Every employer, no matter how small, faces the chance of being sued by a past, present, or prospective employee at some time.
In fact, such employment practice claims are widespread – so much so that most businesses are much more likely to have an employment practices liability claim than a general liability or property loss claim. Are you protected?
Nearly three-quarters of all litigation against corporations today involves employment disputes, which can be extremely costly. The cost associated with an employment practices claim can be significant.
The rise in discrimination complaints
In 2022, the Equal Employment Opportunity Commission received 73,485 new discrimination charges, which represents an increase of almost 20% when compared to the previous fiscal year. In addition, the EEOC collected more than $513 million in monetary penalties for victims of discrimination and sexual harassment.
The large jump in sexual harassment claims and recoveries is a direct result of a surge in lawsuits since the start of the MeToo# movement, which has emboldened many victims to come forward and file complaints.
Keep in mind, that the above are just penalties and do not include defense costs, which can exceed $100,000 per claim for employers.
For these reasons and more, employment practices liability insurance (EPLI) is crucial for any employer. The risks of being sued by an employee for discrimination or harassment have increased substantially in recent times.
Why small businesses need EPLI coverage
Employers need EPLI coverage because comprehensive general liability policies and workers’ comp policies exclude employment-related claims.
EPLI coverage
Policies cover:
- Defense costs (court fees, attorney fees and related costs).
- Payment of settlements and/or judgments up to the policy’s limits.
- Any fines or penalties levied by government agencies.
EPLI policies cover business owners as well as directors, officers and managers. Some policies also cover employees. Additionally, you can buy third-party policies to cover claims brought by non-employees, such as clients.
Types of action covered by EPLI include:
- Discrimination based on gender, race, national origin, religion, disability, or sexual orientation
- Sexual harassment or other unlawful harassment in the workplace
- Wrongful termination
- Failure to employ or promote
- Retaliation
- Employment-related misrepresentation
- Failure to adopt adequate workplace or employment policies and procedures
- Employment-related defamation or invasion of privacy
- Negligent evaluation of an employee
- Wrongful discipline of an employee
- Employment-related infliction of emotional distress.
NOTE: Wage and hour claims, or disputes regarding overtime pay for non-exempt employees, have become more expensive in recent years, so most EPLI policies exclude this coverage. Business owners may be able to find endorsements to add wage and hour coverage.
EPLI claims can be costly
EPLI claims can be extremely expensive. The average cost of a discrimination claim is $125,000, and 25% of judgments exceed $500,000.
Most businesses are wise to have at least $1 million in coverage. However, higher coverage limits increase your premium cost, so you want to balance your coverage needs and your budgetary concerns.
At VMA, we provide insurance guidance and policies and can help you figure out the right coverage and amount to protect your business. Contact shannon@visualmediaalliance.org for to discuss your small business’ needs.