Employment Practices Liability Insurance (EPLI)
Employment Practices Liability Insurance or EPL/EPLI is a crucial cover from the moment you begin the pre-hiring process until the exit interview, you are vulnerable for an employment related claim. As a result, your business should take a hard look at whether it can afford to defend itself against alleged wrongful employment practices accusations. If not, there is an insurance solution called Employment Practices Liability Insurance (EPLI) that protects against employment related claims, including wrongful termination, discrimination or sexual harassment from your current, prospective or former employees. This cover applies to directors, officers and employees, and sometimes extends to third party liabilities.
Does my Business need Employment Practices Liability Insurance (EPLI)?
According to researchers, 3 out of 5 employers will be sued by a prospective, current or former employee while they are in business. Although many suits are baseless, defending against them is costly.
Employment Practices Liability Insurance (EPLI) provides protection from the following wrongful employment practices, including:
- Working time directives
- Discrimination (race, gender, religious belief, age, disability, etc)
- Equal pay
- Unauthorised deductions
- Actual or alleged wrongful dismissal, discharge or termination
- Employment-related misrepresentation
- Employment-related libel, slander, humiliation, defamation or invasion of privacy
- Wrongful failure to employ or promote
- Wrongful deprivation of a career opportunity, wrongful demotion or negligent evaluation
- Wrongful discipline
- Misuse of personal data
- Breach of employment contracts
- Breach of employment legislation
Many Employment Practices Liability Insurance (EPLI) policies offer these inclusions and add-ons:
- Consultation, HR assistance and other risk management consultative services.
- Cover for defence costs outside the policy limits (for qualifying risks).
- Third party liability cover (for qualifying risks).
- Volunteer workers can be added as additional insureds.
- Extended reporting periods may be added.
Employment-related legal actions are a growing concern for employers of all sizes. As costs for litigation and damage awards climb, experts predict that employment liability will only become more complex. As a result, it is critical for employers to understand their exposures and options to manage the risk.
Strategies to Reduce Your Company’s Exposure to Employment Claims
Two effective risk management strategies include solid human resources practices and employment practices liability insurance (EPLI) cover, a policy used to cover your risk due to the ever-changing legal and employment environment. Some of the most common employment-related claims today involve:
- Working Time Directives
- Unfair Dismissal
- Discrimination – the denial of equal treatment of workers who are members of a protected class
- Unauthorised Deductions
- Breach of Contract
Employment practices liability insurance (EPLI) works hand-in-hand with your internal employment practices to provide the necessary resources to defend your company against a legal action or to pay a claim. To best understand how to cover your Employment Practices Liability Insurance (EPLI) risk, it’s important to know the potential sources:
- Recruitment practices;
- Employment applications;
- Employment offers;
- Employee orientation;
- Annual conduct reviews;
- Enforcing performance policies;
- Termination; and
- Improper documentation of the above items
Limiting your exposures, engaging in solid human resources practices is an important strategy in reducing your company’s liability.
To verify your HR policies and best practices, conduct a thorough HR audit:
- Verify the Employee Handbook outlines all policies and terms of employment in clear as well as concise language;
- Require employees to sign an acknowledgement form for receipt of Handbook; and
- Develop training for supervisors including interview skills, performance reviews, ‘zero tolerance’ policy, etc.
Employment law is often complex and around 15 changes are made annually. Keeping current with the changes can be a heavy burden on employers. Well-organised and credible documents can demonstrate fair treatment, deter litigation, ensure employee honesty and, should litigation occur, demonstrate the employer’s actions.
In addition to having the appropriate employment policies and HR best practices in place, Employment Practices Liability Insurance (EPLI) cover is another useful risk management tool used to defend against a legal action or pay a claim. Typically, the insurance underwriter will require a copy of your employee handbook, which can cover the following policies:
- Sexual Harassment
- Equal Opportunity
- Disabled Employees and Accommodations
- Employee Discipline
- Performance Evaluations
- Internet Usage/Employee Privacy
- Maternity Leave
- Internal Job Postings
- Hiring and Interviewing
- Alternative Dispute Resolution
Employment Practices Liability : Crucial for Small Businesses
There has been an increase in litigation concerning workplace issues over the past few years, with employment tribunals awarding thousands of pounds for individual claims. This increase in litigation is partially due to employees becoming more aware of their rights and the implementation of worker-friendly employment regulations. Employment regulations affect both small and large businesses, yet alarmingly, many small businesses do not have employment practices liability insurance (EPLI) cover to protect against these claims.
High Price Tag
Employment-related claims can be extremely costly, especially in cases that drag on for years. With a slow economy and complex employment regulations, these cases are on the rise. Without Employment Practices Liability Insurance (EPLI), a single claim from an employee may wipe a small business out. Many small businesses cannot afford to pay these costs and keep their company afloat.
What Puts a Small Business at Risk?
Understandably, it can be much more difficult for small businesses to defend themselves against employment-related claims because they tend to have fewer resources and a different work environment. Small businesses are particularly at risk for employment-related claims for the following reasons:
- Many have a minimal staff and lack of in-house counsel and/or full human resources department to rely on. With an average of around 15 to 20 changes annually to employment regulations, many small businesses do not have the resources to keep current.
- Overall lack of extensive recordkeeping on employee performance
- More intimate working environments may cause personal riffs
An Affordable Solution
Fortunately, with employment-based legal actions on the rise and the economy’s sluggish upward climb, Employment Practices Liability Insurance (EPLI) cover is becoming more affordable. More insurers are beginning to offer Employment Practices Liability Insurance (EPLI) policies with comprehensive cover to smaller businesses to protect them in tough times. In fact, Employment Practices Liability Insurance (EPLI) is becoming so important to the success of small businesses that it is being offered at more affordable prices and being tailored specifically for smaller businesses.
Common Sources of Employment Practices Liability Insurance (EPLI) Claims
The past few years have seen a rise in employee legal action, and—in conjunction with these actions—employment practices liability insurance (EPLI) claims. Preventing employee legal claims is vital to protect your organisation’s reputation, maintain productivity and keep a positive work environment. Consider these four common sources of EPLI claims in order to minimise your potential risks.
Lowering Employment Practices Liability Risks
Employment practices liability insurance (EPLI) is a critical type of cover that provides various protections for policyholders. Employers face a variety of risks related to employment practices liability claims. These claims became more common every year in the UK between 2015 and 2018. An EPLI policy can have a major impact on offsetting the costs and losses of potential legal action.
There are a variety of laws in the UK that employers must abide by in order to ensure that they are providing and maintaining a suitable work environment for their workforce. These laws—such as the Employment Act 2002, Race Relations Act, Disability Discrimination Act, Sex Discrimination Act and the Equality Act—are intended to hold employers accountable for potentially unjust or irresponsible behaviour.
An employment practices liability claim can have a devastating effect on not only an organisation’s finances, but also its reputation. This means that an Employment practices liability insurance (EPLI) policy is not only a valuable level of protection for an employer in the present, but also in the future.
Employment practices liability claims can stem from a variety of potential misconduct. Fortunately, Employment practices liability insurance (EPLI) policies provide cover for a variety of types of claims, such as:
- Wrongful dismissal—These claims stem from an employee alleging that their employment was unlawfully ended by their organisation.
- Constructive dismissal—In this type of case, a former employee who has resigned from their position alleges that they were forced to leave due to their employer committing unacceptable conduct.
- Discrimination—These cases are based on allegations that an employee has been discriminated against, such as on the basis of gender, race, religion or sexual orientation.
- Misconduct—Misconduct claims stem from situations in which an employee may have violated an organisation’s rules or policies, but their dismissal was not handled properly.
While an Employment practices liability insurance (EPLI) policy will provide valuable cover in the event of an employment practices liability claim being filed, the best way for an organisation to mitigate losses is to minimise the chance of an issue occurring in the first place. Employers should consider these steps in order to assess, address and reduce their potential exposures:
- Implement zero-tolerance policies for inappropriate or illegal acts, such as harassment or discrimination.
- Compose and distribute an official employee handbook that includes all workplace policies and procedures. This handbook should be regularly reviewed and updated.
- Establish formal job descriptions for all positions that clearly detail expectations, requirements and performance standards.
- Conduct thorough background checks on prospective employees in order to discover any potential issues before making an offer of employment.
- Document all employee issues and complaints, as well as any action, resolution or response by the organisation.
- Review employee performance regularly and be sure to properly document any problems.
Employment practices liability claims are a legitimate and consistent threat for employers. Organisations should already strive to provide a healthy and safe environment for employees, but these claims make the potential consequences for not doing so extremely severe.
Loss Control Questionnaire: Employment Practices Liability
Legal actions related to employment practices are a consistent risk. According to industry experts, between 2015 and 2018, the number of employment practice liability claims increased every year. This questionnaire is designed to help organisations assess how adequate their loss control programmes are by examining common employment-related exposures and the techniques, policies and procedures that can be applied to control these exposures.