Here's something most business owners don't realize until it's too late: your general liability policy won't protect you when an employee sues. Not for discrimination, not for harassment, not for wrongful termination. You need something different—Employment Practices Liability Insurance, or EPLI. And if you think it's just for massive corporations with HR departments, think again. The frequency of EPLI lawsuits has jumped 400% in the last twenty years, and small businesses are getting hit hard.
In 2024, the Equal Employment Opportunity Commission recovered $700 million for workers claiming discrimination—the largest recovery in the agency's recent history. And that's just federal cases. When you factor in state lawsuits and settlements, the numbers get even more staggering. The average employment lawsuit settlement sits around $40,000, but defense costs alone typically exceed $75,000, even before you pay a dime in damages. That's enough to sink a small business.
What EPLI Actually Covers
EPLI protects your business when employees—or former employees, or even job applicants—claim you've violated their legal rights. The most common claims fall into four categories: discrimination, harassment, wrongful termination, and retaliation. Let's break those down.
Discrimination claims cover allegations based on protected characteristics—age, race, gender, disability, religion, pregnancy, and more. Maybe you passed over someone for promotion, or your hiring process filtered out older candidates. Even if you did nothing wrong, defending yourself costs money. Sexual harassment claims are also covered, whether they involve unwanted advances, hostile work environments, or quid pro quo situations. These cases have become particularly expensive, with settlements averaging $120,000.
Wrongful termination claims happen when someone believes they were fired illegally—maybe in retaliation for reporting safety violations, or because they took protected medical leave. And retaliation claims? Those kick in when employees say you punished them for whistleblowing, filing discrimination complaints, or exercising their legal rights. EPLI also covers wage and hour disputes, like misclassifying employees as contractors or denying overtime pay, plus allegations of unfair hiring practices or mismanagement of employee benefits.
Your policy pays for three critical things: legal defense costs (attorney fees, court costs, expert witnesses), settlements you agree to, and judgments if you lose in court. What it won't cover: workers' compensation claims, intentional criminal acts, punitive damages in some states, or issues already covered by other insurance policies.
Why Employment Lawsuits Are Rising—And Why You're at Risk
The workplace has gotten complicated. In 2023, the EEOC saw a 10% increase in discrimination charges filed by private sector employees. Several trends are driving this surge, and they affect businesses of every size.
First, there's increased awareness. Employees know their rights better than ever before, and they're more willing to assert them. Social movements around workplace equity and the #MeToo era have empowered people to speak up about mistreatment. Second, legal help is more accessible. Attorneys who specialize in employment law often work on contingency, meaning employees can sue without upfront costs. Third, new compliance requirements keep multiplying. Pay transparency laws in many states now require you to disclose salary ranges. Remote work policies have created new questions about consistent treatment across different work arrangements.
And here's a big one: artificial intelligence. If you're using AI tools for hiring, performance reviews, or promotion decisions, you're opening up new liability. The EEOC settled its first-ever AI age discrimination case in 2023, signaling they're watching this space closely. Automated systems can perpetuate bias in ways you might not even realize.
Size doesn't protect you, either. You might think you're safe with just five employees, but federal anti-discrimination laws apply to businesses with 15 or more employees, and many state laws kick in at even lower thresholds. Plus, even if you're technically exempt from certain regulations, you can still face lawsuits. Defending yourself—even when you win—will drain your bank account.
Real-World Examples: What EPLI Claims Actually Look Like
Let's get concrete. In 2023, a Nebraska jury awarded $36 million against two trucking companies for failing to hire or reasonably accommodate a qualified deaf driver. That's discrimination based on disability. Lilly USA settled an age discrimination case for $2.4 million. Dollar General paid $1 million for violations of the Americans with Disabilities Act and the Genetic Information Nondiscrimination Act. These aren't abstract scenarios—they're real businesses paying real money.
But you don't need a multimillion-dollar verdict to suffer. Say you own a small marketing agency and you fire an underperforming employee. That employee claims it was actually retaliation for complaining about your office's lack of accessibility for their mobility issues. Even if their performance really was the problem, you're now spending $75,000 or more just to defend yourself. EPLI covers those defense costs, plus any settlement you reach to make the case go away.
Or consider wage and hour claims, which are surging. Maybe you classified some workers as exempt from overtime when they should've been paid hourly. One employee files a complaint, others join in, and suddenly you're facing a class action. EPLI steps in to cover your legal defense and any resulting settlement. Without coverage, you're writing checks from your business account—or worse, your personal savings.
How EPLI Works: Understanding Your Policy
EPLI policies are claims-made, meaning the policy that's active when the claim is filed is the one that responds—not the policy you had when the alleged incident occurred. This is important. If someone sues you in 2025 about something that happened in 2023, your 2025 policy handles it, assuming you've maintained continuous coverage.
Coverage limits typically range from $500,000 to $5 million or more, depending on your company size and risk profile. You'll also have a deductible or retention amount—the portion you pay out of pocket before insurance kicks in. Many policies include risk management resources like HR hotlines, model employee handbooks, and training materials. Use these. Preventing claims is way cheaper than defending against them.
When shopping for EPLI, pay attention to what's covered and what's excluded. Some policies cover third-party claims—like customers or vendors alleging harassment by your employees. Others don't. Some include wage and hour coverage as standard; others offer it as an add-on. Read the fine print, or better yet, work with an insurance broker who specializes in commercial coverage. They'll help you understand the differences between policies and find one that fits your actual risk.
Getting Started with EPLI
If you have employees, you need EPLI. Period. The cost varies based on your industry, number of employees, claims history, and the limits you choose, but for a small business, premiums often start around $500 to $1,000 annually. That's cheap compared to one lawsuit.
Start by assessing your current risk. Do you have clear, written policies around harassment, discrimination, and termination? Are your managers trained on employment law basics? Do you document performance issues consistently? Insurers will ask about these things during underwriting. The better your HR practices, the better your premium.
Talk to a commercial insurance agent or broker who understands employment practices liability. Get quotes from multiple carriers. Compare not just price, but coverage breadth, exclusions, and the resources each insurer offers. Some carriers provide robust HR support that can help you avoid claims in the first place—that's incredibly valuable.
Once you have coverage, use it proactively. Call the HR hotline when you're unsure how to handle a situation. Use the training materials to educate your team. Document everything. The best claim is the one that never gets filed, and good HR practices are your first line of defense. But when prevention fails—and eventually, it might—you'll be glad you have EPLI protecting your business from financial catastrophe.
