Among a business owner’s many responsibilities is to treat his/her employees fairly and professionally. However, despite one’s best intentions, there is always the risk of employment-related claims arising from various workplace issues, and claims are on the rise. In 2022, the Equal Employment Opportunity Commission (EEOC) received 73,485 new discrimination charges representing an increase of almost 20% over charges filed in 2021. 2023 is on pace to surpass the number of 2022 EEOC charges filed. Plaintiffs are filing class-based-employment claims in higher numbers than ever, and class actions involving EEO claims have resulted in historic settlement amounts. The EEOC reports 50% of the charges filed each year are against small and mid-sized employers, with the most common target being organizations with 15 to 100 employees.
How can a business protect itself from the surge in employment-related claims? In addition to staying abreast of employment law and hiring the best HR professionals, business owners should consider Employment Practices Liability Insurance (EPLI) to protect their business from financial and legal setbacks arising from claims. This blog will explain the rise in employment-related claims and Employment Practices Liability Insurance’s benefits, limitations, and cost.
What is Driving an Increase in Employment-Related Claims?
Various social movements occurring over the past several years have contributed to an increase in employment litigation. The EEOC reports the 2017 #MeToo movement has contributed to a 50% increase in sexual harassment lawsuits against employers over the last five years. Additionally, the Black Lives Matter movement may have contributed to employees speaking out against racial inequities on the job and become a factor in increased race-related harassment and discrimination lawsuits. In a monumental decision from a trio of cases issued on June 15, 2020, the United States Supreme Court ruled that Title VII of the Civil Rights Act of 1964 prohibits discrimination on the basis of sexual orientation and/or transgender status. The ruling likely encouraged LGBTQ employees to hold employers accountable for unfair treatment through employment practices claims.
COVID-19 caused a massive upheaval in the workplace, the effects of which are still being felt. Employers quickly drafted and implemented policies on a multitude of employment-related issues such as remote work, layoffs, reduction in hours, vaccinations, and other unprecedented workplace conditions. This led to an increase in claims alleging wrongful termination, discrimination, and retaliation among others. The pandemic also led to many OSHA safety violation claims alleging unsafe working conditions caused by sickness and/or death due to COVID-19 and employers’ failure to take appropriate actions to reduce COVID-19 exposure and spread in the workplace.
Marijuana Legalization Considerations
For the past decade, many states have been moving toward the legalization of marijuana. Currently, 23 states and Washington, D.C., have legalized recreational use for adults 21 years and older, while 38 states have legal medical marijuana programs. In part, because of outdated drug usage and testing policies, employers are getting sued. Advisen, an insurance market data provider, recently provided loss data showing 40% of marijuana-related employment law claims have stemmed from wrongful termination allegations such as an employee getting fired for a positive drug test, even though they were using marijuana away from work for legal medical reasons. Other employees using medical marijuana are filing disability discrimination claims under the ADA. Courts are grappling with the question of whether an employer can take an adverse action against an employee simply because of that employee’s participation in a state-authorized medical marijuana program or whether the employer must accommodate that employee’s use of medical marijuana.
What is Employment Practices Liability Insurance (EPLI)?
EPLI is a type of insurance that protects businesses from legal claims by employees or job applicants. It covers an employers’ defense costs and losses from employment-related claims, including wage and hour disputes and allegations of discrimination, harassment, retaliation, and unlawful termination. Besides providing financial protection, other key EPLI aspects are:
- Customizable Coverage – Coverage is customizable meaning it can be tailored to suit the specific needs and risks of a business. A small startup likely has different coverage limits and deductible needs than a large corporation.
- Legal Expertise – In the event of a claim, EPLI policies often include access to legal experts who specialize in employment-related disputes providing in invaluable resource to help navigate complex legal proceedings and ensure a fair resolution.
- Protection Against Unforeseen Risks – Despite a business’ best intentions and stringent, well-drafted policies, unexpected disputes and issues arise. EPLI provides peace of mind knowing a business is protected and prepared to manage unforeseen issues.
Are EPLI and Employer’s Liability Insurance the Same?
No, they are very different. Employer’s Liability Insurance covers organizations against claims by employees who sue them for a job-related injury or illness. On the other hand, EPLI only deals with employment practices-related suits.
“Employment practices” refers to all actions, processes, and procedures related to the work environment. This begins with the hiring process, is ongoing through employment and continues through and after termination. At every step and through all stages of employment, organizations must ensure that all their employment practices comply with all federal, state, and local employment-related regulations. Actual or perceived failure to comply with these regulations may result in lawsuits potentially covered by EPLI.
Some examples of common employment practices-related claims are:
- Discrimination – Unfair treatment on the basis of certain attributes.
- Harassment – Unwanted behavior like sexual harassment or bullying.
- Retaliation – Harassing treatment or termination in response to an employee exercising his/her legal rights.
- Wage and Hour – Failure to pay required overtime.
- Negligent Hiring – Failure to take reasonable precautions when hiring.
- Wrongful Termination – Illegally terminating an employee.
- Promotions – Illegal failure to promote.
- Invasion of Privacy – Illegally divulging private employee information.
What is the Cost of ELPI?
The cost of EPLI varies based on several factors including:
- Number of employees
- Type of employees (full-time, part-time, or seasonal)
- Hiring and termination practices
- Documentation of employee training and conduct
- Amount of coverage and size of deductible
- Location (New York or California may increase cost because these states offer more legal protections for employees)
- Employee turnover rate
- Risk profile
- Past EPLI claims’ history
What Isn’t Covered by EPLI?
Because EPLI policies vary by state and insurance carrier and exclusions are affected by circumstances unique to a business’ industry and claims’ history, there isn’t an all-encompassing list of exclusions. However, the following are some common EPLI exclusions:
- Bodily Injury
- Contractual Liability and Breach of Employment Contract Claims
- Unemployment Insurance Claims
- Criminal and Fraudulent Acts
- Employee Illnesses and Injuries
- Professional Errors
- Strikes and Lockouts
- Employee Theft
- Union Disputes
Get Smart HR
EPLI is not meant to replace sound and secure employment practices. In fact, employing seasoned HR professionals and strictly adhering to comprehensive policies can mitigate the cost of EPLI premiums. When applying for EPLI, businesses should be prepared for a thorough review of all HR functions prior to receiving coverage approval. If you are interested in more information on EPLI or want to shore up your HR policies and procedures in preparation for applying for EPLI, Smart HR is here to help. Call today.