Running a business means working with people—and whenever employees, managers, customers, and applicants interact, there is a possibility that a dispute can turn into a lawsuit.

That is where Employment Practices Liability Insurance (EPLI) comes in.

EPLI is designed to protect businesses against certain claims involving employment-related practices. While larger companies may seem like the obvious target for employment lawsuits, small and midsized businesses can face these claims as well—and they may be less financially prepared to handle the legal costs.

What Does EPLI Cover?

EPLI can provide protection against a variety of allegations made by employees, former employees, and job applicants. Depending on the policy, covered claims may include:

• Wrongful termination – An employee claims they were fired illegally or unfairly.
• Discrimination – Allegations involving employment decisions based on protected characteristics such as age, race, sex, disability, or religion.
• Sexual harassment – Claims involving unwanted sexual conduct or a hostile work environment.
• Retaliation – An employee alleges they were punished for reporting misconduct, filing a complaint, or exercising a protected right.
• Failure to hire or promote – An applicant or employee claims they were unfairly denied a position or advancement opportunity.
• Workplace harassment – Claims involving bullying, intimidation, or other inappropriate workplace conduct when covered by the policy.

One of the biggest benefits of EPLI is that it can help with legal defense costs. Even when a business ultimately did nothing wrong, responding to an employment lawsuit can require attorneys, investigations, court proceedings, and significant time away from running the business.

Doesn’t General Liability Insurance Cover This?

Usually, no.

A standard Commercial General Liability policy is primarily designed for claims such as bodily injury, property damage, and certain personal and advertising injuries. It generally is not designed to cover employment-related allegations such as wrongful termination or employment discrimination.

That means a business could have strong General Liability, Property, Auto, and Workers’ Compensation coverage while still having a significant gap when it comes to employment practices.

EPLI is intended to help fill that gap.

Why Small Businesses Should Consider EPLI

It is easy to assume employment lawsuits are primarily a concern for large corporations with hundreds or thousands of employees. However, smaller businesses have employment exposures too.

Consider a restaurant with 20 employees. A manager fires an employee for repeatedly showing up late. The employee claims the real reason for the termination was discrimination.

Whether that allegation is true or not, the business may still need to defend itself.

Or imagine a contractor interviewing several applicants for an open position. One applicant isn’t hired and later alleges the decision was based on a protected characteristic.

Again, the business may have to spend money responding to the allegation even if the hiring decision was completely legitimate.

For a large corporation, those legal expenses may be manageable. For a small business, they can create a serious financial burden.

What Types of Businesses Should Consider EPLI?

Almost any business with employees has some level of employment practices exposure. EPLI may be particularly important for businesses that:

• Have multiple employees or managers
• Experience frequent employee turnover
• Regularly hire seasonal or part-time workers
• Have supervisors making hiring, firing, and disciplinary decisions
• Operate in industries with large or changing workforces
• Are growing and hiring employees quickly

Restaurants, contractors, retail stores, hospitality businesses, professional offices, manufacturers, and many other businesses can all face employment-related claims.

Even businesses with only a handful of employees shouldn’t automatically assume the exposure is too small to matter.

What About Third-Party EPLI?

Another coverage worth discussing is third-party EPLI.

Traditional EPLI primarily focuses on claims involving employees and applicants. Third-party EPLI can extend protection to certain allegations made by people outside the company, such as customers, clients, or vendors.

For example, imagine a customer claims that one of your employees repeatedly made inappropriate comments toward them. Depending on the circumstances and policy language, third-party EPLI may provide protection for the resulting claim.

This can be especially relevant for businesses whose employees regularly interact with the public, including restaurants, bars, retail stores, hospitality businesses, and service contractors.

EPLI Is More Than Just Insurance

Insurance is only one part of managing employment-related risk.

Businesses should also consider having clear employee handbooks, documented hiring and termination procedures, anti-harassment policies, employee training, and consistent disciplinary practices.

Good procedures may help reduce the likelihood of a claim. EPLI provides another layer of protection if a claim still occurs.

Is EPLI Right for Your Business?

Not every business has the same employment exposure. A company with two employees has a very different risk profile from a restaurant with 50 employees or a contractor with multiple crews and supervisors.

The important thing is understanding where your business could be vulnerable before a claim happens.

If your business has employees—or plans to hire them—it is worth reviewing your current insurance program to determine whether Employment Practices Liability Insurance should be part of your coverage.

Not sure if your current policy includes EPLI? Talk with your insurance agent about your business, employees, and current coverage to determine where gaps may exist.