Employment Practice

Employment practices liability insurance (EPLI) is a specific type of business insurance that protects employers against lawsuits initiated by employees.

If you own a small business, you probably already know the ways General Liability Insurance and Property Insurance can protect your business. But how well do you know Employment Practice Liability Insurance, or EPLI? If you employ other persons, an Employment Practices Liability policy is a helpful coverage in the event of employee claims against you and your business. This blog covers what EPLI is, why it is especially important to small businesses, and some of Layr’s employment best practices to help you minimize EPLI risk.

Employment Practices Liability Insurance provides protection for you as the employer against employee claims alleging discrimination, wrongful termination, harassment, and other employment-related issues, including failure to promote. Large companies typically have sufficient insurance in place to respond to these types of claims and have legal departments prepared to deal with employee-initiated lawsuits. However, new ventures and small companies are also at risk of employee-related claims and should prepare with the proper coverage.

Small Businesses are Especially Vulnerable

The reason new or smaller businesses run a similar risk of employment-related claims is simple: small businesses do not have formal processes and structures in place to prevent unwanted behavior. Because small companies usually lack a legal branch, a human resource department, and an employee handbook detailing policies and procedures regarding hiring, disciplining, and terminating employees, they are left exposed to lawsuits by their employees.

Even interviewing prospective employees can expose your business to employment risk. Let’s take this scenario as an example: your business interviews a candidate for new position. After interviewing the candidate in question, you decide to promote a current employee instead–it’s a better fit for your business. 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, as the business owner, you will need to retain an attorney and defend yourself and your company in court. As a small or new business, this kind of legal battle could cause serious financial setbacks to the growth of your business.

Employment Practices Insurance to the Rescue

The situation described above is just one example of many in which an Employment Practices Insurance policy would respond to protect your small business. Like all types of insurance, an EPLI policy contains a specific amount of coverage that can be allocated towards expenses like defense costs, which are usually the most substantial part of a claim.

However, financial protection is not the only benefit an EPLI policy offers. Many insurance carriers 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, such as the proper way to terminate an employee or how to correctly draft an 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. These types of questions can increase your chances for an age discrimination claim. Your business’s 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 persons you employ, 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).

Offered on a stand-alone basis or combined with an existing policy, employment practices liability insurance (EPLI) helps safeguard businesses against employee lawsuits alleging inappropriate or unfair acts. Even when done unknowingly, violating an employee’s (or contractor’s) rights can have devastating consequences. Former, current or potential employees who believe the employer has violated their legal rights can file lawsuits for a variety of reasons.

What Does EPLI Cover?

Available as a policy endorsement or stand-alone coverage, a few EPLI claims examples include:

  • Sexual harassment. The harassers can be senior managers, supervisors, co-workers or even non-employees.
  • Discrimination. This includes unfair treatment based on religion, age, ethnicity, gender, disability, skin color, sexual orientation or race.
  • Wrongful termination. According to the Equal Employment Opportunity Commission (EEOC), this is the most common claim brought against employers.

Other EPLI claims examples covered are a breach of an employment contract, negligent evaluation, failure to employ or promote, wrongful discipline, deprivation of a career opportunity, wrongful infliction of emotional distress and mismanagement of employee benefit plans.

While an essential coverage tool, EPLI policies are not all-encompassing. They commonly exclude criminal or civil fines, penalties or punitive damages, bodily injury and property damage claims, state unemployment insurance claims, workers’ compensation claims, and claims filed under the Fair Labor Standards and Occupational Safety and Health Acts.

Most EPLI policies will reimburse a company for the costs of defending a lawsuit in court, as well as for judgments and settlements. The policy usually covers legal fees, regardless of the suit’s outcome.

Trending Employment Practices Liability Claims

According to industry experts, retaliation and sexual harassment claims, gig worker classification, the gender pay gap and medical marijuana usage are among the top trending employment practices litigation cases in 2020. Moreover, the average cost of employment-related claims is rising, along with the length of time it takes to resolve a claim.

EPLI Trend #1: Retaliation Claims on the Rise

One of the more startling employment practices liability insurance statistics is that more than half of EEOC claims filed in 2018 involved claims of retaliation.

Action plan for employers:

  • Establish a policy against retaliation and educate teams
  • Implement a confidential process for managing complaints and communicating the anti-retaliation policy to complaining employees
  • Document everything

EPLI Trend #2: #MeToo Movement Results in Spike of Sexual Harassment Claims

Sexual harassment claims represented roughly one-third of all EEOC claims filed. This includes LGBT-based sexual harassment charges, which have risen steadily for the past five years.

Action plan for employers:

  • Develop clear policies against sexual harassment
  • Provide training to prevent sexual harassment
  • Create a company culture that does not support sexual harassment

EPLI Trend #3: Gig Economy Leads to Increased Wage and Hour Litigation Threat

Fair Labor Standards Act (FLSA) lawsuits increased dramatically over the last decade. Many of these lawsuits involve worker classification disputes.

Action plan for employers:

  • Be ready to prove that your workers are classified correctly
  • Keep up with new laws, such as AB5 in California
  • Use the FSLA Handy Reference Guide

EPLI Trend #4: The Gender Pay Gap Remains

Full-time salaried women earned 81% of what men earned in 2018, according to the U.S. Bureau of Labor Statistics.

Action plan for employers:

  • Create policies that help women succeed, such as flexible hours and parental leave
  • Develop mentorship opportunities for women
  • Provide equal pay

EPLI Trend #5: Marijuana Legalization Impacts the Workplace

As of January 2020, at least 11 states allow recreational marijuana usage and more allow medical marijuana.

Action plan for employers:

  • Keep up with new legislation on marijuana usage in your state
  • Review relevant laws before firing or not hiring workers over marijuana usage
  • Create drug policies that focus on maintaining a safe workplace

The Repercussions of an EPL Insurance Claim

The costs of an employee lawsuit can be emotionally and financially devastating. Beyond damaging a company’s reputation, an employment claim can lead to lower morale, diminished productivity, lost trust and thousands in legal expenses. In fact, the average cost for defending and settling employment law cases is $160,000 – enough to stagger any small business.

EPLI Coverage Statistics: A Big Concern for Small Businesses

Understanding your employees’ rights is paramount to protecting your business. During FY 2018, the EEOC resolved 90,558 charges of employee discrimination, securing $505 million for victims in both the private sector and government workplaces. More than 40% of EPLI-related lawsuits are filed against private companies with fewer than 100 employees.

Other notable employment practices liability statistics illustrate the importance of EPL insurance:

  • In FY 2018, the EEOC fielded over 200,000 inquiries regarding potential discrimination claims.
  • The EEOC received more than 7,600 sexual harassment charges in FY 2018.
  • The average cost of settling out of court for an employment claim is $75,000.
  • The average jury award for an employment-related case is $217,000.
  • The average duration of an employment claim spans more than 300 days.

Taking the following steps will help reduce your employment practices liability risk:

10 Suggested 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.

1. Review potential loss exposures with your insurance agent and purchase suitable EPLI coverage.

2. Create clear and well-documented job descriptions and conduct periodic written and in-person performance reviews with all of your employees.

3. Use employment applications without age-indicating questions like high school or college graduation date. These types of questions can increase your chances for an age discrimination claim. Your business’s application should also have an equal employment opportunity statement. Create and implement effective screening and hiring programs to avoid discriminatory hiring practices

4. 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.

5. 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.

6.Develop an employee handbook with access to an array of compliance-focused resources, including a dedicated website, sample employee handbooks and an HR forms library. For your protection, be sure your handbook includes an employment-at-will statement and an equal employment opportunity statement.

7. Create a detailed job description for each role. Each job description should clearly define the required skills and performance expectations.

8. Institute a zero-tolerance policy regarding substance abuse, harassment and any form of discrimination. Additionally, have an “open door” policy in which employees can report infractions without fear of retribution.

9. Post company policies in the workplace reinforcing your stance regarding unacceptable – and illegal – workplace behavior.

10.Document all employee complaints as well as what your company did to resolve those issues.

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