Do small businesses need employment practices liability insurance (EPLI)?

EPLI is a type of small business insurance that helps you pay for lawsuits related to workplace discrimination and harassment.

The United States has several federal laws that make it illegal for employers to treat prospective, current, and former employees differently based on their sex, color, race, ethnicity, age, religion, or disability.

Most of these laws technically only apply to businesses with 15 or more employees. The Equal Employment Opportunity Commission (EEOC) may not be able to intervene when microbusinesses are involved, but employees still have the right to sue your business for discrimination and harassment issues on their own. Additionally, most states have their own employment laws, some of which apply to smaller businesses.

Employment lawsuits are often among the most expensive disputes to settle and litigate. In wrongful termination cases, for example, former workers can sue for back pay – their whole salary – and there is no cap on these damages.

Below, we take a closer look at the types of businesses that may benefit from employment practices liability insurance.

To be clear, any business can be sued for workplace discrimination and harassment allegations.

According to the Conflict Solutions Center, a California-based nonprofit that specializes in workplace mediation services, managers and supervisors spend 30 to 40% of their time dealing with workplace conflicts. Sure, you can prevent hiring and firing discrimination by following EEOC guidelines. And you can intervene when you’re notified that an employee is harassing another employee. But what if:

• Communication breaks down and you remain unaware of the conflict?
• A supervisor is harassing an employee, making it difficult for the victim to report the issue?
• Despite your risk management strategies, an employee feels she was passed up for a promotion for discriminatory reasons?

The Conflict Solutions Center notes that the average cost to litigate an employment practices claim is $160,000. That doesn’t include settlement or judgment costs. The average amount of punitive damages awarded in employment cases? $2.7 million.

You can start to see why employment practices liability insurance may be worth your while.

Still, EPLI may not be right for all small businesses. For example, it doesn’t make sense for business owners to carry EPLI if they don’t have any employees. And microbusinesses with only one or two employees can probably hold off on coverage.

Additionally, your industry may have some bearing on whether or not EPLI is right for you.

Complete Insureon’s easy online application today to compare insurance quotes from top-rated U.S. carriers. Once you find the right policy for your small business, you can begin coverage in less than 24 hours.