Truth to be told, most business owners see insurance as something to simply cross off their list rather than a long-term investment. However, with the right insurance for your startup business in place, you are able to protect your business against unnecessary claims and unforeseen situations.
While having a healthy relationship with your employees is essential for establishing a conducive workplace, it doesn’t guarantee a smooth sailing operation. According to reports, over 40% of employment-related claims are filed against business with 15-100 employees. And as a startup company, you are at risk for malpractice claims and employee lawsuits that, if not addressed properly, can cause huge trouble to your business.
This is where Employment Practices Liability Insurance (EPLI) comes to the rescue. In this article, we break down EPLI coverage, who needs it, and why it matters for your startup company.
That’s a lot of letters...What is EPLI?
Employment Practices Liability insurance provides coverage against employment-related lawsuits arising from wrongful doings such as discrimination, retaliation, breach of contract, wrongful termination, sexual or discrimination harassment, and other work-related issues. This means that if there are allegations coming from employees due to hiring or firing problems, as well as disputes resulting from discriminative situations, EPLI will reimburse all the defense costs associated with the case.
Keep in mind that EPLI is not a magic solution that will prevent your employees from filing claims against your company. But it will protect your managers, officers, directors, employees, and the owner of the business. Regardless if you win or lose the case, expenditures including legal fees and settlement charges are covered by the policy. Other coverage of EPLI includes the following but is not limited to:
- Wrongful discipline or accusations of employee demotion.
- Discrimination based on gender, race, religion, and age.
- Libel, slander, emotional or mental distress, and privacy invasion.
Examples of why you need EPLI
Take this scenario: a former employee files charges against you for sexual harassment after allegations of malicious intent resulting to termination of work. Without proper insurance, the amount of money involved defending you and your small business can be exorbenent. In the absence of EPLI, you need to settle legal charges, pay court fees, and hire a defense team out of pocket to uphold the dignity and pride of your company.
Today’s workforce understands their legal rights and even a simple misunderstanding may lead to court battles. A simple wrong question during an interview can be grounds for an employment lawsuit.
Do note that EPLI works as a claims-made policy, meaning the coverage will only take effect if the claim was filed while your policy is active.
- Obtain EPLI insurance even before you hire your first employee.
- Pregnancy discrimination is included in the top trending claims of EPLI.
- Questionable promotions and compensations can be a basis for EPLI case.
EPLI is important for startups
As a startup company, your main goal is to prosper and grow. But along with your goal to expand is the need for new talents and employees. It’s not unusual for new businesses to hire more employees every month and have vacancies over the year. Although growth is good, it also increases the risks of your company. Risk of hiring the wrong people, issues of discrimination, and concerns about promotions or salary benefits all increase with more employees.
So the question of who needs EPLI coverage can have varying answers. Depending on the state in which your business operates, rules might be stricter but the Equal Employment Opportunity Commission (EEOC) has one goal in mind: to take action for workers victimized by employers. Even after one year of operation, you could face claims as a result of employee mismanagement or allegations.
- In 2017, the Equal Employment Opportunity Commission (EEOC) resolved 99,109 charges.
- Retaliation is the leading claim which accounts for 48.8% of all cases.
- Companies paid almost $400 million for settlement charges and employee damages.
The important role of Human Resources
Most of the time, small businesses don’t see the need to build an HR department or even hire an HR specialist. After all, you are just managing a small group of people so why bother creating a department that will manage human resources?
But as your trade grows, who will take care and oversee the needs of your employees? And who will establish the rules following corporate structure?
A growing team of employees means an aggregating number of potential problems. If an employee filed a lawsuit against you, having HR to manage the case, along with having the proper safety policies in place and EPLI can help make things easier. Moreover, HR will help you define the rules with regards to proper hiring and firing of employees, in addition to establishing other workplace conduct policies.
- Before hiring an HR manager, assess his or her expertise with managing employee problems.
- Allow the HR department to shape the practices and culture of your office.
- Abide with employment laws such as the state-required general liability insurance.
Steps to lower your employment liability risks
EPLI coverage - who needs it? Basically, everyone with employees, but startup businesses should prioritize it since they are highly at risk for employment issues. If you can’t totally avoid employment issues, at least minimize the damage or predict them early on to avoid bigger problems. One good trick to steer clear from future employment problems is to formulate a strong employee handbook:
- It should be clear, precise, and specific to various conditions.
- It should provide and demonstrate an equal opportunity to all employees.
- It should contain all the necessary procedures and reports following complaints.
While having the right insurance coverage will limit your exposure from employment liabilities, you must also do your part to lower the risks of your business. Meet with different insurance carriers to know the exact coverage and needs of your trade. Likewise, quote prices from various providers to compare the cost of an EPLI policy.