee that she is not eligible for a job installing new desktop computers at a client site because, as a woman, she probably can’t lift a computer. The female applicant then files a discrimination lawsuit against your company. The lack of proper training of the recruiter has put you in a potential legal dilemma.
In a situation like this, you would be fortunate to have an employment practices liability policy. This coverage will provide the legal aid you need, as well as the potential claim award.
That’s much better than slogging through the legal process with your own money, isn’t it?
Defining Employment Practices Liability
Employment practices liability is a professional insurance that deals with the proper application of laws and protections required in the workplace. Having EPL enables an employer to deal with various employment-related lawsuits, such as the one described above.
Although laws differ from state to state, as an employer, the key factor to keep in mind is that there are both federal and state statues that govern your liability to your employees.
EPL covers the following areas:
- Wrongful termination
- Sexual harassment
- Invasion of privacy
- False imprisonment
- Breach of contract
- Emotional distress
Regardless of the type of industry you are in, what you don’t know may prove detrimental to your company. Establishing an agreeable and operative work environment requires the employer staying abreast of what is acceptable behavior conducive to the workplace. Whether you have a small or large organization, some level of liability is strongly recommended in the event that unfavorable situations occur.
Small or new businesses often fall prey to employment claims because they lack a legal department or a handbook outlining workplace policies and procedures for employee hiring, disciplining, or termination, whereas larger corporations are able to handle practically any form of lawsuit.
How the Laws Affect the Employer
Numerous laws are in place to ensure the rights of the people you hire or are considering hiring. Over the years, the following Acts have prohibited discrimination and established the work environment guidelines as a result of employee/employer disputes that led to lawsuits.
- Civil Rights Acts – prohibits discrimination based on race, color, religion, national origin, and sex. It also prohibits sex discrimination on the basis of pregnancy and sexual harassment.
- The Equal Pay Act of 1963 – prohibits employers from paying different wages to men and women who perform essentially the same work under similar working conditions.
- The Immigration Reform and Control Act of 1986 – prohibits discrimination on the basis of national origin or citizenship of persons with authorization to work in the United States.
- The Americans with Disabilities Act of 1990 – prohibits discrimination against persons with disabilities.
- The Age Discrimination in Employment Act – prohibits discrimination against individuals who are age 40 or older.
- The Civil Rights Act of 1966 – prohibits discrimination based on race or ethnic origin.
Understanding The Risks
From the moment you interview a prospective employee, you are at risk of an employment claim being filed against you or your company. For example, a potential applicant can allege that some form of discrimination is at play simply because they were not hired.
With employee privacy laws increasing, concern for employee information being electronically stored and easily accessed is also cause for concern. An example is the hiring of a candidate who is later fired due to inappropriate email usage; that employee could allege that his/her privacy was invaded.
The Cost For Coverage
The cost for employment practices coverage depends of numerous factors, such as the number of employees you employ, prior suits against the company, the employee turnover percentage, and if you have established rules and practices in the workplace.
EPL coverage is usually written on a claim-made basis. This means that the incident resulting in the claim had to occur during the coverage period. Having employee practices liability decreases the chances of becoming a target is facing a lawsuit.
This is just one of the many types of insurance you can secure to make sure that your company runs smoothly and avoids the possibility of a catastrophic loss. For more information about the other types of insurance you may want to consider, check out our free guidebook, Insurance For Businesses 101: What Are The Options And Who Are They For?