Young Business man insurance agent take a look at employment liability insurance policy (EPLI)

Your Small Business’s Guide to Employment Practices Liability Insurance (EPLI)

What is EPLI?

In simple terms, workers’ compensation covers physical injuries and illnesses whereas EPLI is for claims that an employee’s rights have been violated.

Additionally, business owners are required to purchase workers’ compensation insurance for their employees. If a business employs one or more employees, workers’ comp is required under California Labor Code Section 3700.

EPLI, on the other hand, is not. This results in many business owners opting out of EPLI because they believe all issues with employees will be covered under workers’ comp; however, this is not the case.

Learn more in our full guide to worker’s comp for small business owners.

It’s important to note that EPLI is a type of professional liability insurance and provides coverage in entirely different situations than workers’ comp.

What Does Employment Practices Liability Insurance Cover?

EPLI can cover lawsuits over employee allegations of:

  • Sexual harassment
  • Discrimination
  • Retaliation
  • Wrongful termination or demotion
  • Mismanagement of benefits
  • Defamation
  • Breach of employment contract
  • Negligent evaluation
  • Failure to employ or promote
  • Wrongful discipline
  • Deprivation of career opportunity, and
  • Wrongful infliction of emotional distress

What Isn’t Covered by EPLI?

As with any insurance policy, EPLI has some exclusions and limitations. Generally, EPLI doesn’t cover claims for:

  • Bodily injury
  • Intentional acts (assault, battery, criminal conduct), and
  • Privacy violations 

Additionally and perhaps most importantly, EPLI protections almost always exclude wage and hour claims or only provide limited coverage to include defense costs, not repayment of back wages.

Wage and hour-based claims include claims relating to:

  • Overtime
  • Minimum wage
  • Rest and meal periods, and
  • Bonuses

Why Your Small Business May Face an EPLI Claim

Approximately 3% of businesses with fewer than 50 employees purchase EPLI. Many small-business owners are unaware that EPLI coverage exists, or they decide that coverage is optional or too costly.

In addition, many businesses owners make the mistake of assuming they don’t need EPLI because:

  • All issues with employees will be covered under workers’ compensation insurance, and/or
  • Employees would never sue them or their business

However, both of these assumptions are false and can be costly mistakes for business owners to make.

Now, let’s discuss some situations in which a business owner may face an EPLI claim.

Do I Need Employment Practices Liability Insurance?

Any small-business owner with employees should consider investing in employment practices liability insurance. However, EPLI is especially important for industries with high rates of employee turnover.

Why? Small businesses are at higher risk of EPLI claims.

Small Businesses are at Higher Risk of EPLI Claims

While all businesses should invest in EPLI coverage, small businesses need this protection the most. Why? In general, smaller businesses face a greater risk of employment-related lawsuits for several reasons.

These reasons may include but are not limited to:

  • Small businesses may not have a designated human resources (HR) department
  • Small businesses may not have detailed records of employee performance and strict guidelines that govern the hiring and firing processes, and/or
  • Small businesses have a smaller staff and often closer relationships among the team, resulting in more emotional reactions when an employee is laid off or fired

What Happens If I Don’t Purchase Employment Practices Liability Insurance?

It’s wise to buy basic EPLI coverage if your business can afford it. Businesses that choose not to purchase EPLI face a range of risks.

For instance, the average U.S. company faces a 10.5% chance of having an employment claim filed against them. Further, the probability can increase to more than a 50% chance in some states, like California and New Mexico.

According to Nerdwallet, events including the #MeToo movement “and increased media attention to workplace discrimination have led to an increase in employee claims against all types of businesses.”

“The average claim takes 318 days to resolve and costs $160,000, so insurance can be critical to your business’s survival.”

Looking to Purchase Employment Practices Liability Insurance?

Small business owners already have a lot on their plates. They shouldn’t also have to worry about purchasing the correct employment practices liability insurance, too.

At Apex Risk & Insurance Services, we use The Apex Proven Process to learn about your business, strategize to assemble the right program for you, and use our deep industry and market knowledge to leverage the best pricing and coverage.

This leaves small business owners with more time to do what they do best: Run their business knowing that their company and employees are protected.
Check out our commercial insurance policies, then, read on to learn how to protect your business from cyberattacks (another big risk small businesses face!)