If you are a business owner, you probably already know that you need general liability insurance for your business or that you also need coverage for your property. However, may not be aware that if you have employees, you also need employment practices liability insurance. In fact, you might not even know what this type of insurance is.
Employment practices liability insurance, or EPLI, provides protection for you as the employer against claims made by your employees alleging things like discrimination, wrongful termination, harassment as well as other employment-related issues including failure to promote. Large companies typically have sufficient insurance in place to respond to these types of incidents and have legal departments prepared to deal with employee-initiated lawsuits. However, just because a company is small or a new venture doesn’t mean that they aren’t at risk as well.
Small Businesses are Especially Vulnerable
2016 Workplace Complaints
U.S. Equal Opportunity Employment Commission
The reason new or smaller businesses are at a similar risk for employment-related claims is simple; they lack the legal and human resource departments as well as an employee handbook detailing policies and procedures regarding hiring, disciplining, and terminating employees. As a result, they do not have processes in place to prevent unwanted behavior which leaves them exposed to lawsuits by their employees or prospective employees. In fact, as soon as you interview your first potential employee you are putting your company at risk for an employment liability claim.
You may be asking yourself how that is even possible if they are only a prospect and not an actual employee. Well, let’s say that you decided not to hire them because you found someone else with better qualifications. If that first individual was resentful enough, they could retaliate by claiming they were not hired as a result of discrimination on your part (age, race, gender, sexual orientation). Whether their claim is valid or not, the business owner will be need to retain an attorney and defend himself and his company in court. As a small or new business, you might not have the funds this type of legal battle would require and could face financial ruin before you even open your doors.
Employment Practices Insurance to the Rescue
The situation described above is just one example of many types of scenarios when employment practices insurance would step in and protect the employer. Like all types of insurance, the policy contains a limit or a bucket of monetary coverage that can be allocated towards things like defense costs which are usually the most substantial part of a claim. However, that is not the only thing this policy provides protection against. Many insurance companies offer free online support to help you train your employees, forms to help you with your policies and procedures, and free legal advice regarding employment law like the best way to terminate an employee or how to draft a proper employment agreement.
Employment Best Practices
In addition to putting the proper insurance coverage in place, there are additional steps you can take to help reduce your risk of both malicious and justified employee lawsuits.
- Review all potential loss exposures with your insurance agent so that they can recommend the proper amount of insurance coverage from the best carrier for your company.
- Develop an employee handbook establishing formal policies and procedures including attendance, discipline, and complaints. In the handbook, include employment-at-will and equal employment opportunity statements.
- Create clear and well-documented job descriptions and conduct periodic written and in-person performance reviews with all of your employees.
- Use employment applications without age-indicating questions like high school or college graduation date, as these types of questions can increase your chances for an age discrimination claim. The application should also have an equal employment opportunity statement.
- Implement an official zero-tolerance policy for discrimination, substance abuse, and all forms of harassment. Create an environment and processes where employees can report infractions anonymously or without fear of retribution.
- Regularly review the employment laws in the specific states your company operates in and consult an attorney regarding the laws when you prepare to hire your first employee.
So what does employment practices liability insurance cost? The premium you pay will depend on a variety factors including the total number of employees you have, if you have had any prior claims, and your turnover rate. Even the formal workplace rules and policies you have in place can be a factor. Finally, depending on the size of your company, EPLI can often be added as an endorsement to your current general liability policy (GL) or business owner’s policy (BOP).
If you’re a current UnBrokerage customer with employees and you don’t have this type of policy in place, we strongly suggest you open a support ticket requesting a quote. If you’re not a current customer and you’re interested in this type of insurance or any other type of business insurance, create a free account and learn how easy we make obtaining coverage.