Going from a mom-and-pop business run entirely by its owners to an employer is a big transition. As an employer, you not only gain much-needed help running your business, but you also open up yourself to new oversight and legal risks. One underutilized tool to mitigate these risks is a specialty insurance policy known as employment practices liability insurance (EPLI). Here's what you need to know about it.
What Is EPLI?
Employment practices liability insurance is a type of policy that specifically covers the potential legal costs if an owner is sued by one or more employees for some employment-related charge (such as sexual harassment). It can often be purchased on its own or as an additional item bundled with small business and owner general liability policies.
What Does EPLI Cover?
Each EPLI policy has its own terms of coverage, but a number of the most common reasons for employee lawsuits are usually covered. These include discrimination, sexual harassment, wrongful termination or discipline, negligence in evaluation or promotion, breach of contract, infliction of emotional distress, and mismanagement of employee benefits.
The purpose of EPLI policies is to cover the legal fees involved in defending yourself or your business against such charges. These are generally covered regardless of the outcome of a case — in your favor or not. However, the actual damages that may be imposed are not covered by this insurance.
How Much Does EPLI Cost?
Small business owners should take heart that this insurance is scaled in cost with them in mind. Like workers compensation insurance, your cost is based on several factors, including your type of business or industry, how many people you employ, whether you've been sued by employees in the past, and other risk factors. So a small business just starting out should find their coverage fairly inexpensive.
Do You Need EPLI?
Determining whether or not you need each type of business insurance is a tricky decision. After all, any employer could be sued by any employee (and even by candidates not hired) at any time.
You'll need to gauge your particular risk based on things like trends in your industry, prior experience with other businesses or as an employee, how much you can mitigate employment practice risks, and the speed at which you'll scale up your workforce. But in many cases, owners will find that this is a cheap way to add confidence as they move to the next level of business.
Where Can You Learn More?
Should you consider buying employment practices liability insurance? Start by learning more about its coverage and options for your industry. Meet with an experienced business insurance agent in your state today.