Employment practice liability insurance (also known as EPL or EPLI policy) is a policy meant to protect companies in case of issues related to employment practices. EPLI covers issues related to discrimination, wrongful termination or harassment at work environment for instance.
EPLI is particularly important for small and medium sized companies as, contrary to large corporation, they are more vulnerable to EPLI claims: SMEs don’t have legal department or employee handbook that explains the procedure regarding recruitment, code of conduct or termination of an employee.
Small firms should take employment practises liability insurance, or EPLI, seriously given the high cost of employee claims and their rising frequency. Although it is not required by law in the United States, EPLI offers coverage that goes beyond a basic professional liability plan by defending your business in the event that current, former, or potential employees file a lawsuit alleging unfair treatment.
Even though companies may be tempted to reduce their liability insurance after making staff reductions, it is still crucial to carry out an accurate business risk assessment. The expense of an EPLI policy that would cover specific losses might be outweighed by the danger of increasing legal fees combined with tougher state employment rules.
What is covered under employment practice liability insurance?
EPLI usually covers the following items (not an exhaustive list)
- Wrongful Termination: it will occur if the staff is terminated without respecting the terms of contract or local employment law
- Discrimination: if employee is treated unfairly, like failure to promote due to sex, race, age or disability
- Sexual Misconduct or Harassment: if employee is involved in obscene remarks or has been subjected to unwanted sexual advances
- Defamation of Character: it will occur if wrong statement is written or spoken in order to intentionally harm a staff’s reputation.
- Invasion of Privacy: if an employer is accused of conducting surveillance of their employee in areas where privacy should be respected or looking into an employee’s private space without reasonable reasons
EPLI covers the legal costs within the limit of the policy. Take note that EPLI will only cover the financial damages. Other claims relating to staff’s bodily injury are not covered by EPLI but by employer’s liability insurance.
What is not covered by Employment Practice Liability insurance (EPLI)?
Asia’s working environment is less vulnerable but not immune to EPLI claims
Though companies based in China, Hong Kong or Singapore are less exposed to sexual harassment or discrimination in workplace compared to companies in USA for instance, they are nonetheless exposed to retaliation, wrongful discharge or invasion of privacy. The employment law may be more flexible in Hong Kong and Singapore as compared to China, still, many employment practice claims are filed every year, leaving employers with a liability risk.
Many factors come into consideration when evaluating the cost of Employment Practice Liability insurance policy: the number of staff, your claim history, percentage of employee turnover, existing rules and practices within the company, etc. In Singapore, Hong Kong or China, EPLI policy is usually offered as an extension of a Directors’ and Officers’ liability insurance, but seldom as a standalone policy. Premium extension for SMEs under D&O is just a few hundred US dollars, so it is good to consider it together with D&O.
Risks with long term liability
EPLI is usually written on claims-made basis, meaning that issue leading to claim should occur during coverage period. And the nature of EPLI claims is that it can take a long time between the alleged incident and actual claim, so you need to make sure that your company renews its insurance annually or negotiate a tail coverage (extension of liability after the policy expired).
Prevention remains the main way to avoid claims. Make sure that your company establishes a recruitment protocol and that all staff are treated fairly and professionally. It’s best to have your internal policy clearly written out and that these policies are applied diligently throughout the company.
If your company wants to put in place an Employment Practice Liability insurance policy, please contact our team at Clema Risk Solutions with offices in China, Hong Kong or Singapore.