Have Employees? You Better Have EPL Insurance

The menu of insurance products a company needs can be extensive and depends largely on a number of variables, including the nature of its services, the state or states in which it operates, its operations model and a range of other factors. But there is one insurance product that is essential for every business — at least every business with employees.

Employment Practices Liability Insurance (EPLI) covers business owners in the event of a lawsuit claiming a violation of U.S. Employment Practices regulations, which can include everything from wrongful termination to sexual harassment to discrimination to emotional distress and a long list of other wrongdoings.

According to Doug Groves, Principal at EZ CERT Management, employers without EPLI risk catastrophic damages.

“You have to understand that these types of claims are not covered under general liability insurance or workers compensation policies,” he said. “You have to have EPLI, or you risk losing your business and potentially far more.”

Groves says anyone curious about how companies are affected by Employment Practices Liability claims need only read the news, which is filled with stories of companies being sued for violations.

“There are new examples each day, and they tend to catch on in the news,” he said. “Companies are being sued for sexual discrimination and harassment, and it can be damaging to the business.”

Groves points to Forbes top 50 company as a recent example of a company reeling from Employment Practices Liability violations. The global sportswear brand has been accused of passing over women for promotions and paying them less than their male counterparts. Many former employees joined a class-action lawsuit against the brand.

“They are an enormous company with a massive legal department, but it doesn’t matter if they win the suit or not, the lawsuit is expensive and damaging to the brand,” he said. “Ultimately, two top executives had to resign.”

While this company can absorb that kind of damage, most smaller brands cannot. Groves says franchise brands face an extra level of risk because they have so many owners and managers but just one brand.

“Any franchisee who is underinsured and accused of a violation can lose their store, which can snowball into something very damaging for the brand at large,” he said.

Groves recommends that franchisors add EPLI to their FDD requirements to make sure that every franchisee is properly covered.

“Too many insurance packages do not properly cover these types of claims,” he said. “Franchisors need to make sure that all of their franchisees are adequately covered.”

Even an established franchisor would do well to add EPLI to their FDDs. “EZ CERT has watched over a number of franchise brands as they add coverage midstream, and it always goes very well,” Groves said.

Groves says EPLI is one of the most common and important insurance products businesses purchase, and yet too many companies are still under-covered.

“It is absolutely crucial, it should be a baseline coverage, but some companies just don’t understand the importance or they don’t realize that they are under-insured,” he said. “It’s something that every company needs to be on top of. The stakes are just too high to risk under-coverage."