How Employment Practice Liability Insurance Can Save Your Business Thousands

You’ve invested years (and a ton of money) into building a successful business. Everything’s humming along nicely—until one day, an employee accuses a supervisor of discrimination. Or someone else files a harassment claim, alleging a hostile work environment. Suddenly, you’re facing legal fees, negative publicity, and the possibility of a hefty settlement. Situations like these can blindside business owners and stall growth in a heartbeat.

Situations like these can blindside business owners and stall growth in a heartbeat.

That’s exactly why employment practice liability insurance—often referred to as EPLI—exists. In this blog, we’ll dive into the top three workplace lawsuits businesses commonly face and how EPLI coverage can step in to prevent those legal costs from spiraling out of control.

Understanding the Rising Risk of Workplace Lawsuits

Employment-related lawsuits are more prevalent than ever. With ongoing changes in workplace regulations and a societal push for greater accountability, small and large companies find themselves under the microscope. A simple misunderstanding can snowball into a legal crisis.

Why should you care? Because defending yourself—even against meritless claims—can be brutally expensive. Attorney fees, settlement costs, and potential reputational damage can all add up quickly. Worse still, if you don’t have proper insurance, these expenses come directly out of your pocket. Employment practice liability insurance covers legal fees, settlements, and certain judgment amounts tied to workplace-related claims.

Let’s look at the most common lawsuits that put your company at risk.

1. Discrimination Lawsuits

Discrimination claims can stem from an employee’s perceived unfair treatment based on race, gender, age, religion, disability, sexual orientation, or a range of other protected characteristics. Regulatory bodies like the Equal Employment Opportunity Commission (EEOC) have seen thousands of such complaints filed each year. Even if a claim lacks merit, you’re still required to respond and defend your company in court—or risk losing by default.

Real-World Impact

  • Legal Fees: Lawyer costs can reach tens or hundreds of thousands of dollars, particularly if the case drags on.
  • Settlements and Damages: If an employee convinces a jury of discriminatory behavior, you could be liable for back pay, punitive damages, and emotional distress compensation.
  • Reputational Damage: Negative press can erode customer trust, reduce employee morale, and harm your recruitment efforts.

How EPLI Provides Relief

With employment practice liability insurance, you can tap into resources that help cover these expenses. A well-crafted EPLI policy typically pays for attorney fees, court costs, and certain judgments or settlements if you face a valid discrimination claim. Some insurers even offer risk management tools, like policy templates and training modules, which help reduce the likelihood of a lawsuit in the first place.

2. Wrongful Termination

Despite “at-will” employment in many states, wrongful termination lawsuits are alarmingly common. An employee may claim they were let go for discriminatory reasons or that they faced retaliation for reporting a workplace issue. If you terminate someone without following proper documentation or progressive discipline procedures, you also become an easier target for legal challenges.

Potential Consequences

  • Back Pay and Lost Wages: Courts may award the employee compensation for time out of work, plus interest.
  • Punitive Damages: If the termination is found to be especially egregious, punitive damages can inflate your total liability well beyond the original pay.
  • Emotional Strain: Defending your business in court can be draining for leadership and HR teams, distracting them from important daily operations.

How EPLI Mitigates Damage

In a wrongful termination claim, employment practice liability insurance can help offset the cost of legal defense and potential settlements. It may also provide you with legal experts who can guide you in handling delicate terminations more effectively—reducing the risk of legal backlash.

3. Harassment Claims

While sexual harassment often gains the most attention, harassment can take many forms. It might be a repeated pattern of offensive jokes, bullying behaviors, or even intimidation tactics. Whenever an employee feels unsafe or demeaned, you risk an EEOC complaint or a direct lawsuit if they believe you haven’t addressed the issue promptly and fairly.

Financial and Cultural Fallout

  • Extensive Settlements: High-profile harassment cases can lead to massive payouts, especially if a pattern of misconduct is shown.
  • Higher Turnover: If your workplace is labeled “toxic,” you’ll likely see more employees heading for the door.
  • Loss of Public Trust: Harassment scandals can severely damage relationships with customers, partners, and the community.

How EPLI Helps

From a legal standpoint, handling harassment complaints can be complex. Employment practice liability insurance covers many forms of harassment claims, including attorney fees and court-ordered settlements. Insurers may also offer best practices for handling complaints internally, like training managers to respond immediately and documenting the steps taken to resolve issues.

Even the most diligent organizations can face discrimination, wrongful termination, or harassment claims. If you’re unsure whether your current policy covers legal defense and damages in these areas, reach out to McGhee to walk through your options.

Talk to an Expert

Key Features of an EPLI Policy

An EPLI plan typically covers a range of claims that fall under the umbrella of employment-related issues. But what exactly can you expect?

  • Legal Defense Costs: Attorney fees alone can sink a small business in a serious lawsuit. EPLI steps in to handle these expenses, potentially up to the policy limit.
  • Settlement and Judgment Coverage: If a claim ends in a settlement or an unfavorable court verdict, the insurance can pay up to your coverage limits, sparing your assets.
  • Optional Coverage Add-Ons: Some policies offer extended coverage for wage-and-hour disputes or specific guidelines around claims involving independent contractors. Discuss add-ons with your insurance agent to tailor coverage to your unique risk profile.
  • Risk Management Resources: Insurers want to reduce claims, too. Many provide HR consultation hotlines, employee handbook reviews, and sample workplace policies to help you cultivate a compliant and respectful work environment.

Best Practices to Avoid Lawsuits in the First Place

Although EPLI is a powerful safety net, prevention remains your first line of defense. Here are a few tried-and-true ways to reduce the likelihood of litigation:

  • Document Everything: Maintain clear records of employee performance evaluations, disciplinary actions, and communications related to any workplace disputes.
  • Provide Ongoing Training: Regular anti-discrimination, harassment, and diversity training can help create a more inclusive culture and reduce unconscious biases.
  • Establish Clear Policies: It is crucial to have a well-drafted employee handbook that outlines acceptable behavior, complaint procedures, and disciplinary guidelines. Make sure everyone acknowledges receipt.
  • Respond Promptly to Complaints: When employees come forward with issues, investigate thoroughly and document the steps you take. A swift, transparent response often prevents escalation.

Is EPLI Affordable?

Despite the nightmare scenarios tied to workplace lawsuits, many business owners worry about adding another insurance premium to their monthly costs. Fortunately, EPLI often turns out to be more affordable than you’d think—especially when you weigh it against potential legal bills.

  • Size and Industry: The cost of your policy will depend on the number of employees, the nature of your business, and your claims history. High-risk industries like retail, hospitality, or manufacturing may face slightly higher premiums.
  • Policy Limits: As with any insurance, choosing a higher coverage limit often raises your premium. Work with your agent to determine a reasonable limit, given your risk tolerance and budget.
  • Bundling Opportunities: Some insurers offer package deals if you combine EPLI with other business coverages, such as general liability or property insurance, bringing down overall costs.

The Reputational Angle—More Than Just Money

While the financial burden of a lawsuit is enough to make most businesses sweat, the reputational toll can be equally devastating. Local news outlets might report a discrimination or harassment lawsuit, overshadowing your company’s accomplishments. Customers and partners could lose trust, worrying that your internal culture might be problematic or that your leadership is careless about employees’ well-being.

Employment practice liability insurance helps limit the financial damage, allowing you to invest the resources needed to address internal issues quickly. Demonstrating your commitment to a fair and respectful workplace can help in turning the tide of public opinion, reassuring stakeholders that you’re taking immediate and meaningful action.

Protect Your Business With McGhee Insurance Agency

Ready to safeguard your company’s finances—and reputation—from workplace lawsuits? Don’t wait until a lawsuit is looming to discover the value of employment practice liability insurance. Reach out for expert advice on how EPLI can save you thousands—and keep your company thriving, no matter what challenges come your way.

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