A Comprehensive Guide to EPLI
Understanding Employment Practices Liability Insurance
Businesses face many employment liability risks that can lead to staggering fees — threatening an organization’s financial security. As the number of employee lawsuits continues to grow, businesses should protect themselves against employment practice claims.
In fact, only 19% of employment lawsuits result in a judgment for the plaintiff according to World Metrics. Employment practices liability insurance (EPLI) provides essential coverage for wrongful acts that may arise during the employment process, including allegations of wrongful termination or harassment.
Doeren Mayhew Insurance Group is backed by more than 130 years of experience helping businesses protect their assets and minimize their liability risk. We help all types of businesses secure insurance policies to provide adequate coverage for costs associated with potential employment claims.
Common Types of EPLI Claims
Discrimination
Unfair treatment can occur based on religion, age, ethnicity, gender, disability, skin color, sexual orientation, or race. While federal anti-discrimination laws typically cover businesses with 15 or more employees, smaller companies must adhere to state anti-discrimination laws, which could apply to employers with just a single employee depending on the circumstances of the case.
Harassment
According to the Equal Employment Opportunity Commission (EEOC), it is against the law to subject an individual (whether they are an applicant or an employee) to harassment based on their gender. This harassment can encompass various forms, such as unwelcome sexual advances, solicitation of sexual favors, and other forms of verbal or physical misconduct with a sexual undertone.
Failure to Hire or Promote
If an employee believes they are being overlooked for a job opportunity for advancement due to an ADA-protected condition — and possess evidence of the discriminatory treatment they have endured — they have the right to initiate a legal claim. These protected classes, as outlined in the Americans with Disabilities Act (ADA), cover various conditions such as deafness, blindness, diabetes, cancer, epilepsy, and more.
Pregnancy & Lactation Accommodations
Under the Pregnancy Discrimination Act, a pregnant employee must be allowed to work as long as she can perform her duties. If an employee suspects that termination was due to their pregnancy, they have the right to take legal action against the company. Additionally, Break Time for Nursing Mothers is a federal law that mandates employers covered by the Fair Labor Standards Act (FLSA) to make arrangements for breastfeeding mothers in the workplace.
Whistleblower & Retaliation
According to the U.S. Department of Labor, “whistleblower” refers to a broader category of “employee protection” provisions of various laws. The Department of Labor adjudicates many, but not all, whistleblower disputes. Retaliation claims often involve demotions or pay reductions that employees perceive as unrelated to their performance, but rather, as a direct consequence of their decision to voice concerns or bring attention to a situation that the employer wished to keep hidden.
Wrongful Termination
Although employees often feel wronged when they are fired, specific qualifications must be met to prove “wrongful termination.” The employer must unlawfully terminate the employee’s employment contract and violate one or more of its terms. While employees may face challenges in winning wrongful termination claims, it is important to note that the legal process can still be lengthy and costly for the employer, regardless of the final decision.
Damages Claimed in EPLI Disputes
From 2022-23, EPLI claims involved initial demands ranging from $10,000 to nearly $1M. However, the final settlements reached between the parties were significantly lower than the initial demands, falling between $100,000 and $400,000. In class action disputes, the amounts involved were often much higher, sometimes exceeding $4M.
Initial Demand vs Final Settlement
Source: Marsh.com
* In some cases, the initial complaints do not quantify the damages claimed. However, the final settlement in all cases are much lesser than the demand made by the claimant.
EPLI Trends
EPL policyholders are currently experiencing a difficult market environment marked by continuous rate hikes, increased underwriting scrutiny, and limited capacity. The premium hikes and coverage limitations have been inconsistent across different industries, regions, types of risks, and past claims. Additionally, the growing trend of higher retentions, especially on primary retentions, is putting additional strain on the sector.
Greater Regulatory Scrutiny
In recent years, the White House and the EEOC have worked together on multiple regulatory initiatives to combat employment discrimination. The EEOC witnessed a significant surge in new employment discrimination lawsuits, with a 50% increase in filings during 2023, primarily due to systemic discrimination such as racial injustices and gender pay disparities. The EEOC’s Strategic Enforcement Plan (SEP) has outlined its priorities, which include the following:
- Eradicating barriers in recruitment processes
- Safeguarding the rights of vulnerable workers
- Addressing emerging issues like AI discrimination
- Ensuring continued access to the legal system
Discrimination Legislative Trends & Litigation
Legislation and litigation about different forms of employment discrimination are contributing to the growing risks associated with employment practice liability. Currently, federal employment laws prohibit discriminatory treatment based on a range of protected characteristics that have not historically included body weight and height. With the increasing adoption of related laws in various regions, businesses that fail to ensure fair treatment for employees of different body types may face significant legal consequences, including lawsuits and subsequent losses from EPL.
Automated Employment Practice Bias
In partnership with multiple federal agencies, the EEOC has released a joint statement reaffirming its dedication to upholding Title VII and other anti-discrimination laws, particularly in light of the widespread use of AI technology. In fact, the EEOC reached a significant milestone by settling the first-ever case involving discrimination driven by AI. The resolution involved a company that agreed to pay $365,000 in compensation after a lawsuit was filed on behalf of more than 200 job applicants who claimed that the company’s AI-powered recruitment system automatically rejected candidates based on their age.
Why Your Business Needs EPLI: A Look at the Numbers
Consider the potential financial implications of an employment-related claim before deciding whether your business requires EPLI coverage. Federal regulations impose limits on the amount of compensation a worker can receive in a discrimination lawsuit, which varies based on the employer’s size.
For businesses employing 15 to 100 workers, the limit is $50,000, while for those with over 500 workers, it is $300,000. According to Investopedia, the average settlement for a discrimination claim reached $75,000 when resolved outside of court, whereas the average jury award amounted to $217,000 in 2020. Without adequate EPLI coverage, your business may be responsible for covering all expenses associated with a discrimination claim.
How to Reduce Your Business’ Employment Practices Liability Risk
Purchasing Employment Practices Liability Insurance (EPLI) is a crucial step in managing the risks associated with employment. However, it is always preferable for your business to never encounter an employment practices lawsuit. To prevent such a situation from arising, it is advisable to take the following measures:
Establish Comprehensive Workplace Policies
Develop written policies that address various employment practices and ensure they are prominently displayed and included in employee handbooks. Additionally, create a mechanism for employees to report concerns and for management to address them.
Educate Management & Employees
Provide training sessions on ethical and legal workplace practices for managers, supervisors, and employees. Consider incorporating diversity and sensitivity training into your employee education program.
Conduct Thorough Hiring Processes
Implement rigorous screening procedures for selecting employees, ensuring that discriminatory practices are avoided at all costs.
Clearly Define Job Expectations
Provide detailed job descriptions that outline the responsibilities and expectations for all employees. This will help set clear guidelines and get ahead of misunderstandings.
Regularly Review Employee Performance
Conduct periodic evaluations of employee performance and maintain written records of these reviews. This will assist in identifying any areas of improvement and recognizing exceptional performance.
Maintain Proper Documentation
Keep written records of all employment-related practices, including complaints, investigations, responses, and any other relevant information. This documentation will serve as evidence and support your defense in case of any legal disputes.
By implementing these steps, you can significantly reduce the likelihood of facing an employment practices lawsuit and effectively manage employment risks within your business.
What Business Owners Need to Know About Employment Law
Many regulations exist to safeguard the rights of those you employ or are considering hiring. Although employment practices liability insurance is a wise choice for many organizations, understanding and adhering to these laws is also crucial.
Title VII of the Civil Rights Act of 1964
Prohibits discrimination based on race, color, religion, national origin, and sex. It also prohibits sex discrimination based on pregnancy and sexual harassment.
The Equal Pay Act of 1963
Prohibits employers from paying different wages to men and women who perform essentially the same work under similar working conditions.
The Equal Pay Act of 1963
Prohibits employers from paying different wages to men and women who perform essentially the same work under similar working conditions.
The Immigration Reform and Control Act of 1986
Prohibits discrimination based on national origin or citizenship of persons who are authorized to work in the United States.
The Americans with Disabilities Act of 1990
Prohibits discrimination against persons with disabilities.
The Bankruptcy Code
Prohibits discrimination against anyone who has declared bankruptcy.
Equal Employment Opportunity Act of 1972
Prohibits discrimination against minorities based on poor credit ratings.
The Age Discrimination in Employment Act
Prohibits discrimination against individuals who are age 40 or older.
FAQs
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What does employment practices liability not cover?
EPLI policies typically do not cover criminal fines, civil fines, bodily injury, property damage claims (covered by commercial general liability insurance), and workers’ compensation claims (covered by workers’ compensation insurance).
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What is the difference between EPLI and Workers’ Compensation?
EPLI and Workers’ Compensation Insurance both safeguard businesses from risks associated with employees. EPLI is voluntary and shields businesses from claims made by employees regarding discrimination, harassment, or wrongful termination. On the other hand, Workers’ Compensation Insurance is obligatory and protects employees who sustain work-related injuries or illnesses, encompassing medical costs and income loss.
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What does it mean to "participate in an EEO process"?
An employer is prohibited from retaliating against an individual for engaging in an EEO process. This includes filing an EEO complaint, acting as a witness, or participating in any other capacity in an EEO matter. The protection extends to involvement in an employer’s internal EEO complaint process, even if no discrimination charge has been filed with the EEOC. Participation in the EEO process is safeguarded regardless of the validity of the EEO allegation, as long as it is made in good faith.
How We Can Help
At Doeren Mayhew Insurance Group, we deliver customized insurance solutions for long-term peace of mind. Let our team of experienced risk management specialists help you secure the right level of protection.
To learn more about an EPLI policy, or to seek assistance with any other type of business insurance coverage, contact us.
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