Employee Practices Liability Insurance (EPLI) – Why is it Important?

In today’s litigious business environment, Employee Practices Liability Insurance (EPLI) stands as a crucial safeguard for businesses of all sizes. As companies navigate the complex landscape of employer-employee relationships, EPLI provides protection against claims arising from alleged wrongful acts in the management of these relationships. These claims can encompass a wide range of employment-related issues, including but not limited to wrongful termination, discrimination (based on sex, race, age, disability, etc.), sexual harassment, and retaliation. 

The modern workplace is characterized by a growing awareness of employees’ rights and an increasing willingness to pursue legal action when those rights are believed to be violated. This shift has resulted in a rise in employment-related lawsuits, which can be financially draining and damaging to a company’s reputation, regardless of the merit of the claims. Legal defense costs, settlements, and judgments can significantly impact a business’s bottom line and distract from its operational goals. 

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What is Employee Practices Liability Insurance (EPLI)?

EPLI serves as a critical layer of defense, offering financial protection by covering the costs associated with defending against, settling, or adjudicating claims.  EPLI can protect a business from the costs of defending a lawsuit in court. Regardless of the lawsuit’s outcome, EPLI can cover settlements and judgments. Common claims that EPLI protects against include: 

  • Wrongful Termination: Claims from employees who believe they were dismissed from their job for unjust reasons. 
  • Discrimination: Allegations of unfair treatment based on race, gender, age, religion, disability, or other protected characteristics. 
  • Sexual Harassment: Claims involving unwanted sexual advances, requests for sexual favors, and other verbal or physical harassment of a sexual nature. 
  • Retaliation: Complaints from employees who believe they were punished for performing an action that is legally protected. For example, reporting a violation of law or participating in an investigation. 

Importance of EPLI

The importance of EPLI stems from the increasing litigious nature of the work environment and the rising costs associated with defending against employment-related claims. Even if a business ultimately prevails in court, the cost of legal defense can be significant. EPLI helps businesses manage these risks by covering legal fees and any settlements or judgments. 

It can happen to anyone, including you. Over the past 20 years, employment practices lawsuits have risen 400%. It doesn’t just happen to large companies either. 41.5% of lawsuits are against small businesses, costing up to $200,000 if the case goes to trial. This could be detrimental, especially for small businesses.

Best Practices for Mitigating Risks

Businesses can take several steps to reduce the risk of employment-related claims, including: 

  • Clear Employment Policies: Developing and communicating clear policies regarding harassment, discrimination, and workplace conduct. 
  • Regular Training: Providing training for employees and managers on topics such as harassment prevention, diversity, and inclusion. 
  • Proper Documentation: Keeping detailed records of employee performance, complaints, and any disciplinary actions taken, which can be crucial in defending against claims. 
  • Workplace Culture: Promoting an inclusive and respectful workplace culture that values diversity and addresses employee concerns promptly and effectively. 

How EPLI Works

When a business purchases EPL insurance, the policy outlines the types of claims covered, the coverage limits, and any exclusions. It’s important for businesses to understand their policy details. This includes the deductible and whether the insurer provides legal defense or if the business can choose their attorney. In the event of a claim, the business notifies the insurer. The insurer then assesses the claim and determines whether it falls under the policy’s coverage. 

Understanding how your EPLI policy works and implementing best practices can significantly reduce a business’s risk exposure and help create a safer, more productive work environment. 

This image displays employees that should be protected through employee practices liability insurance.

Third-Party Employee Practices Liability Insurance

In addition to covering claims made by employees, Third-Party Employee Practices Liability Insurance extends protection to cover claims made by non-employees. For example, customers, vendors, or clients, who allege they have been wronged by an employee of the insured business. This coverage is crucial for businesses that frequently interact with the public or external partners. It protects against claims of discrimination, harassment, or other wrongful acts committed by employees against these third parties. Including Third-Party EPLI ensures a broader spectrum of protection. It safeguards against the financial and reputational risks associated with claims from outside the immediate workplace environment. 

Although these claims are less common than those made by employees, they are on the rise in recent years. We have seen a jump in the number of claims since the Me Too movement, as people are more comfortable coming forward and taking legal action against discrimination. Even if you fire an employee who commits crimes or discriminates against others, you and your business are still liable.

Integrating Third-Party EPLI into a business’s insurance portfolio offers a comprehensive risk management strategy, addressing the potential liabilities businesses face in interactions beyond their employee base. 

Purchasing a Policy Suited to your Unique Needs

In today’s fast-paced and legally complex business environment, protecting your company with Employee Practices Liability insurance isn’t just a choice—it’s a necessity. With the rising tide of employment-related lawsuits, ensuring your business is safeguarded against potential claims is more crucial than ever. TDA Insurance & Financial, an independent insurance agency, offers customized EPLI solutions that fit the unique needs of your business. 

Don’t leave your business exposed to the unpredictable waves of employment-related legal challenges. Let TDA Insurance provide the protection you need, so you can focus on what you do best—growing your business and nurturing a positive workplace culture. Our expert team is ready to guide you through selecting the right coverage, offering peace of mind with comprehensive protection tailored to your business’s specific requirements. 

Don’t wait until it’s too late! Take the next step towards securing your business’s future today at TDA Insurance & Financial.

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