4 Ways to Protect Your Business from Lawsuits (Hint: EPLI Insurance)

Business.com / Insurance / Last Modified: February 22, 2017

Employment practices liability insurance makes sense anytime a venture has bosses and workers. Here are 4 ways EPLI could help your...

The Beatles sang a great message, but in business, employers and employees can't always 'work it out,' and all the fussing and fighting between them can lead to lawsuits that can cripple a company. That's why employment practices liability insurance makes sense anytime a venture has bosses and workers.

EPLI protects your company, your managers and employees from legal action alleging unfair employment practices (Tweet This!). This could include lawsuits claiming harassment, breach of employment contract, and invasion of privacy, among others. How exactly does this insurance protect your business?

Consider the following scenarios in which Employment Practices Liability Insurance coverage could help save your business:

1. Your employee believes her performance was evaluated unfairly:

A negligent evaluation lawsuit is one in which employees sue their employers for "unfairly low or otherwise inaccurate" performance evaluations, according to the International Risk Management Institute (IRMI). If an employee takes legal action against you for negligent evaluation, your EPLI can help pay legal costs and any judgment or settlement.

Related:Why Even a Small Business Needs Workers' Compensation Coverage

2. An employee thinks he was unfairly fired because of his age:

Wrongful termination and wrongful discipline lawsuits are on the rise, according to the IRMI. As a business leader, educate all managers and supervisors about what constitutes legal termination and what doesn't (for example, discrimination based on age, gender, race, or other non-performance based characteristics). Your EPLI policy can help you pay for wrongful termination or discipline suits in court and for the final judgment or settlement.

3. An interviewee believes she was denied employment based on gender:

Unless you run a modeling agency, physical characteristics shouldn't influence recruiters or managers at all in their employment or promotion of personnel. If your company becomes involved in a lawsuit for failure to employ or promote or for deprivation of a career opportunity, your EPLI can help you defend or settle it.

4. Your employee blames a supervisor for causing emotional distress:

Offices can be stressful places, but managers should avoid wrongfully inflicting or encouraging stressful situations. In a lawsuit for wrongful infliction of emotional distress, your EPLI policy can help protect your business and the manager involved.

Related:Download our free Business Insurance Checklist to safeguard your startup.

Is your business covered?

Some -- but not all -- general business liability insurance policies include employment practices liability insurance. Check the details of your policy or ask your agent to see whether you're protected; if not, consider purchasing standalone coverage. Coverage limits can range between $1 million and $25 million (Tweet This!).

One warning: Most employment practices liability insurance policies exclude criminal conduct and intentional discriminatory acts and limit coverage whenever there's an acquisition, merger, or major layoff.

Even when you have coverage, the best strategy is to avoid issues that might spark a dispute (Tweet This!). The insurance information institute (III) offers simple steps to dodge ELPI lawsuits in your business:

  • Institute and monitor effective hiring and screening practices throughout the workplace.
  • Post corporate rules and policies prominently around the office and in employee handbooks.
  • Educate employees about what to do in the event of an employment practices issue.
  • Make sure all employees, especially supervisors and managers, know and apply company standards and regulations.
  • Document all employment practices liability events as well as the steps taken to right them and prevent similar occurrences in the future.

Related:5 Ways to Lower Your Business Insurance Premiums

No business owner wants to provide an unhealthy or unsuccessful environment for employees.  Nonetheless, no one's perfect and sometimes businesses, managers, employees, and employers make poor decisions. Employment practices liability insurance can help you and your company recognize those mistakes, right them, and move on. And that's beneficial to anyone involved.

Carrie Van Brunt-Wiley is the editor of HomeownersInsurance.com.

(Image via freeditigalphotos.net)

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