Unless you’ve been doing business in an alternate universe, you will not be shocked to know that disgruntled employees like to get even and their favorite tactic is a law suit. Assuming your company is located here in reality land, you’re going to need employment practices insurance (EPLI for short)…like the minute you hire your first employee.
The number of law suits filed against employers just keeps going up. No matter that you shoulder the risk, put in a 60-hour work week and haven’t drawn an actual paycheck in months so you can meet payroll. If you’re a business owner, you might as well have a sign on your back that says “sue me.”
And they will. For sexual harassment, age, race, sex disability and every other kind of discrimination, wrongful termination, sloppy evaluation processes, invasion of privacy, intentionally inflicting emotional distress or even mishandling the interviewing process. Some experts estimate that three out of every five companies in the U.S. will be sued by an employee, former employee or prospective employee. Employment practices insurance is your protective shield. If you have investors or directors, they’re probably going to insist that you carry it.
Want some more bad news? It doesn’t matter if the claim against you is fraudulent, frivolous or legitimate. The burden of proof is on you, along with the expense of hiring a lawyer and investing your time and resources to defend yourself. And all you wanted to do was run a business. Employee practices insurance coverage will cover the costs per incident.
You should be aware that even the best employment practices liability insurance policy is going to come with a bunch of exclusions, including punitive damages. Before you buy an EPLI policy, review what it doesn’t cover very carefully and evaluate your choice based on your business.
Employment practices liability insurance coverage typically applies only to claims made by full-time employees. If you frequently hire part-time, seasonal, temporary or independent contractor types, look for an EPLI policy that offers the broadest coverage.
Policy limits and deductibles for employment practices liability insurance are typically applied on a per claim and aggregate basis. Coverage may be limited to a set amount for each individual claim with an aggregate cap for all claims. The deductible you set should be based on your comfort level and the risk you’re willing to take on for out-of-pocket settlements of smaller claims. Be sure to look at a variety of insurance companies when shopping for employee practices insurance coverage quotes.