Your Employment Practices Liability Insurance (EPLI) Might Not Cover Your Business From the Fastest Growing Law Suit

Posted in: Commercial Insurance

While Employment Practices Liability Insurance (EPLI) provides coverage against grievances such as discrimination, harassment, retaliation, wrongful termination and employment-related misrepresentation, wage and hour claims are often not covered. And there has recently been a rise in these types of claims.

The Fair Labor Standards Act (FLSA) protects workers from unfair labor practices such as unequal pay, excessive work hours, lack of overtime compensation, and unsafe working conditions in the United States. FLSA can differ from state laws so be aware of both because when the state law is different from FLSA then your organization must follow the one that is more favorable to the employee. One of the reasons for the rise in wage and hour claims is that people have become more aware of these laws.

Who needs an EPLI policy?

Many may think EPLI coverage is only needed for large companies, however:

  • The United States Liability Company (USLI) reports that over 40 percent of employment practice liability claims are brought against private employers with fewer than 100 employees.
  • In a recent survey by USLI, 73.5 percent of companies defended employment-related litigation over the last three years mainly including discrimination and wage and hour complaints.
  • The number one area for litigation over the past three years has been labor and employment matters against companies.  The complaints are reviewed by the EEOC (U.S. Equal Employment Opportunity Commission) who is the “judge” on these claims and they do not initially go to court.  (The only way a case would go to court is if it was appealed to a higher authority and that would be most likely handled in the federal court system.)
  • According to the United States Liability Insurance Group, 47% of plaintiff verdicts in EPLI cases are between $100,000 and $500,000, and the average cost of defense is $150,000.

Do you know what your EPLI policy covers?

EPLI coverage provides a wide scope of protection in employment related matters but not all EPLI policies provide coverage for wage and hour claims. Make sure you know exactly what your policy provides. Often there’s a sublimit for wage and hour claims and often it provides defense only coverage for legal costs such as attorney’s fees and won’t pay any of the fines, penalties, or rewards if found liable.

Be Cautious When Classifying Employees

To help protect your company from a wage and hour claim, do not classify every employee as exempt from overtime. Most employees are not exempt from overtime. Also, always make sure to document reasons why an employee is considered exempt and include the job description. Exempt vs. non-exempt does not mean salary vs. hourly. If your company has non-exempt employees, then we recommend making sure your EPLI policy has wage and hour coverage.

If you are a small business, a wage and hour claim could potentially close your doors. If you don’t have a full-time human resources department that is versed in employment law, please seek labor counsel to ensure employees are being correctly classified. You can also check with your EPLI carrier to see if they have resources you can access for counsel regarding proper precautions. We recommend this especially when your company is planning to terminate someone.

If you have any questions about what your EPLI policy covers, please contact me at cmorsberger@psafinancial.com