Technically, you’re a small business if you have no more than 50 employees. But in reality, most small businesses are a whole lot smaller than that. The last U.S. census estimated that about three quarters of America’s 25,409,525 businesses had no payroll at all, meaning they were owned by self-employed folks operating unincorporated businesses. Some 2.77 million firms had between one and four employees, and another 1.04 million employed five to nine workers. We’d be willing to bet none of those firms employed dedicated human resources professionals. If they had, they’d know the risk of employment-related law suits and the protection available from employment practices liability insurance.
Insurance provided introduced the employment practices liability insurance product (also known as EPLI) in 1988. It wasn’t an instance hit. EPLI didn’t really take off until 1991, when amendments to the Civil Rights Act cleared the way for an explosion of discrimination claims. By 1998, employment discrimination suits brought in federal court increased nearly three-fold. There has also been a big increase in the number of employment-related liability suits for issues other than discrimination. With all of this activity, EPLI suddenly became a hot product.
Think EPLI is an unnecessary expense because you’re a good guy with a happy workforce? That kind of Pollyanna outlook could bankrupt your company. Here’s the short list of wrongs a disgruntled employee can charge you with, in addition to discrimination: wrongful termination; breach of employment contract; negligent evaluation; failure to employ or promote; wrongful discipline; deprivation of career opportunity; and wrongful infliction of emotional distress. Employment Practices Liability Insurance is designed to protect you the employer against claims that you’ve violated the legal rights of an employee, former employee, business associate and, prospective employee. Yes, you can be sued for not properly handling a job interview, a disciplinary action or giving a worker lousy career advice.
Rates for EPLI will vary depending on where you live, the type of business you operate, your turnover ratio, whether or not you have an HR department, your good employment record and the total number of employees (hence the potential risk for committing a sue-able offense). As a rule of thumb, however, if you have a workforce of 10 to 20, you can plan on paying about $1,500 for your annual EPLI premium. In this economy, you would probably rather spend that on new equipment or a morale-boosting office party. Still, with all the aforementioned scary lawsuit potential, the cost of employment practices liability insurance is a much better investment in employee relations than a barbecue or a software upgrade.