What the Heck is EPLI and How Can a PEO Help?

Do you have managers, supervisors, and employees? If you do, you should probably keep reading. Did you know that in the last five years, 6 out of 10 employers have had to deal with employment lawsuits? As legal and regulatory requirements continue to expand, employers are responsible to stay abreast of developments, comply as required, and respond in a timely manner.  And what business owner has the time to do that?

Consequently, companies with inadequate HR processes and practices are at most risk for employment related lawsuits. In fact, small businesses face just as much risk of employment allegations as large ones, with 41% of all EPLI (I’ll explain this term below) claims dealt against companies with 15 to 100 employees. This can stem from small and medium sized businesses placing low priority on supervisor training in HR legal matters in order to focus more time and resources on overall business growth. And so, what can you do to protect yourself and your company?

Commonly referred to as EPLI (as noted above) insurance, Employment Practices Liability Insurance is additional insurance coverage you can purchase to protect your company from lawsuits brought by a former, current, or even future employee.

Many companies believe that any employment-related claims they face will be covered by their general liability or workers’ compensation policies – this is not the case. Because these employment claims are not “bodily” or “personal injuries” nor are they accidental, general liability does not cover such instances. Workers’ Compensation also specifically states that employment legal issues are not included under its coverage. Other business insurance, such as Directors & Officers (D&O) and Errors & Omissions (E&O), deal with lawsuit claims coming from non-employees only.

The type of EPLI claims that could be brought or alleged against you include all of the following:

  1.  Discrimination
  2. Wrongful termination
  3. Sexual harassment
  4. Whistleblower retaliation
  5. Compensation disputes
  6. Employee claims of libel or slander

According to liabilityinsurance.org, the average out-of-court settlement for an EPLI claim is about $40,000. If the case actually goes to trial, the average award amount is $218,000 and nearly 10% of these cases can result in an award of more than $1,000,000. In addition, the average cost to defend a wrongful termination or employment case is about $45,000. If you do not have an EPLI policy and you are not independently wealthy, how could you and your company afford to stay in business after paying for the defense and the award?

For many companies, the answer is to hire a Professional Employer Organization (PEO) to not only obtain coverage but also reduce EPLI premium costs. For every risk outlined above, a PEO proactively works with its clients to implement HR practices that reduce the exposure to employment related lawsuits. PEOs are experts on HR matters and have designed programs that reduce a company’s legal exposure while also providing best practices that make your company a great place to work. Additionally, a PEO that provides EPLI protection can also include other relevant services, such as access to employment law attorneys, background checks to reduce risks of future employment lawsuits, and training courses for managers and employers on proper ways to handle employment situations (hiring, termination, supervision, management).

Insurance companies base costs for EPLI insurance based on company size and perceived risk for legal claims. If your company has no HR department, no employee handbook, no sexual harassment training for supervisors and a history of bias or harassment suits, then you will be rated accordingly. However, insurance companies know that organizations using a PEO have better HR practices and a lower risk of lawsuits and will often offer EPLI coverage as part of the PEO’s services at a much reduced rate. This is a win-win situation for many companies that hire a PEO – not only are they getting better EPLI coverage rates, but their HR practices will also improve and reduce future risks of employment claims.

Interested in taking a second look at your EPLI policy? Please give us a call at 410-451-4202 and ask to speak to our Risk Manager.