Employment Practices Liability Insurance – Is Your Business Protected?

Do you have $125,000 I can borrow?

According to the Insurance Journal, $125,000 is the average cost a small to mid-sized business can find themselves paying in an employee lawsuit between settlements and/or defensive measures.

Running a business can be very difficult.   Most businesses fail before they get off the ground.  If you’ve made it this far, you’ve probably taken several precautions to protect your business’ reputation and bottom line. One way to protect it further is with an Employee Practices Liability  (EPL) Insurance Policy.

To help you protect your business, I’ll be dedicating plenty of newsletter real estate over the next several issues to EPL coverage, diving deep into the topic so that you fully understand not just what it is but what it means to your business. But first, let’s start with the basics.

What is Employment Practices Liability Insurance?

In its simplest definition, EPL coverage protects employers from liability for wrongful employment practices. Should an employee file a lawsuit against your business, EPL can mean the difference between dealing with a bump in the road or the financial demise of your business.

Let’s take a step back in time to the early 90s. In between internet dial-ups, episodes of Beverly Hills, 90210, and Y2K prep, the government was working on legislation designed to protect employees and provide fair and safe work environments. The result was the Civil Rights Act of 1991. Though important and revolutionary, its passing opened the doors to a wave of lawsuits, some credible and some not.

By the mid-90s, EPL policies began to substantially grow in popularity as businesses learned first-hand that a single incident could be disastrous without protection. But even after more than 20 years, there are still plenty of businesses that leave themselves vulnerable, whether it be a conscious choice or due to a lack of information.

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What Does EPL Cover?

The inner workings of an EPL policy all focus on what are known as “wrongful acts” in the business world. An adequate policy will cover the most common “wrongful acts,” including:

  • Wrongful termination
  • Discrimination
  • Harassment
  • Negligent hiring and supervision
  • Failure to hire/promote
  • Defamation
  • Invasion of privacy

EPL covers lawsuits brought on by current employees, but also other possible litigation originators, such as:

  • Former employees
  • Individuals who interview for a position
  • Independent contractors
  • Customers
  • Vendors

Do you think your business is safe from legal trouble? Here are just some scenarios I’ve come across in which EPL coverage could have been used.

Interview gone wrong

A business owner is conducting several interviews for a new position. After making their selection, one of the interviewees sues for discrimination, saying that their skills were an exact match for the position and they were turned down for discriminatory reasons.

Discrimination suits aren’t limited to current employees. Potential and former employees can also sue.

Pricing dispute

A group of friends are planning a weekend trip. The three families book hotel rooms for the same nights and at the same hotel. However, after checking in, the two white families are charged noticeably less than the African American family. Though the discrepancy is blamed on a misinformed employee, the overcharged family sues the hotel for discrimination.

An honest and simple mistake can still offend. Employees that are uninformed about new pricing or policies can cause serious issues.

Overlooking federal laws

A veteran enters a grocery store with his service dog, trained to assist with his PTSD. The manager of the store demands the man and his dog leave as he believes the canine presents a health hazard. The veteran sues for violation of the Americans with Disabilities Act.

Not fully knowing and understanding acts and laws can result in reputation-damaging lawsuits.

Employee error

An employee hears an off-color joke and sends it off in an email to another coworker. The recipient goes to reply but hits the wrong button and forwards the email to the entire staff. Though an apology is issued, a small group of employees file a suit claiming they work in a hostile environment, using the email as one piece of evidence.

A poor judgement call by an employee can hit your business in the worst way.

Contract breach

A restaurant supplier signs a one-year contract with a restaurant, being promised they will be their sole product provider. However, six months into the year-long agreement the restaurant finds a less expensive provider. They cancel the contract and the supplier sues for Breach of Contract.

It’s not just employees or customers that can sue. If someone is involved with your business in any way, they can bring a lawsuit against you.

The list of potential scenarios if virtually endless. If you’re a business that either hires people or works with people (that’s my professional way of saying everyone), my upcoming EPL coverage series is exactly what you need to become informed and find protection.

Does My Business Need EPL Coverage?

EPL is not legally required in any state. It is a completely optional policy.

But this doesn’t mean it’s not a necessary policy.

One of the most common reasons I hear from business owners who turn down EPL coverage is that they know they’ll never need it because they play by the rules.

But here’s the thing.

It doesn’t matter if you’re the Saint of Business Conduct. While your company is innocent until proven guilty, the stigma alone that a lawsuit could bring against your brand and reputation could be devastating.

At the same time, if you are a walking lawsuit, the cost of either settling or fighting compensation can put you out of business in a New York minute.

If a lawsuit greeted you at your desk in the morning, would you be prepared?