Employment practices liability insurance helps to protect business owners against employment-related lawsuits filed by their employees. It is quite common for employees, whether current or former, to sue employers for a variety of reasons.
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Although each employment situation is different, most lawsuits against employers are in reference to discrimination, wrongful termination, and sexual harassment. Some employees will even make false claims as a way to retaliate against their employer for being fired or demoted. Employment practices liability insurance will pay for the defense, investigation, and possibly the settlement on behalf of the employer for employment-related lawsuits.
Any business that employs workers, regardless of how many employees, should obtain employment practices insurance coverage in case they are subjected to allegations from an employee. Without this insurance protection, employers could have to pay expensive out-of-pocket costs for lawyers and possibly the payout of lawsuits, even in the case of false allegations.
Employee False Allegations
There is no way to stop an employee from making false allegations against an employer. If an employee feels as if they are treated unfairly or wants to retaliate against their employer, they can easily file a suit. Even if the employer wins the lawsuit, the cost and time to hire lawyers to investigate and defend the allegations could be financially devastating costing hundreds of thousands of dollars in legal fees alone.
The most effective way for a business to protect itself from frivolous employee claims is to get employment practices liability insurance. This specific type of liability insurance will give business owners security and peace of mind that they are financially safeguarded against disgruntled employees.
False employee allegations go beyond financial consequences for employers. Businesses may also suffer defamation and lose the respect of their customers and the community due to employee claims of discrimination or harassment. Most employment practices liability policies will provide the defense to fight employee allegations to clear the employer of any wrongdoing to protect the employer’s reputation.
Coverages of Employee Practices Liability Insurance
The specific coverages within an employment practices liability policy vary depending on the insurance company, but generally the policy will cover employment claims regarding:
- Sexual Harassment
- Libel or Slander
- Emotional Distress
- Employee Discipline
- Wrongful Termination
- Libel or Slander
- Hiring and Promotion Decisions
- Compensation Disputes
- Working Conditions
- Unfair Treatment
- Drug Testing
- Mental Anguish
- Negligent Supervision
- Discrimination for race, gender, age, etc.
Exclusions of Employment Practices Liability Insurance
As with most business insurance policies, there are some common exclusions that employment practices liability insurance will not cover, such as:
- Strikes and Lockouts
- Workers’ Compensation Claims
- Criminal or Fraudulent Acts
- Breach of Employment Contract
- State Employment Laws Violations
- Fair Labor Standards Acts Violations
- Occupational Safety and Health (OSHA)
- Consolidated Omnibus Budget Reconciliation Act (COBRA)
- Employee Retirement Income Security Act (ERISA) Violations
Each insurance carrier is different and employers should review their insurance policy for specific coverages and exclusions.
When is Employment Practices Liability Insurance Needed?
Employers are vulnerable to employment-related claims even during the hiring process. It is quite common for prospective employees to make allegations of discrimination and negligent hiring practices. If a business has already employed workers or is in the process of interviewing candidates, it should obtain an employment practices liability policy just in case allegations are made against the company.
What is the Cost of Employment Practices Liability Insurance?
Insurance carriers price employment practices liability insurance based on the size and industry of the employer. Each employer has different risks and some businesses are more susceptible than others for employment-related lawsuits.
However, employers can expect to pay approximately $2,000 to $4,000 annually for a standard employment practices liability policy to cover between five to 20 employees. For larger companies, premiums can cost as much as $15,000. Underwriters for employment practices liability insurance price premiums and deductibles according to:
- Number of Employees
- Company Annual Revenue
- Employer’s Claims History
- Employee Turnover Rates
- Hiring and Firing Procedures
- Workplace Rules and Regulations
Underwriting guidelines and pricing structures vary depending on the insurance company. Businesses should compare the rates of multiple carriers to ensure the best premium for employment practices liability insurance. Most policies will include a set limit for payouts for each covered incident, in addition to a policy limit for defense and investigation. The cost of employee practices liability insurance is minimum in comparison to what employers would have to pay if they are subject to a discrimination or harassment lawsuit from an employee.
Employment practices liability insurance is a necessity for businesses to protect their reputation and finances against employees who make claims of discrimination, harassment, and misconduct in the workplace. To get this insurance, employers should contact a company that specializes in business insurance. An employer should thoroughly communicate with their insurance agent the risks and financial status of their business to obtain adequate limits of coverage to protect their company in case of employment-related lawsuits.
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