Today’s world has become increasingly diverse in race/gender/ability/age and social class and fortunately most countries are inclusive of different people’s background. There are, however, challenges that remain and one of the places that we still see these challenges is in the workplace. The rise of social movements such as the Me-Too movement, mean that employees are more emboldened and empowered to hold organisations accountable for their wrongful acts. As well as causing damage to a company’s reputation, breach of employment law can have a significant financial impact on a company with large legal costs and settlements, which is why employment practices liability (EPL) insurance is important. It exists to help to protect the balance sheet of companies in the event that litigation does arise, minimising the reputational damage by providing costs for public relations experts.
Employment practices liability insurance protects insureds against any claims arising from an alleged or actual employment wrongful act. There are numerous examples of an employment wrongful act, such as any actual or alleged breach of employment contract (whether implied, oral or written), unfair or wrongful dismissal, discharge or termination of employment (either actual or constructive), employment-related misrepresentation, breach of data protection, failure to employ or promote, deprivation of career opportunities, deprivation of perquisites (or other no-salary compensation), wrongful discipline, failure to furnish appropriate job references, failure to grant tenure, inappropriate employee evaluation, sexual or workplace or racial or disability harassment of any kind (including a harassing workplace environment), unlawful discrimination or failure to provide adequate employee policies and procedures.
The insurance can provide cover for the following legal costs and actions:
How does a company purchase Employment Practices Liability Insurance?
A company is able protect itself, and its directors and officers, from employment wrongful act claims under various types of insurance contracts; one of which is a standalone EPL policy. Insurers write standalone EPL policies based on contract wordings specifically tailored and designed to give wide-ranging cover for legal costs and settlements arising claims due to alleged or actual employment wrongful acts occurring within an organisation.
EPL cover can typically be integrated under a D&O policy too. D&O insurance protects the personal assets of those individuals sitting on the board of a company or providing managerial services, for any claims arising directly against them. It is important to understand that a D&O policy is designed to protect an ‘insured person’ and not the company as a whole. Keeping in mind that EPL claims are more often brought against a company, rather than an individual, purchasing EPL through a D&O policy option must be carefully considered to ensure the appropriate cover is available.
EPL under a Directors’ and Officers’ Liability (D&O) policy covers acts such as sexual or racial harassment resulting in a claim against an individual directors or officer. This is to be distinguished from Entity EPL which (as specified above) can be purchased to protect the company (the Entity). This might, for example, extend to employment law/ employment practices, such as a breach of data protection or failure to employ or promote.
A common approach is to obtain EPL insurance under a financial lines combined D&O, Professional Indemnity, and Crime policy. EPL is often available as a separate coverage clause under such combined policies to provide sufficient cover for employment practice claims arising both either against a director or officer, or the company itself – a combination of the above two options and arguably the best of both worlds!
What are the implications for a director after the company is acquired or upon leaving a company?
The type of claims that we have been discussing usually take some time to arise after the act took place, which is often due to the claimant feeling worried around speaking out. Whatever the reason may be, there are some key features under EPL insurance policies which provide go- forward protection. If for example, a company has been acquired by another firm and a year later, a claim arises regarding a breach of an employee contract at the prior company, if run-off cover were purchased at the date of the transaction, the company and individuals would likely be covered for the period of run-off which was purchased. (Most contract wordings provide several run-off options for up to six years).
Another example might involve a director leaving the company. A year later an employee may speak out, alleging that they experienced disability harassment from the director during the director’s time at the firm. An EPL policy covers past, present, and future employees, directors and officers of a company and therefore applicable legal costs will be covered under the firm’s current insurance policy that is in place.
*Please note that the above statements are an outline of coverage that is available. This will vary depending on the terms and conditions of each insurance policy.*