What is Employment Practices Liability Insurance (EPLI)?

Regardless of why they arise, employment-related lawsuits can be every bit as expensive as they are frustrating. Not only that, but they're also on the rise - a trend that shows no signs of slowing down anytime soon.

Also commonly referred to as EPLI for short, employment practices liability insurance policies are designed to help shield business owners from these types of scenarios. But what are these types of policies, and why are they essential for the long-term success of your organization? The answers to those questions require you to keep a few key things in mind.

What is Employment Practices Liability Insurance?

As the name suggests, an employment practices liability insurance policy is one that will cover expenses that are related to lawsuits filed against your small business by an employee. They are designed for businesses that hire, manage, and terminate employees - so virtually all of them.

To that end, the answer to the question of whether or not you need an EPLI policy is a firm "yes, absolutely."

A lot of small business owners in particular don't realize that there are a lot of different situations in which an employee-related lawsuit might develop. These include but are certainly not limited to ones like:

• Instances where an employee feels as though they've been discriminated against due to gender, race, sexual orientation, and similar issues.
• Sexual harassment.
• Wrongful termination (meaning that you fired someone for a reason that wasn't allowed).
• A breach on behalf of the business owner of a pre-existing employment contract.
• A failure to employ or promote someone.
• A deprivation of career opportunity (meaning that you prevent someone from being able to advance in their chosen profession).
• Wrongful infliction of emotional distress.

These types of lawsuits can and often do happen and if you don't have your own employment practices liability insurance, you could be responsible for a significant amount of financial damages if things don't go the way you want them to in a court of law.

Why Do I Need Employment Practices Liability Insurance?

Perhaps the most crucial thing to understand about all of this is that if an employee files a lawsuit claiming some type of wrongful conduct like those examples listed above, EPLI will cover your legal expenses. If you don't have a policy, you're on your own. It really is as simple as that.

If you're new to the world of owning a business, it's also possible to be caught off guard by just how quickly those legal expenses can add up. You're talking about a myriad of different things, like:

• Attorney's fees (and, depending on how things go in court, you may be ordered to pay your employee's attorney's fees, as well).
• Settlement costs.
• Any legal judgments that have been lobbied against you.
• Administrative and other court costs can vary significantly depending on what court you are actually in.

Keep in mind that there is an increase in these types of claims every single year. Just because you have an excellent relationship with your employees today doesn't mean that this will always be true. If you hire, manage ad ultimately fire employees throughout the course of your own career, you need to make sure that you're protected.

To put it another way, just because you've never been in a car accident doesn't mean that you wouldn't get a car insurance policy. You want to be protected just in case something terrible happens. An employment practices liability insurance policy is ultimately no different for largely the same reasons.

How Can I Lower My Employment Practices Liability Risk?

Having said that, there are a number of steps you can take to lower your employment practices liability risk - thus lowering the amount you'll pay for a policy as well (and decreasing the chances that these types of lawsuits happen to begin with).

1. Set the Tone

A strong leader is a person who is capable of setting a tone for an entire organization:
They create and enforce comprehensive work policies that promote a positive and constructive working environment.

2. Be An Example

You have to lead by example. If you don't want to operate a business where discrimination runs rampant, show people through your actions that this type of behavior will not be tolerated.

3. Follow Your Own Rules

There are certain things that are common sense that people already know they shouldn't do - with sexual harassment being one of the prime examples. But still, if you want people to follow all of your rules to a tee, it stands to reason that they need to know what those rules actually are.

4. Maintain Policies and Procedures

It is imperative that an employee handbook is updated and maintained on a regular basis as your company's policies and procedures continue to evolve. Doing this can be a great way to mitigate the type of risk that you're exposed to on a regular basis, thus reducing the chances that you'll have to deal with employment-related lawsuits moving forward.

In the End

Overall, there has been an exponential increase in EPLI lawsuits over the last two decades. On the one hand, this is a good thing as people who violate these types of rules can and should be held accountable. On the other hand, even if you're doing absolutely everything you should, things may not go your way - which is what an employment practices liability insurance policy is designed to protect against.

Employers need to remain vigilant when it comes to protecting themselves against discrimination claims in particular, and this is by far one of the best ways in which to do it.