Employment practices liability insurance, known in the trade as EPL insurance or EPLI, provides coverage to employers (PDF) against claims made by employees alleging:

• Discrimination (based on sex, race, age or disability, for example)
• Wrongful termination
• Harassment
• Other employment-related issues, such as failure to promote

Large corporations typically have substantial employment practices insurance coverage in place and are prepared to deal with just about any employment lawsuit. However, small or new businesses are often the most vulnerable to employment claims (PDF). That’s because they usually lack a legal department or employee handbook detailing the policies and procedures that guide hiring, disciplining or terminating employees.

1. Review potential loss exposures with your insurance agent and purchase adequate employment practices liability insurance.
2. Develop an employee handbook detailing your company’s workplace policies including attendance, discipline and complaints. 
3. Create a job description for each position that clearly defines expectations of skills and performance.
4. Conduct periodic performance reviews of employees and carefully note the results in the employee’s file.
5. Develop a screening and hiring program to weed out unsuitable candidates on paper before calling them to interview in person.

• Defense costs (court fees, attorney fees and related costs).
• Payment of settlements and/or judgments up to the policy’s limits.
• Any fines or penalties levied by government agencies.

EPLI policies cover business owners as well as directors, officers and managers. Some policies also cover employees. Additionally, you can buy third-party policies to cover claims brought by non-employees, such as clients.