Intellectual Capital

Employment practices liability

Your organization could consistently rank at the top of a "Best Places to Work" list and still be blindsided by a lawsuit claiming an employment practice misdeed. Even if the charge is without merit, the cost in legal fees, management time and reputational damage can be staggering—particularly to midsized and smaller enterprises.

The most common categories of employment practice incidents and allegations (Employment Practices Wrongful Acts) include:

  • Discrimination based on age, race, gender, religion, national origin and other factors
  • Sexual and other forms of employee harassment
  • Wrongful termination
  • Retaliation
  • Breach of employment contract (oral, written or implied, including employment handbooks and personnel manuals)
  • Failure to employ or promote
  • Defamation
  • Privacy violations, including employee medical information governed by the Health Insurance Portability and Accountability Act (HIPAA)
  • Violations of the Family and Medical Leave Act

When it comes to protecting your organization against such legal claims, an ounce of prevention is worth a pound of cure. That’s where employment practices liability insurance (EPLI) comes into play. Organizations should evaluate if they need an EPLI policy. If you have one and haven’t reviewed it in more than two or three years, it's a good idea to take a fresh look at your coverage.

Liability overview

The scope of potential employment practices liability is broad. It's not just about things that happen (or are alleged to have happened) to your own employees. Claims, possibly not covered under a general liability policy, can also involve acts by your employees toward a third party such as a vendor or customer. For example, decisions by employees of a residential property manager could lead to tenant discrimination claims against the company.

You're not just vulnerable to claims from current employees. You can also face allegations from former employees, seasonal employees and even people who sought employment with you but weren't hired. You also could be held liable for acts or the behavior of your customers or vendors toward your own employees.

Limiting your risk

It's always better to prevent claims from arising than to deal with them after they have occurred, no matter how rapidly and efficiently. The Insurance Information Institute recommends a six-step approach to limiting your risk:

  1. Create written workplace policies on employment practices, post them and include them in your employee handbook
  2. Train management, supervisors and employees about ethical and legal workplace practices, as well as diversity and cultural sensitivity issues
  3. Screen employees thoroughly prior to hiring them, avoiding any discriminatory practices
  4. Clearly define job expectations
  5. Review employee performance regularly, keeping written records of reviews
  6. Maintain written records of all employment-related practices, complaints, investigations and employee responses

Also, to nip some potential claims in the bud, establish a communication channel employees will feel comfortable using to report behavior or actions that violate company policy.

Even if you do everything right, sooner or later you're likely to incur some kind of employment practices claim. That’s where EPLI can provide value.

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