If a business is sued by an employee over wrongful termination or another violation of employee rights, employment practices liability insurance (EPLI) can pay for legal costs.
Employment practices liability insurance (EPLI) protects your small business when a worker sues over employment-related issues.
Sometimes referred to as “EPL insurance,” this policy covers your legal defense costs when an employee or group of employees claim their civil rights were violated or they were unable to complete their work in a fair environment.
Even when you've done nothing wrong, a frivolous lawsuit can still prove costly, which is why all businesses with employees should consider this coverage.
If an employee sues over wrongful termination, sexual harassment, equal pay, or another violation of employee rights, employment practices liability insurance helps pay for your legal costs.
This includes the risk exposures you might face if an employee files a complaint with the Equal Employment Opportunity Commission (EEOC), or a lawsuit involving the Family and Medical Leave Act (FMLA).
Specifically, your EPLI policy provides coverage for:
Employment practices liability insurance protects your business if you improperly manage employee benefits, including health insurance, paid time off, and sick leave.
EPLI provides protection if your business is sued over sexual harassment in the workplace. For example, if an employee complains to HR about a manager's suggestive remarks but no action is taken, your business could face a lawsuit.
EPLI coverage will help protect you if an employee alleges wrongful discipline, demotion, or termination. It protects against accusations of negligence related to hiring and promotion, as well.
While slander or libel charges coming from non-employees are covered by general liability policies, EPLI coverage offers protection for employee claims of defamation.
Employment laws prevent businesses from discriminating against workers based on age, gender, religion, race, or other protected classes. Companies that violate these rules might face a lawsuit.
When your company makes a candidate a job offer or hires a contractor, it is obligated to adhere to the terms of the agreement that both parties signed. Failing to do so could result in a lawsuit.
When monitoring your business, take care not to cross the line into violating employee privacy or you risk a lawsuit.
If an employee at your business behaves in a way that causes another worker to suffer and you take no action, you could be held liable.
While EPLI is not mandatory by law, every business with employees should consider carrying this policy. Even at a small business, an employee conflict could lead to a costly lawsuit.
Regardless of whether you win in court, you'll still be responsible for costly legal fees, which is why employment practices liability insurance is so important.
Good candidates for EPLI coverage include the following types of businesses:
A manager at a fast food restaurant regularly makes suggestive remarks to a cashier and follows up with unwanted advances. The employee complains to HR, but no action is taken. The cashier files a lawsuit against the restaurant for failing to prevent the harassment.
An older employee who has worked on the assembly line at a beverage manufacturing plant for over a decade is passed over for a promotion, which is awarded to a new, younger employee. The worker sues the factory for age discrimination.
A doctor makes crass jokes in the office, usually at the expense of a receptionist. When the HR department does not take their complaint seriously, the receptionist sues the business for sexual harassment.
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While EPLI is an important part of risk management when you have employees, it does not provide all the protection you might need. For instance, your policy does not include coverage for:
Workers' compensation insurance covers work-related injuries and illnesses. It helps pay for medical bills and provides disability benefits while an employee recovers.
Employer's liability insurance, typically included in a workers' compensation policy, covers legal costs if an employee sues over a work injury or illness.
General liability insurance covers legal costs if someone outside your business accuses you or an employee of slander, libel, or another advertising injury.
Professional liability insurance, also called errors and omissions insurance (E&O), covers legal costs if your business is accused of professional negligence. It also covers missed deadlines and work mistakes.
While EPLI covers negligence in terms of hiring and other employment practices, professional liability covers negligence related to the work performed by your business. Another difference in employment practices liability vs. professional liability is that the lawsuits come from employees, not clients.
Review answers for frequently asked questions about employments practices liability insurance.
Employment practices liability insurance is a claims-made policy, which means that a claim is covered only if your policy is active both when the incident occurred and when the claim is filed.
For example, your house painting business is forced to close, so you cancel your EPLI coverage. A few months later, a former employee sues you for discrimination, but since you no longer have an EPLI policy, the insurer likely won’t pay for lawsuit costs. Note that in some situations, you may be able to extend a policy beyond its original end date.
Unfortunately, employment-related claims are both common and costly. You're actually more likely to be sued by an employee than you are to have a fire at your office – even though more businesses carry insurance to protect against the fire, not the lawsuit.
The risk increases for businesses that are too small to have a human resource team. Businesses with a small staff often lack the time, energy, and expertise to resolve employee disputes before they become legal issues.
Employee lawsuits can devastate your reputation and finances. The Massachusetts Commission Against Discrimination gives examples of employment liability cases:
EPLI coverage keeps you from paying these high costs out of pocket. It can cover any legal defense costs, including a settlement or judgment if an employee presents a valid claim.
Bundles usually cost less than purchasing standalone coverage, and with EPLI you may have a few options depending on the carrier.
Small businesses can often bundle employment practices liability coverage with directors and officers insurance (D&O), another type of management liability insurance. D&O protects a business’s board members and officers against lawsuits over decisions they made on behalf of the company that resulted in financial loss.
Together, these two types of management liability insurance provide a broad base of protection against liabilities related to hiring and firing, employee rights, investment decisions, and employee benefits.
While businesses often purchase EPLI with D&O insurance, they also have the ability to add EPLI as endorsement to other policy bundles, such as a business owner's policy (BOP) or commercial package policy (CPP).
Most EPLI policies include a deductible, which is an amount that you pay out of pocket toward legal costs before an insurer contributes.
Some policies limit coverage during acquisitions or major staff reductions. Others stipulate that the insurance company will choose your attorney if a claim is filed, usually because the insurer wants a lawyer who has expertise with relevant cases.
Employment dispute lawsuits can be expensive, so keep that in mind when choosing your policy limits and options for what EPLI covers.
Employment practices liability insurance covers lawsuits related to employment practices. Employer’s liability insurance helps pay for lawsuits over employee injuries.
Both policies protect business owners from employee lawsuits, which can cost your business more than $125,000. However, employer's liability insurance is a separate insurance policy that protects your business from legal defense costs if an employee claims your business's negligence caused their injury or illness.
Unlike EPLI, employer’s liability insurance is typically included in workers' compensation insurance.
Employment practices liability insurance offers protection for when an employee sues your business over their rights, but it doesn’t provide coverage for other common risks. Small business owners should also consider:
General liability insurance: This policy can pay for expenses related to client injury and property damage, along with accusations of slander.
Business owner's policy: A BOP bundles general liability insurance with commercial property insurance, often at a lower rate than if the policies were purchased separately.
Professional liability insurance: Also known as errors and omissions insurance, this policy can help cover legal expenses if a nonprofit is sued for unsatisfactory or negligent work.
Directors and officers insurance: D&O insurance protects board members and officers if they are sued for a decision they made on behalf of your nonprofit that led to financial loss. Both D&O and EPLI are types of management liability insurance.
Workers’ compensation insurance: Required in nearly every state for businesses with one or more employees. Workers’ comp can cover medical costs for work injuries.