Employment Practices Liability

Numerous state and federal laws provide employees and perspective job candidates with protections from unfair workplace practices. These laws create sources of liability for employers who don’t adhere to their obligations to their employees. It is important for businesses to take employment practices liability seriously as the number of employee lawsuits has increased in recent years.

Organizations should not only take proactive steps to reduce their risk of employee lawsuits, they should also secure the financial protection of an employment practices liability insurance (EPLI) policy. Employment practices liability claims are typically is generally not covered under a general liability policy. However, this coverage can often be purchased as a stand-alone policy or added as an endorsement to an existing liability package, such as a Business Owners Policy or Commercial Package policy.

EPLI covers companies against claims or lawsuits filed by employees, former employees and employment candidates regarding their employment relationship with an employer. This type of coverage protects the company, its directors, and officers, as well as current and former employees. EPLI policies often also cover seasonal employees, leased employees and independent contractors.

What EPLI covers

EPLI provides coverage for legal costs, settlements and judgments that arise from claims of:

  • Discrimination, based on age, race, gender and other factors.
  • Sexual harassment.
  • Wrongful termination—including constructive discharge, in which an employee resigns as a result of the employer creating a hostile work environment; and retaliatory discharge, in which an employee is fired as punishment for engaging in a legally protected activity.
  • Breach of employment contract.
  • Infliction of emotional distress or mental anguish.
  • Failure to employ or promote.
  • Wrongful discipline or demotion.
  • Mismanagement of employee benefits.
  • Defamation.
  • Privacy violations.
  • Violation of the Family Medical Leave Act or other such laws.

Managing Employment Practices Liabilities

There are a number of steps that employers can take to limit employment practices liability. These actions include, but are not limited to:

    • Hiring a dedicated Human Resources Officer. Such a professional will have the knowledge and expertise needed to help the business remain compliant with applicable employment regulations and ensure employees’ specific needs are met. Depending on the size of the business, multiple HR professionals (or a dedicated department) may be necessary.
    • Developing and distributing an employee handbook. This handbook should outline workplace guidelines related to key employment topics like discrimination, harassment and retaliation. In particular, the handbook should:
      • Provide internal processes for making discrimination or harassment complaints
      • Include an equal employment opportunity policy and an anti-retaliation provision Be audited on an annual basis with the help of an employment law attorney regular
    • Establishing a code of ethics policy. Such a policy should explain the business’s ethical standards and provide clear expectations for what employees can and can’t do. Namely, the policy should prohibit employees from engaging in poor behaviors on behalf of the business, such as giving kickbacks.
    • Maintaining job descriptions. The business should be sure to routinely assess workplace job descriptions to ensure they accurately convey the duties and responsibilities of each role.
    • Keeping detailed documentation. It’s vital for the business to maintain adequate documentation on all employees throughout their employment. This includes post-hire screenings (e.g., background checks), routine performance reviews, disciplinary actions and concrete termination steps. Employees with poor performance reviews should be placed on documented improvement plans before the business makes final termination decisions.
    • Developing investigation protocols. In addition to keeping proper employee documentation, the business should also maintain records of any workplace complaints. These complaints should be thoroughly evaluated through standard investigation procedures, with all response measures or resolutions appropriately documented.
    • Offering an employee hotline. In the event that employees want to make anonymous workplace complaints, there should be resources in place for them to do so. In particular, the business should provide an employee hotline— thus allowing employees to call and file complaints about employment issues while maintaining their privacy.
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