EPLI Coverage: What It Entails and Why You Need It

Franchise giant McDonald’s has had a tumultuous end to 2019, to say the least. After news broke that CEO Steve Easterbrook had been fired for carrying on a consensual relationship with an employee, a class action lawsuit was levied against the brand claiming the presence of a systemic culture of sexual harassment. According to an NPR report, upwards of 50 individual claims of harassment of female employees are pending against McDonald's, both in court and at the Equal Employment Opportunity Commission.

Beyond just the social and cultural ramifications the brand stands to face as a result of these suits, the financial ramifications harassment and discrimination claims bring about are palpable, even for a company as well-resourced as McDonald’s. So, what should businesses be doing to ensure they are not exposed to the same bottom-line vulnerability McDonald’s is currently grappling with? 

It begins with employment practices liability insurance, EPLI, for short—namely, understanding what it is, what it covers (and doesn’t), and what companies should be doing organizationally to ensure they have systems in place to protect themselves.

The EEOC defines sexual harassment as “unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature when this conduct explicitly or implicitly affects an individual’s employment, unreasonably interferes with an individual’s work performance, or creates an intimidating, hostile, or offensive work environment.”

Sexual harassment claims such as those facing McDonald’s fall within the realm of EPLI coverage, as do other forms of harassment and discrimination including those on the basis of race, ethnicity, sexual orientation and age, among others. And while applicable to all businesses, EPLI coverage holds particular importance in the franchising space due to the threat claims can pose to not only franchisees but franchisors, too.

“The world is different than it was even 20 years ago. Toxic organizational cultures are being revealed because people won’t take it anymore,” said Doug Groves, insurance expert and president of franchise insurance compliance solution EZ CERT. “Businesses must remember that as soon as they hire even one employee, they open themselves up to exposure. It’s a liability that you cannot ignore, and you need EPLI coverage because you don’t want the whole company to go down because of the actions of a few.”

As with any claim, the specific facts and circumstances surrounding the matter will be critical in determining whether EPLI coverage is ultimately triggered. That being said, Groves warned that while coverage is indeed available to protect franchisors and franchisees in the event these claims arise, insurance companies are treating them differently than they were in the past, so it behooves franchisors to look inward and establish the necessary systems organizationally to prevent these situations in the first place. The onus, Groves said, ultimately falls on companies to have the proper organizational structure to get the coverage needed to be protected in the event a claim arises. 

“As an owner, it is ultimately your responsibility to provide a safe work environment,” Groves said. “Make sure you’re protecting your employees and customers, and as a result, your bottom line. With insurance, you can ensure those affected can be taken care of, but other steps should be taken to educate and inform. Train your staffs and franchisees on what harassment and discrimination look like to not only ensure specifically targeted language isn’t used that can give rise to an EPLI claim, but, most importantly, also so they know that if they hear or see something, they need to notify the management team immediately.”

Put simply, business owners—and franchisors, for that matter—need to establish protected channels for employees to report incidents of harassment and discrimination confidentially. Such channels come in many forms; some companies employ a third-party company that has a hotline they can call to report incidents, while other businesses use in-office secure submission boxes for claims.

Harassment and discrimination that arise in the workplace, whether sexual in nature or on the basis of age, race or ethnicity or otherwise, is a serious matter and needs to be addressed swiftly and systematically in order to keep a business or franchise from facing an EPLI claim. By taking the necessary steps to create a culture in which such behavior is reprehensible, businesses are best positioned to prevent such issues from arising—and in the event they do, insurance is there to protect the impacted.