Employment Practices Liability Insurance

Embroker helps you get employment practices liability insurance (EPLI) to provide coverage for claims made by employees alleging discrimination (based on sex, race, age, disability), wrongful termination, harassment, and other employment-related issues.


What Is EPL Insurance?

EPL is designed to mitigate exposure to employment-related lawsuits and protects businesses from claims made by employees against employers regarding a violation of their legal rights. To better understand EPLI, we need to discuss employment law. Chiefly, the coverage applies to claims that arise under Title VII of the Civil Rights Act

In addition, there are several more legal acts and regulate U.S. employment, such as:

  • The Equal Pay Act of 1963, prohibiting paying different wages to men and women for performing the same work.
  • The Civil Rights Act of 1966, prohibiting any discrimination based on race or ethnic origin.
  • The Immigration Reform and Control Act of 1986 prohibiting employers from discriminating based on the national origin of employees authorized to work in the United States.
  • The Americans with Disabilities Act of 1990 prohibiting discrimination against persons with disabilities.
  • The Age Discrimination in Employment Act prohibiting employers from discriminating against individuals who are age 40 or older.

In 2018, the Equal Employment Opportunity Commission (EEOC) secured approximately $505 million for over 67,860 victims of discrimination in the workplace. According to the federal agency, 72,675 workplace discrimination charges were filed in 2019.

The obvious takeaway from these statistics is that the EEOC is very prepared to investigate employee allegations of discrimination, which is why EPL insurance is so important today for businesses of all sizes.

The most common employment-related allegations involved sex, age, national origin, religion, and color.

Some common discrimination 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, which shows that there is no guarantee when it comes to which types of claims agency attorneys may want to proceed with in the future.
  • 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 have increased under the Pregnancy Discrimination Act. In 2020, Rainbow USA, Inc., a specialty apparel chain doing business in the Chalmette, Louisiana area, agreed to pay $11,000 in back pay to settle a federal pregnancy discrimination lawsuit after a junior assistant manager in her first trimester of pregnancy was indefinitely suspended and fired two days later after the company learned of her pregnancy-related restrictions.

EPL also applies in some non-discrimination cases, such as wrongful termination, failure to promote, and wage & hour disputes. Some common non-discrimination issues include:

  • Wrongful Termination: According to FindLaw, “a wrongful termination is any firing that is done in violation of federal, state, or local laws; the terms of an employment agreement; or for reasons that go against public policy.” In addition to discrimination, this may include harassment, retaliation, breach of contract, breach of good faith, breach of fair dealing, etc.
  • Failure to Promote: A failure to promote claim can arise if an employee is passed over for a promotion in violation of state or federal law. For example, an employee may be eligible for damages if the failure to promote related to discrimination. A very well-known example of this type of claim is the lawsuit between Tina Huang and her former employer Twitter.
  • Wage and Hour: Wage and hour claims typically allege loss under the Fair Labor Standards Act (FLSA). Examples of such claims are employee misclassification, which usually involves failure to pay overtime to employees who are eligible under law to receive overtime pay, and pay practices violations, which comprise a wide range of claims that do not involve misclassification, such as not allowing employees to take meal or rest breaks, improper deductions from wages, and not paying employees on a timely basis. Virtually every employment practices insurer routinely excludes coverage for this category of claims, because wage and hour claims are often incredibly expensive. However, Embroker’s proprietary policy automatically includes $200,000 of defense costs with every policy, off the shelf and with no need for negotiation.

It’s also important to note that EPLI is often combined with D&O insurance to form uniform coverage, called management liability insurance. Typically merging the two coverages leads to smaller premiums and fewer gaps in coverage for businesses. 

Additionally, smaller businesses concerned about the cost of their employment practices liability insurance can consider adding the coverage as an endorsement through their BOP policy. Keep in mind that standalone EPLI coverage will offer considerably greater limits and broader coverage.

Who Is It For?

In today’s litigious business environment, there are many instances in which employment practices liability insurance is required.

Employment-related risks start the moment an applicant walks in the door or visits the “Careers” section on your 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 fine to ask.

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 policies cover these incidents.

Not only that, but former employees do not waive discrimination complaints by accepting a severance package or signing a waiver.

So, if you’re still asking whether you need EPL or not, the answer is that you probably do.

Does your business perform any of the following actions?

  • Hire or fire employees
  • Demote or promote employees
  • Offer raises to employees
  • Communicate to or about employees
  • Manage benefits for employees

If so, then you need EPL coverage.

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Why Do You Need EPLI?

There are many reasons why the number of harassment claims seems to be constantly increasing; it’s certainly not a coincidence and correlates with broader societal changes.

Social media has also provided a voice to the harassed and has made it easier for those who have been harassed at work to speak out about it. The #MeToo Movement is a good example of this.

In addition, LGBT and transgender communities are continuing to grow and assimilate into the mainstream, causing people from these groups to commonly encounter discrimination and harassment in the workplace.

According to a preliminary 2018 report on sexual harassment claims by the EEOC, sexual harassment charges increased by more than 12% and sexual harassment lawsuits filed by the EEOC’s attorneys increased by 50% from the previous year.

Employee lawsuits are on the rise, and even if you’re in the right, the legal costs can still be staggering. That’s why you need to protect your business with EPL insurance no matter what.

What Does EPL Insurance Cover?

Generally speaking, EPL policies will cover the costs of defending your company against lawsuits, settlements, and judgments. As long as the act that was committed is not illegal, the legal costs will be covered regardless of whether the case is won or lost.

Types of EPLI Claims

Let’s take a closer and more detailed look at the types of EPLI claims that a quality policy should be able to cover:

  • Retaliation: In a retaliation claim, the employee alleges that they are being harassed or discriminated against as punishment for speaking out about issues occurring to others in the workplace. Retaliation claims are often related to pay cuts or demotions that had nothing to do with the employee’s overall performance. Employees often claim retaliation when they have uncovered or shed light on some type of workplace situation that the employer did not want to be known.
  • Failure to promote: While there are certainly many different types of claims related to a failure to promote, recent trends show that many of these types of claims are tied to disability discrimination. Employees often believe that they are being passed over for promotions because of disabilities such as deafness, blindness, or even a medical condition such as diabetes. Failure to hire claims are similar and also very common.
  • Harassment: While there are many types of harassment claims that employees can file against your company, the most prevalent type of workplace harassment is of a sexual nature. Sexual harassment entails unwanted sexual advances both physical and verbal in nature. It could also include management or other coworkers requesting sexual favors or services in exchange for promotions. Workplace harassment claims have been steadily rising over the last few years. In 2019, the Equal Employment Opportunity Commission (EEOC) reported a total of 11,283 sexual harassment complaints.
  • Defamation: In defamation claims, employers are accused of making false statements that damage the employee’s reputation at work in some way.
  • Mismanagement of employee benefits: Employees can also sue if mistakes were made in the management of benefits such as retirement and healthcare plans. It’s good to have a fiduciary liability policy for these types of cases as well since it protects any of your employees in charge of benefits who might have made a mistake that led to the claim.
  • Negligent supervision of employees: Negligent supervision means that the employer has allowed dangerous or harmful conduct to occur in the workplace. Negligent supervision claims can be related to many issues, some of them being loss of profits and destruction of property.
  • Negligent evaluation: In a negligent evaluation claim, the employee believes that their performance was unfairly evaluated and that the negative evaluation does not reflect the quality of the employee’s actual performance.
  • Invasion of privacy: In an invasion of privacy claim at work, employees believe that their rights are being violated through various surveillance tools within the office such as computer programs that monitor employee actions and security cameras throughout the office. These types of claims are also on the rise and are becoming very common.
  • Discrimination: There are many types of discrimination that can occur at work; discrimination based on race, religion, sex, disability, age, equal pay, national origin, genetic information, pregnancy, and more. Age-related claims have been rising steadily as America’s workforce has been getting older.
  • Wrongful demotion or disciplining of an employee: Wrongful demotion can be very similar to negligent evaluation. Often, wrongful demotion claims are related to discrimination as well, when employees believe that they are being demoted for unlawful reasons that have nothing to do with their performance at work.
  • Infliction of mental or emotional distress: Intentional infliction of emotional distress occurs when the employer purposely causes emotional distress to employees by way of some type of conduct that is not fit for the workplace. Again, these types of claims can be intrinsically tied to claims of harassment, discrimination, and other types of inappropriate workplace conduct.
  • Wrongful termination of an employee: In a wrongful termination claim, employees believe that they were fired unlawfully, meaning that they lost their job for reasons that have nothing to do with their performance. When terminating employees, employers must make sure that the employment contract has been breached by the employee in some way. Wrongful termination claims are rarely won by employees, but they can be long and expensive regardless of the outcome.
  • Illegal Background Check: Based on the Fair Credit Report Act (FRCA), there are standards that need to be respected by employers or HR personnel who perform employee screening procedures. If your company was not given written consent to check a would-be employee’s credit report or criminal background, you can be sued.
  • Pregnancy and Lactation Accommodation: According to the Pregnancy Discrimination Act, pregnant employees must be accommodated and allowed to work as long as they are able to perform their duties. If a pregnant employee is fired, there were surely be a lawsuit coming. Also, the Fair Labor Standards Act (FLSA) requires companies to provide breaks for nursing mothers who need to breastfeed during the workday. The company must also provide a private and clean area of the office for this, which cannot be the bathroom.

What’s Not Covered?

As we previously mentioned, if the act that your company is being sued for is an illegal one, then the EPL policy will not cover your costs.

However, there are losses and claims an EPL policy will not cover, some of which include:

  • Penalties
  • Civil fines
  • Criminal fines
  • Unpaid wages
  • Liabilities for acts of intentional or dishonest wrongdoing
  • Claims related to unemployment benefits
  • Claims related to workers compensation

For more on what EPL does and doesn’t cover, read our guide on typical EPL claims examples.

What Does EPLI Cost?

Like any other business coverage, there are many different factors that will determine the cost of your EPL insurance, including the following:

Size of the company

Perhaps the most logical factor correlated to EPL risk is organizational size. All things equal, the more employees a company has, the more likely it is that one of the employees will find some discriminatory basis for a lawsuit.

HR Procedures

However, insurers won’t just look at the size of the company. They’ll also consider the strength of your HR policies and procedures as a means to prevent claims and reduce risks. In reality, many insurance underwriters are looking intensely at your organization’s investment in HR talent, policies, and procedures. Organizations that have not displayed this commitment represent a more significant risk and will be charged more than their peers, or worse off be denied coverage altogether. EPL pricing is an exercise in evaluating the strength of HR and its policies and procedures, not simply a tiered employee count approach.

Claims History

Naturally, your claims history will affect premiums as well. If you haven’t had any claims over the last three years, your premium will be lower.

Policy Deductible

Most EPLI policies will have a deductible. A deductible is the amount of money the company will have to pay out of pocket before the policy kicks in. Lowering the deductible will mean increasing the premium.

Policy Terms

Most insurance policies will have standardized policy terms, and won’t differ dramatically depending on which carrier is writing the policy. However, EPLI policies can vary significantly, given how complex and volatile the risks they cover are. It’s crucial that you carefully read your policy, and consult a good broker to ensure that you are adequately protected.

For more information, read our full guide on EPL cost.

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Reducing the Cost of Your EPLI Policy

Companies looking to save on EPLI will need to tackle potential employment risk factors proactively. Empowering your HR department to deal with potential issues adequately is a crucial step in combating EPLI claims. It’s also essential to underline internal protocols and procedures for both the hiring and firing of employees. If you have a uniform, and above all, fair hiring policy, you can expect fewer lawsuits from angry employees and snubbed candidates.

Additionally, providing your employees with harassment prevention training can go a long way to making a more pleasant and less risky workplace for everyone.

Claims-Made vs. Occurrence Policies

When it comes to EPLI, many people get confused about the difference between claims-made and occurrence policies. When discussing liability policies, the difference is all about timing and what the so-called trigger is for the coverage. It’s a question of both what must occur in order for the policy to respond and when it should occur.

Still confused? The main difference is what policy period a claim is paid on if and when a claim occurs. Let’s look at an example. Imagine there was a wrongful act that occurred in 2004, but was not found out about until 2018, then:

  • With an occurrence policy, the claim would be paid under the 2004 policy – with the limits and deductibles of the 2004 policy.
  • With a claims-made policy, the claim would be paid under the 2018 policy – with the limits and deductibles of the 2018 policy.

What’s most important in a claims-made policy is the so-called “retroactive date.” The retroactive date is the start date of the claims-made policy that you either bought or renewed. This means that you are covered for any incident, as long as it occurred either on or after the retroactive date and was reported to the insurance company within the policy period.

Most EPLI policies are claims-made, as are most errors and omissions and directors and officers insurance policies.

Want to learn more? Read our full guide on the differences between claims-made and occurrence policies.

Tips for Preventing Employee Lawsuits

While there is certainly no way to truly prevent employment related lawsuits, there are things that you can do as a business owner to minimize the risk and decrease the chances of an employee claim.

One obvious tip is to have a comprehensive handbook describing proper behavior at the workplace and never deviate from its policies. Be sure to educate your employees and provide adequate training.

If you are creating workplace behavior policies, be sure to enforce zero-tolerance related to harassment and discrimination. Don’t forget to make it easy for people to report problems as well. Complaint investigation is also very important. Take all employment discrimination complaints seriously and launch a thorough investigation that gets resolved quickly.

Here are some of our related guides on identifying and fixing these types of issues in the workplace:

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