EMPLOYMENT PRACTICES LIABILITY
Many companies use Professional Employment Organizations (PEO’s), sometimes as a source of employees, but more often as a benefits and back-office payroll provider.
As part of their offering, PEO’s often will provide Employment Practices Liability Insurance (EPL) for their client companies as an add-on for a nominal charge. EPL insurance provides companies liability and defense cost coverage for employment related claims brought by employees for allegations such as discrimination, wrongful termination and other workplace torts.
PEO provided EPL coverage can be a cost effective way to attain a rudimentary level of coverage, yet the quality and effectiveness of this coverage, if there was to be a claim, is typically very limited.
Though it is typical for many companies to project the probability of an EPL claim as very low, Insurance Journal reports small-to-medium sized business have a 12% chance of facing an employment liability claim; and the downside can be significant. Costs associated with a single one-off [non- class action] claim average $50,000, including defense costs, for privately held companies.
IF YOUR COMPANY USES A PEO, DO NOT RELY ON THEIR EPL INSURANCE
– BUY YOUR OWN STAND-ALONE POLICY
Due to the material business risk posed by EPL Claims, IMA suggests clients purchase a SEPARATE EPL POLICY, and should not rely solely on the option provided via their PEO for the following reasons: