EMPL Coverage

Why Does Your Business Need Employment Practices Liability Insurance?


In the ever changing world of employment law, it’s difficult for a small or medium sized company to keep up. The definition of harassment is expanding and protecting more marginalized groups, and the behaviors that are understood as harassment have also expanded. Companies need to keep up with changing laws regarding wages, employee status, and more.

It’s easy for a company to make a mistake through a simple lack of awareness. A lack of understanding is not an excuse in the eyes of the law, however. Companies may feel vulnerable if they don’t keep up to date on every detail of human resources.

While staying up to date in HR policies and procedures is of course crucial, another way for businesses to protect themselves is to maintain employment practices liability insurance.

EMPL Coverage

What Is Employment Practices Liability Insurance?

Employment Practices Liability Insurance protects employers against specific types of charges from employees. These include:

  • Discrimination (based on age, gender, sexual identity, disability status, or more)
  • Wrongful termination
  • Harassment
  • Violations of wages or hours worked.

Why Does My Business Need This?

Keeping your business adequately insured is crucial if you want to successful operate a company over time. Business owners choose not to purchase insurance for many different reasons. Do any of these sound familiar?

These reasons to avoid purchasing insurance probably sound familiar because they’re common. Small and medium sized businesses, especially those which are newly formed, are often low on liquid cash and are operating on a shoestring budget. They really may feel like skipping insurance is the best possible way for them to stay open.

This is a poor choice, however, because if an employee does sue the business, a business may not be able to cover the cost of either fighting the suit in court or paying for damages out of pocket. Remember, a suit doesn’t have to be valid for it to be litigated, it just has to be filed.

A lawsuit, whether valid or not, could quickly bankrupt even a relatively solid company that is uninsured. If there isn’t sufficient distance between a corporation and an owner, or if the business is owner-run instead of incorporated, the court could also award damages from the owner’s own personal assets.

When CEOs decide to forego insurance, they need to weigh the costs of potentially going bankrupt or losing their own personal assets against that monthly premium.

Many employers also feel like their employees are their friends, and that their friends could never sue them. In the world of business, however, friendships can only go so far. Discrimination or harassment issues can quickly erode personal credibility. A friend who feels they were wrongfully terminated could easily pursue legal action against an employer – regardless of how appropriate the employer feels the termination was.

And it’s unlikely that any company can only hire the employer’s best friends for any real length of time. At some point, a business will need to hire people who are just employees. At that point, EPLI becomes a real need. Going without it is absolutely dangerous to the long term health of your business.

Finally, some executives believe that since they’re familiar with HR and payroll and handle everything personally, there’s no real need for them to purchase insurance in this area. This belief is misguided. The world of HR, benefits, and employment law is changing too rapidly for anyone to be absolutely sure that they are following each and every local, state, and federal regulation.

Many CEOs do a great job of keeping HR running in their business, but that’s not the same as being immune to prosecution. Remember, a suit doesn’t need to be valid for it to be filed. Even if your business really does do everything right, that doesn’t stop an employee from believing that they were harassed and filing suit. And, after all, much of harassment and discrimination happen in our blind spots. Few employers intentionally discriminate against their employees, but unintentional discrimination can still be actionable.

For businesses to access capital at the best terms, to create a long running, healthy business, and to build a reputation that is exciting to both employees and vendors, they need to be financially secure. One part of that security is maintaining adequate insurance, including employment practices liability insurance. This helps to keep your business protected against all eventualities.

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