Employment practices liability

What it covers

Claims brought by employees, and often by former employees and candidates, arising out of the employment relationship rather than out of an injury.

• Discrimination on any protected basis
• Harassment, including claims about the conduct of other employees
• Wrongful dismissal, constructive dismissal and retaliation
• Failure to promote or to hire
• Breach of an employment contract
• In some policies, wage and hour claims, though these are frequently limited or excluded

Defence is the point

Most employment claims are resolved without a finding against the employer, and the cost is the defence rather than the settlement.

That cost arrives regardless of merit. Responding properly to a claim that goes nowhere still takes legal time, and it is the expense small businesses are least prepared for.

So the value of the cover is not really in the payout. It is in being able to defend a claim properly rather than settling because defending is unaffordable.

It is claims-made

Like professional liability, EPLI is normally written on a claims-made basis: the policy in force when the claim is made is the one that responds.

So the retroactive date and tail cover apply here in the same way, and a lapse can remove cover for conduct that took place while you were insured.

It also means the policy generally excludes claims and circumstances you already knew about when you bought it. Buying after an incident has arisen rarely works.

What insurers look for

Underwriting focuses on the practices rather than the industry, which means the things that reduce the premium are the same things that reduce the risk.

Written employment policies, a handbook that is actually issued, documented performance management, a route for raising complaints, and consistent records of hiring and dismissal decisions.

Several insurers provide access to employment guidance as part of the policy. For a business without an HR function that is frequently worth more than the cover itself.