Most small business owners know about the popular insurance policies out there: General Liability, Property Insurance, even Workers’ Compensation. But there are countless insurance coverages that small and large businesses buy to mitigate all kinds of risks. One of these forms of insurance protects the business from lawsuits by its employees (and prospective employees), and it is called Employment Practices Liability Insurance.
Employment Practices Liability Insurance (or EPLI, for short) is a liability insurance, meaning it covers legal costs and the various expenses your business might incur during litigation of a lawsuit. What kind of lawsuits? Let’s review two examples.
If a manager you newly hired harasses one of your employees while on the job, the employee is well within his/her rights to sue both the manager and your business. Your business, as a legal entity, can be found at fault for the actions of any of its employees while they are working on the business’s behalf. Even if you promptly fire the new manager and issue an apology to the employee, and otherwise follow every line in your employee/employer handbook to the letter, you are still vulnerable to being sued.
In this case, having EPLI will protect your business from the financial backlash of such a lawsuit, even when your business is (technically) at fault.
Alternatively, the accusations being made against your business could be baseless, and you may still need to defend it in court. For example, let’s say you interview two highly qualified prospects for a job opening at your business, and after much deliberation about which person would be a better hire, you and your managers select one to offer the job to first, and he/she accepts.
A few days after calling the other prospect to deliver the bad news, you receive a summons in the mail to appear in court on behalf of your business: you are being sued by the rejected applicant for discrimination on the basis of race (or gender, sexuality, creed, etc.). You get no response when you try to reach out to the applicant and assure them that unfair and illegal discrimination was never a factor in the decision process for filling the position. You’re going to have to defend your business in court.
In cases like this, EPLI still protects your business from the legal costs, damages for which you are found liable, and other related fees throughout the litigation process.
EPLI has a wide price range based on the number of employees you have and the number of new hires you make each year, but most policies cost between $800 and $3,000 annually, with the average sitting around $1,200. In return, EPLI policies generally provide reimbursement of costs up to $10,000 (for smaller policies) or up to $25,000,000 (for the largest policies).
But are those costs worth it? Well, it’s very hard to predict whether your business will be targeted by a lawsuit. It’s worth keeping in mind that employee and potential employee lawsuits are more popular every year, and the cost of not having EPLI can quickly outweigh the cost of the insurance if a lawsuit shows up on your doorstep. Even cases that are dismissed have an average cost of $15,000 in legal fees. That is the cheapest outcome if your business goes without EPLI insurance.
Speak with a licensed agent, such as AP Intego, to determine whether or not your business needs EPLI protection.