Employment practices liability insurance protects your business finances if a current or former employee sues the company.
EPLI is a good idea for any company that has employees, since other business insurance policies that protect against legal risks — like general liability insurance — exclude employee lawsuits. But it typically isn't a legal requirement.
Save up to 30% on business insurance
NerdWallet Small Business helps you get real-time quotes from 30+ insurers, and instant access to your Certificate of Insurance (COI) through our partner, Coverdash.
What does employment practices liability insurance cover?
Employment practices liability insurance protects your business against claims by employees that the company has violated their rights.
EPLI typically covers the following types of claims:
- Discrimination based on age, disability, gender, national origin, race or religion.
- Sexual harassment.
- Wrongful termination.
- Retaliation (taking negative actions against an employee because they report discriminatory practices).
- Employment-related defamation.
- Invasion of privacy.
- Failure to promote.
- Breach of employment contract.
- Deprivation of a career opportunity.
- Negligent evaluation.
- Lack of appropriate pregnancy and lactation accommodations.
Some policies may provide limited coverage for:
- Immigration claims, such as failure to check an employee’s work status.
- Wage and hour claims.
Generally, EPLI covers actions that anyone within the organization commits, from entry-level employees to owners. Most policies cover defense costs if a case goes to court and settlement costs if it doesn't.
EPLI policies are not as standardized as some other types of business insurance. For that reason, we recommend working with an insurance agent to find the right policy for your company.
Save up to 30% on business insurance
NerdWallet Small Business helps you get real-time quotes from 30+ insurers, and instant access to your Certificate of Insurance (COI) through our partner, Coverdash.
What does employment practices liability insurance exclude?
EPLI doesn’t provide coverage for every type of employment-related claim. It usually doesn't cover the following:
- Employee illnesses and injuries. You’ll need to purchase workers' compensation insurance to cover employee injuries and illnesses that occur on the job.
- Employee theft. To cover acts of employee dishonesty, you’ll need to buy a fidelity bond or a commercial crime insurance policy.
- Professional errors. If someone in your company makes a professional error that triggers an employee lawsuit, EPLI won't cover it. You’ll need separate malpractice or professional liability insurance.
- Management decisions. EPLI doesn’t cover certain types of management decisions or board of director decisions, such as improper use of company funds or failure to follow company bylaws. In those cases, directors and office insurance can provide coverage.
- Union disputes. Claims arising from labor relations disputes or collective bargaining agreements aren’t covered by EPLI.
- Unemployment insurance claims. Most states have agencies devoted to handling unemployment benefit claims, and they don’t fall under the scope of employment practices liability insurance.
EPLI carriers generally only provide limited coverage for wage and hour claims and breach of contract claims. Some carriers might not cover such claims at all, and others might offer lower coverage or only cover court costs.
A few insurers cover lawsuits by 1099 independent contractors. But most EPLI policies are designed only to cover legal claims initiated by W-2 staff employees. If you need coverage for contractors, ask your agent to help you find a policy.
Claims-made vs. occurrence-based policies
There are two types of EPLI policies: claims-made and occurrence-based.
Claims-made EPLI policies are most common. In these cases, a claim will only be covered if the incident happened and the employee’s lawsuit was filed while the policy was in effect.
An occurrence-based policy, on the other hand, will cover claims that occurred during the policy period, even if the lawsuit was filed after the policy expired.
Claims-made policies are generally cheaper than occurrence-based policies. But the downside is that you have to regularly keep renewing your policy on time to ensure no gaps in coverage. Occurrence policies avoid that, but they're usually more expensive.
Do you need employment practices liability insurance?
Any small-business owner with employees should consider buying employment practices liability insurance, but it’s especially important in industries that have high rates of employee turnover.
Employees in those industries are more likely to allege discrimination, sexual harassment or wrongful termination. Those are the main types of legal claims that EPLI covers. Restaurants, retailers and construction and manufacturing companies are all high-turnover businesses that should consider EPLI.
How much does EPLI cost?
The median cost of an employment practices liability insurance policy is $222 per month or $2,665 per year, according to Insureon, an online business insurance marketplace.
The following factors will affect the cost of your policy:
- How many employees you have.
- Type of employees (full-time, part-time or seasonal).
- Industry.
- Location. Operating in a state like New York or California can increase cost because these states offer more legal protection for employees.
- High employee turnover rates at the company.
- Your company’s claims history.
- Hiring and firing procedures.
- Documentation of employee training and conduct.
- Amount of coverage and size of deductible.
How to lower the cost of employment practices liability insurance
The best way to lower the cost of EPLI coverage is to have safeguards in place that minimize the risk of employee lawsuits. Consider taking the following steps:
- Assess the business’s discrimination and harassment risk factors and take steps to minimize those risks.
- Make sure all employees are trained on your business’s anti-discrimination and anti-harassment policies and complaint procedures.
- Share information about discrimination and harassment prevention early and often. This includes in your employee handbooks, during new employee orientation, during employee meetings and in any internal newsletters.
- Hold employees accountable for complying with your anti-discrimination policies.
- Ensure that employees aren’t retaliated against for reporting employment discrimination or taking other actions protected by law. Retaliation is the most frequently alleged basis in charges of discrimination filed with the U.S. Equal Employment Opportunity Commission.
- Seek assistance as appropriate. The EEOC’s Small Business Resource Center website has information tailored for small businesses. The EEOC also has designated small-business liaisons in offices across the country who can provide free information and training.
An employment lawyer can help you adopt these best practices.
Where to get employment practices liability insurance
We generally recommend working with an insurance agent for specialized types of coverage like EPLI. However, a few companies let buyers tack ELPI onto other policies.
- Ergo Next, an online business insurance company, sells it as an add-on to general liability insurance.
- The Hartford sells it as an add-on to a business owner's policy. Some businesses might be able to get quotes online.
- Nationwide and Travelers also sell EPLI as an add-on to a BOP, but you'll have to work with an insurance agent.
For a more robust EPLI policy, turn to your local insurance agent.
