What is Employment Practices Liability Insurance and When Do You Need It?
Nonprofits are businesses that are not organized for profit, but instead are aiming to accomplish a very specific mission. Yes, they’re different from other businesses. But nonprofits ARE still businesses! And businesses need to make sure they’re protected. So today, we’re talking about Employment Practices Liability Insurance (EPLI).
Although nonprofits don’t seem like they’d be typical targets for employment lawsuits, it happens- a lot. These claims can be expensive to defend no matter the circumstances, and if you lose, the financial toll can sink a small organization.
In short, you need employment practices liability insurance. Here’s why (and when)!
“But We Already Have Insurance!”
General liability insurance may protect you if someone slips and falls on your property, but it does nothing when an employee sues. As far as the policy is concerned, you’re on your own.
Many nonprofit founders believe their employees will never file a lawsuit. I mean, we’re all here because we’re passionate about the same mission, right? But the facts and numbers suggest otherwise. Have a look:
- Employment practices claims are more likely to be filed than general liability or property claims.
- Approximately 60% of companies that have fired an employee have faced a lawsuit related to that firing.
- An employment claim typically costs $75,000 to settle out of court.
- Plaintiff verdicts average $217,000.
- Smaller companies account for over 40% of all employment practices claims.
Having an EPLI policy protects the nonprofit from the costs of administrative actions and lawsuits for things like discrimination, sexual harassment, wrongful termination, and much more.
So what does this look like in practice?
Here’s How Employment Practices Liability Insurance Works
Let’s assume you have a volunteer, Susan, who’s been with you since your nonprofit was little more than a brilliant idea. You’ve finally reached the point where you can support a paid position so you start collecting resumes. Susan applies and, while you appreciate her dedication, she’s not qualified for the job, so you hire someone else. She assumes that she didn’t get the position because she’s six months pregnant, so she hires an employment lawyer and sues you.
You know the lawsuit has no merit, but you still have to defend it. The amount you pay for a year or even five years’ worth of insurance is nothing compared to how much you’ll spend defending yourself. Therefore, when you start hiring, EPLI is really critical insurance to have. Chances are that you don’t have a sophisticated HR system in place yet, so it’s important to have protection in place in case you make a mistake- or someone accuses you of making one.
And I know lots of people think, “my people would never sue me!” When you’re a small org and everyone involved is really committed to the mission, it’s hard to imagine a day where something like this would be necessary. But take it from me – you want to be ready for something like this long before it’s necessary. Pay a little now to protect yourself!
What Else Does Employment Practices Liability Insurance Do?
Generally speaking, employment practices liability encompasses the laws and protections of Title VII of the Civil Rights Act of 1964, the ADA (Americans with Disabilities Act) of 1990, the Civil Rights Act of 1991, the Age Discrimination in Employment Act (ADEA) of 1967, and the Family and Medical Leave Act (FMLA). These laws are interpreted and enforced by the Equal Opportunity Employment Commission (EEOC).
A good policy can secure you financially against accusations of the following:
- Illegal background checks (violations of the Fair Credit Reporting Act)
- Issues with unpaid internship programs
- Wrongful termination claims
- Retaliation claims (Retaliation lawsuits accounted for half of all claims sent to the EEOC in 2020. The employers lost half of the lawsuits, with approximately 10% costing over $1 million.)
- Wage and hour violations
- Deprivation of career opportunity
- Failure to employ or promote
- Wrongful discipline
- Breach of employment contract
- Mismanagement of employee benefit plans
- Negligent evaluation
- Wrongful infliction of emotional distress
What If You Only Have Volunteers?
You should still get EPLI, as most of the issues discussed above can apply just as much to volunteers as they do to employees. This means that an EEOC claim may be filed against you if you terminate a volunteer without reasonable cause.
In a properly written EPL policy, volunteers are covered as if they were employees. There are even policies that cover independent contractors and acts allegedly committed against third parties like clients, suppliers, and vendors. The more protection you have, the better!
What Does Employment Practices Liability Insurance Cover?
Take it from a lawyer- lawsuits are really expensive even if you ultimately win. Employment practices liability insurance covers legal costs (regardless of whether you win or lose), settlements, or judgments that arise from employment-related claims. They don’t typically pay for punitive damages or fines, but an experienced nonprofit lawyer can help you try to avoid that kind of outcome.
How much you pay for EPLI coverage depends on your business type, how many employees, volunteers, or contractors you have, and whether there are any risk factors, such as past work-related lawsuits. Like any other type of insurance, the bigger the risk the higher the premiums, but when compared to the outcome of a successful lawsuit, they’re still worth it.
Sounds Great! What’s Next?
Stuff happens. Even when you do your best to be a fair employer, it’s not always enough to prevent a lawsuit. Buying employment practices liability insurance is a lot less expensive than what you’d pay for an attorney- don’t sink your nonprofit trying to defend yourself from an action that has absolutely no merit. As soon as you start hiring employees (or even retaining an executive director on a 1099 basis), start looking at policy options for your growing organization.
Fortunately, getting employment practices liability insurance is easy! It starts by finding a good agent (I can help you with that!) and getting a policy that meets your needs, either as a stand-alone policy or add-on to your business insurance. If you have any questions about EPLI or simply want to connect with me, call 612.200.3679 or contact me here.