Employment Practices Liability Insurance Guide

Why You Need Employment Practices Liability Insurance


During fiscal 2016, the Equal Employment Opportunity Commission (EEOC) filed over 90,000 discrimination charges. This stat doesn’t include the vast number of claims the agency handed off to private attorneys due to political priorities and other factors. Almost half these claims alleged some form of retaliation. Furthermore, in fiscal 2016, the agency collected over $482 million from American companies in either conciliated or litigated settlements. The amount doesn't include hiring attorneys’ fees and litigation expenses that defendants commonly endure in these cases.

Because the EEOC is ready to go to the mat for almost any worker that has a reasonable discrimination case, now is the time to review your Employment Practices Liability Insurance (EPLI), because you certainly don’t want to call your insurance agent and get bad news the day after you receive a complaint.

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What is EPL Insurance?


EPLI applies to claims that arise under Title VII of the Civil Rights Act or any related legislation. Some common issues include:

  • Age: A 2009 Supreme Court decision made cases brought under the Age Discrimination in Employment Act harder to win, so the EEOC had been shying away from them. However, in March 2016, Texas Roadhouse paid $12 million to avoid an ADEA trial, so agency attorneys may now "smell blood in the water."
  • National Origin: Many EEOC claims in this area involve English-only workplaces. The law is a little confusing, because courts allow such policies in some circumstances and disallow them in others.
  • Religion: Some faiths require their members to abstain from certain behaviors, wear certain clothes, or observe certain holidays. Unless the employer has a really, really good reason for doing otherwise, accommodations are almost mandatory in these instances, and lawsuits result when they aren’t granted.
  • Gender: This area is unsettled as well, as the lower appeals courts are split as to whether Title VII applies to sexual orientation, a category that includes transgender persons. A 1989 Supreme Court case, which barred gender stereotyping, may be controlling. In the meantime, the EEOC still files claims under the gender discrimination title.
  • Pregnancy: Paternalistic pregnancy cases are the new thing under the Pregnancy Discrimination Act. If Company X takes a pregnant woman off the production line because the chemicals may be dangerous to expecting women, Company X arguably violated the PDA and will almost certainly lose at trial.

EPLI also applies in some non-discrimination cases, such as wrongful termination or failure to promote.


Who Needs Employment Practices Liability Insurance?


In our litigious environment, there are many instances in which Employer Practices Liability insurance is required.

Potential trouble starts the moment an applicant walks in the door or visits the “Careers” section on the website. There are many illegal interview questions, and the applicable law may vary among different office locations. For example, some local and state governments have passed “ban the box” legislation that prohibits questions about criminal history on initial applications, yet in some other areas, these questions are perfectly okay.

During employment, rogue managers are often an issue. If someone makes an inappropriate comment within earshot of an offended worker, the company is usually liable. Most EPL insurance policies cover these incidents.

Finally, former employees do not waive discrimination complaints by accepting a severance package or signing a waiver, at least in most cases.


Employment Practices Liability Insurance Examples


We’ve already looked at some common direct discrimination cases. Another notable issue is that many of these matters can involve either disparate treatment (making decisions based on illegal discrimination), or disparate impact (a nondiscriminatory decision that has an unintended discriminatory effect).

Retaliation is by far the most common allegation in EEOC claims, and it can take several forms:

  • After Sue complains that her manager sexually harassed her, upper management moves her to another shift to keep her away from the alleged abuser. If Sue does not earn as much in tips during her new shift, she probably has a valid retaliation claim.
  • The same analysis applies if John’s boss made racist remarks and management moves John to another location that’s much further from his home.
  • Some retaliation claims are even easier to prove. For example, the company fired Sue or John for complaining after it performed an investigation which the EEOC deemed inadequate.

EPL insurance covers all these incidents, regardless of employer culpability or lack thereof.


Additional EPLI Coverage


On top of the financial coverage mentioned above, most of these risk management policies provide access to resources as well.

Nearly all EEOC settlements — whether they happen in the pre-suit conciliation process or at trial — involve consent decrees. The court management usually lasts at least a year or two. EPL insurance assists with compliance, because it’s not unusual for the EEOC to bring companies that violate even technical gibberish in consent decrees back to court.


Employment Practices Liability Insurance (EPLI) Cost


To determine risk, most underwriters look at organizational size and structure. Obviously, the more workers that a company has, the more likely it is that one of them will find some discriminatory basis for a lawsuit.

Many insurance companies have set price points, so a firm with fewer than 20 workers is a level one, 21 to 50 workers is a level two, and so on. A risk management analysis is usually performed once a year or whenever the policy goes up for renewal.

Some organizations are nose-to-the-grindstone places where employees rarely venture beyond their cubicles to interact with each other, and while there is still a great need for EPL insurance in these environments, these situations do tend to mitigate the rogue manager element mentioned above. Conversely, if workers are constantly interacting with shift managers, there is more potential liability.


Tips for Preventing Employee Lawsuits


The subheading is a bit of a misnomer, because anyone who can come up with the filing fee can sue anyone for any reason. However, there are some ways you can minimize risk and thus decrease (or maybe even eliminate) an EPL insurance claim.

Have a comprehensive handbook and never deviate from its policies. Take care that your handbook is one that the National Labor Relations Board — another persnickety employment discrimination agency — will approve.

The main area is complaint investigation. Take all employment discrimination complaints seriously, and launch a thorough investigation that gets quickly resolved. Your EPL insurance agent will be quite pleased if you do, because the EEOC is much less likely to pursue the claim under these circumstances.

At Embroker, it’s our mission to connect businesses with the right EPLI, so chat with us to learn more about your EPLI insurance needs.

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P.S. Check out our blog or our Insurance Guide Section to learn even more.

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