You don't need a big HR department to get an employment claim. A Raleigh restaurant with a dozen servers, a Cary dental practice, a Wake Forest contractor with a small crew and a Durham startup with its first hires all face the same basic risk: a current or former employee, or a job applicant, says they were treated unfairly and files a charge or a lawsuit. Employment practices liability insurance, usually called EPLI, exists for exactly that. This guide explains what it covers, how the policies are built and what to have ready for a quote. It's general information, not legal advice or a quote.
What EPLI is and why it's separate
Most small businesses in the Triangle start with general liability or a business owners policy. Those policies protect you when a customer slips in your shop or your work damages someone's property. They are generally not built for disputes with your own workers, and they commonly exclude employment-related practices.
Workers compensation is also different. It pays medical bills and lost wages when an employee is hurt on the job. It doesn't respond when an employee says they were fired because of their age or harassed by a supervisor.
EPLI fills that gap. It's a liability policy for claims about how you hire, manage, discipline, pay, promote and let people go.
The kinds of claims EPLI typically covers
Policy language varies by company, but most EPLI forms address allegations such as:
- Discrimination based on race, color, religion, sex, national origin, age, disability or other protected traits
- Sexual harassment and other workplace harassment, including hostile work environment claims
- Wrongful termination, including claims that a firing broke a contract or public policy
- Retaliation for complaining, taking protected leave, filing a workers comp claim or reporting a safety issue
- Failure to hire or promote for an illegal reason
- Wrongful discipline, demotion or negligent evaluation
- Invasion of privacy, defamation or emotional distress tied to an employment decision
Many policies also cover the costs of responding to a charge filed with the Equal Employment Opportunity Commission, not just lawsuits. That matters because a lot of employment disputes start as an agency charge before they ever reach a courtroom.
The laws Raleigh employers should know
Several overlapping laws drive employment claims in North Carolina. A few that come up often:
- Federal anti-discrimination laws. Title VII of the Civil Rights Act and the Americans with Disabilities Act generally apply to employers with 15 or more employees, and the Age Discrimination in Employment Act generally applies at 20 or more. The EEOC enforces these laws, and North Carolina is served by its Charlotte District.
- The Equal Pay Act applies to almost every employer regardless of size and prohibits paying men and women differently for substantially equal work.
- North Carolina's Equal Employment Practices Act, G.S. 143-422.2, states the public policy against employment discrimination. North Carolina courts have allowed wrongful discharge claims based on that policy in some cases, which means a small employer can face a claim even if it falls below the federal employee counts.
- The Retaliatory Employment Discrimination Act (REDA), G.S. 95-240 and following, protects employees who file or take part in things like workers compensation claims, wage and hour complaints or workplace safety complaints. Complaints under REDA go to the North Carolina Department of Labor.
North Carolina is an at-will employment state, which surprises some owners who assume that means they can't be sued over a firing. At-will lets you end employment for almost any reason, but not an illegal one. An employee only has to allege that the real reason was discrimination or retaliation to start a claim you have to answer.
Why small employers buy it
Even a claim with no merit costs money to defend. You may need an employment lawyer to respond to an EEOC charge, gather records, take depositions and negotiate. EPLI typically pays for that defense along with settlements or judgments, up to the policy limit. Most policies also give the insurance company the right to choose or approve defense counsel, often from attorneys who focus on employment law.
Some Raleigh businesses buy EPLI because someone else asks for it. Franchisors, investors, lenders and larger clients sometimes write EPLI requirements into contracts. Others buy it after a first hire, a quick growth spurt or a difficult termination.
How EPLI policies are built
A few policy features make a big difference in how coverage works:
- Claims-made coverage. Most EPLI is written on a claims-made basis. The claim generally has to be made and reported during the policy period, and the underlying incident usually has to happen after the retroactive date. Keep coverage continuous and protect your retroactive date when you change companies.
- Retention. EPLI usually has a retention, which works like a deductible you pay before the policy responds. Some policies use different retentions for different kinds of claims.
- Defense inside the limit. On many EPLI policies, defense costs reduce the limit available for settlements or judgments. A long defense can use up a meaningful part of a smaller limit.
- Consent or hammer clause. Many policies say that if the company recommends a settlement and you refuse it, the policy may not pay the full cost of what comes after. Read how this clause works before you need it.
- Third-party coverage. This optional extension covers harassment or discrimination claims by customers, clients, patients or vendors. It's worth asking about if your staff works with the public.
Common exclusions and gaps
Every policy is different, but these are frequently excluded or limited:
- Wage and hour claims under the Fair Labor Standards Act and state wage laws, such as unpaid overtime or misclassified contractors. Some policies offer a small defense-only sublimit.
- Workers compensation, unemployment, ERISA and similar benefit obligations
- WARN Act, COBRA and OSHA-related obligations
- Back pay or reinstatement costs tied to contracts in certain situations
- Intentional fraudulent acts, and in many cases punitive damages, depending on the policy and the law that applies
- Prior or pending claims that you knew about before the policy started
If one of these exposures worries you, tell your agent up front so the quote can be compared on what it actually covers.
Ways to lower your risk, and your premium
Insurance companies ask about how you manage people, and good practices can help both your claim odds and the terms you're offered. Common steps include:
- A written employee handbook with anti-harassment, anti-discrimination and complaint procedures
- Clear job descriptions and documented performance reviews
- Consistent, documented discipline and termination steps
- Harassment prevention training for managers and staff
- A simple way for employees to report concerns without going through the person they're complaining about
- Advice from an employment attorney before a difficult termination
Some EPLI policies include access to an HR hotline or online training as part of the coverage. Ask what's included.
What to have ready for an EPLI quote
- Business name, industry, years in business and locations
- Number of full-time, part-time, seasonal and contract workers, and where they work
- Recent turnover, layoffs or planned reductions
- Whether you have a handbook, written policies and training
- Any past employment claims, EEOC charges or demand letters, and how they were resolved
- Current EPLI coverage, if any, including your retroactive date
- Contract requirements from franchisors, clients, lenders or investors
Talk with a Raleigh independent agency
Shadow Lake Insurance is an independent agency, so we can compare EPLI options from the insurance companies we represent and explain the retention, defense terms and exclusions that make one policy different from another. We can also look at how EPLI fits with your directors and officers coverage, BOP and workers comp. If you're building out a full program, see our guide to essential business insurance for Raleigh companies. We work with employers in Raleigh, Cary, Durham, Wake Forest, Morrisville and across the Triangle.
Shadow Lake Insurance 8398 Six Forks Road, Suite 202, Raleigh, NC 27615 (276) 597-9844
Ready to compare? Start an EPLI quote or request a quote, or call or text our office.
Sources
- U.S. Equal Employment Opportunity Commission, which employers are covered
- U.S. Equal Employment Opportunity Commission, Charlotte District Office
- North Carolina General Statutes, G.S. 143-422.2, Equal Employment Practices Act
- North Carolina General Statutes, Article 21 of Chapter 95, Retaliatory Employment Discrimination
- North Carolina Department of Labor, Retaliatory Employment Discrimination Bureau
Coverage subject to policy terms, conditions, and underwriting. This article is general information, not a description of any specific policy or a promise of coverage. Review your policy or talk with us about your situation.