Does EPLI Insurance Matter for Startups?

We place a lot of D&O coverage for our clients because it can be vital to startups for several reasons.  D&O Insurance is only one piece of the overall Management Liability puzzle.  The other big piece is Employment Practices Liability Insurance (“EPLI”).  This post will answer two important questions: what is EPLI insurance, and does EPLI insurance matter for startups?

1. What is it?

EPLI is designed to cover companies for employment practices-related claims (duh).  This means anything related to the hiring/firing process and employees’ behavior in the workplace.  Allegations of discriminatory hiring practices, sexual harassment, wrongful termination, and more fall under the EPLI blanket of coverage.

2. Why does it matter?

EPLI-related lawsuits, including employment lawsuits, are particularly common due to the regulatory structure in this area. There are several different statutes that have created different sets of broad (and sometimes overlapping) rules, including Title VII,  the Americans with Disabilities Act (“ADA”), and the Age Discrimination in Employment Act (“ADEA”).  And these are just the federal statutes! Many states have even more stringent rules than those outlined by their federal counterparts.

The US government has created the Equal Employment Opportunity Commission (“EEOC”) to advocate and provide recourse for individuals who feel they’ve been victimized by their employers.  Basically, this means it’s relatively easy to bring a cause of action against an employer, creating massive liability risks.  The government designed the system that way!  It’s a mechanized, systematic approach to recover money from employers.  And again, states usually have their own commission that escalates claims as well.

So why does EPLI insurance matter for startups?  Startups grow at breakneck speeds.  It’s not uncommon to onboard 10+ employees in a matter of months if you’re executing well.  Guess when private companies become subject to most of these statutes?  The 10-15 employee range.  After one good year, you could be exposed to massive EPLI risk for which you’re totally unprepared.

I’m not exaggerating either.  Take a look at some of the latest stats, straight from the EEOC’s website:

• There were 99,947 individual filings for relief in 2011; that number has marginally receded to 93,727 in 2013 (compared to 80,860 in 1997…)
• Employers were required to pay out $455.6 Million in 2011
• in 2013, the EEOC obtained the highest monetary recovery in agency history through its administrative process, increasing by $6.7 million to $372.1 million
• Over 40% of all Employment Practices claims are filed against companies with 15-100 employees.

With the way things go in the startup world, you may need an HR department before you even know it. As you draft the employee handbook, build out your hiring and firing practices, and shape the office culture, it’s important to know that Employment Practices Liability Insurance has your back. Understanding the potential for an EPLI claim is crucial in mitigating these risks effectively.

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