Running a business in California is no small feat. From keeping up with employee demands to navigating strict labour laws, employers have a lot to manage. One misstep—whether it’s an accidental comment during a job interview or a perceived unfair firing—can turn into a lawsuit that costs thousands of dollars. That’s where Employment Practices Liability Insurance coverage, or EPLI, comes in.
What is Employment Practices Liability Insurance Coverage?
Employment Practices Liability Insurance coverage is a type of business insurance that protects companies when employees (or even job applicants) sue over employment-related issues. These could include:
- Wrongful termination
- Discrimination (age, race, gender, religion, disability, etc.)
- Sexual harassment
- Retaliation (e.g., punishing an employee for whistleblowing)
- Breach of employment contract
- Failure to promote
- Wrongful discipline
- Mismanagement of employee benefits
Essentially, if someone claims you treated them unfairly at work, EPLI helps cover your legal costs—such as attorney fees, court costs, and potential settlement payouts.
Why California Employers Need EPLI More Than Ever
California has some of the strictest employment laws in the United States. The state offers more protections to workers than most other states, which means more rules for employers to follow—and more opportunities for lawsuits if those rules are broken.
According to the California Department of Fair Employment and Housing (DFEH), thousands of discrimination and harassment claims are filed every year. In fact, in 2022, over 20,000 employment-related complaints were reported in California alone.
Here are a few reasons lawsuits are more common in California:
- At-Will Employment Isn’t Absolute: While California is an “at-will” employment state (you can fire employees for almost any reason), courts have ruled that workers still cannot be fired for discriminatory or retaliatory reasons.
- Expansive Anti-Discrimination Laws: California’s Fair Employment and Housing Act (FEHA) protects employees from discrimination beyond federal law—covering categories such as gender identity, sexual orientation, and even hairstyles linked to race (under the CROWN Act).
- Higher Employee Awareness: California workers are generally more informed of their rights thanks to widespread public awareness campaigns and local worker protection groups.
In short, just one mistake—or even a misunderstanding—can result in a lawsuit that drains your business financially and hurts your reputation.
Real-World Example: The Cost of a Misstep
Let’s say a small bakery in Los Angeles has 12 employees. One of them files a complaint, claiming the manager made inappropriate jokes and retaliated when she reported it. Whether or not the accusations are true, the bakery now has to deal with:
- Legal representation
- Time off work for court proceedings
- Possible settlements or damages
- Reputation damage
Without EPLI, these costs could easily hit $100,000 or more. But with Employment Practices Liability Insurance coverage, the bakery may only pay a deductible, while the insurance takes care of the rest.
What EPLI Typically Covers
Here’s what a standard EPLI policy in California usually includes:
| Coverage Type | What It Means |
| Legal Defence Costs | Pays for lawyers, court fees, and other legal expenses |
| Settlements and Judgments | Covers payouts to employees if you lose the case or agree to settle |
| Third-Party Coverage | Protects against claims made by non-employees (like job applicants or customers) |
| Retaliation Claims | Covers claims where employees say they were punished for whistleblowing |
| Wage and Hour Claims (optional) | Some insurers offer this, but it often costs more—it covers unpaid wage disputes |
It’s important to read the fine print. Not all policies cover wage disputes unless specifically added.
How to Reduce the Risk of a Lawsuit
While EPLI is essential, insurance shouldn’t be your only defence. Here are practical steps California employers can take to avoid costly lawsuits:
1. Train Managers and Supervisors
Make sure all team leaders understand harassment, discrimination, and retaliation laws. In California, companies with 5 or more employees are legally required to provide harassment prevention training every two years (per SB 1343).
2. Create a Clear Employee Handbook
Your handbook should spell out company policies, workplace expectations, complaint procedures, and disciplinary processes. Make sure every employee receives a copy and signs an acknowledgment.
3. Document Everything
If you’re giving a warning or firing someone, document the reason and keep records. Proper documentation can make or break a legal case.
4. Respond Promptly to Complaints
Investigate all workplace complaints right away—don’t brush them off. Showing that you took action can protect you in court.
5. Work With an HR Consultant or Employment Attorney
Even if you have a small business, an employment law expert can help you stay compliant with California’s constantly changing regulations.
Choosing the Right EPLI Policy
When shopping for Employment Practices Liability Insurance coverage in California, consider:
- Policy Limits: Make sure the coverage limits are enough to protect you from serious claims.
- Deductible: Lower deductibles cost more monthly but reduce out-of-pocket costs during a claim.
- Claims History: If you’ve had lawsuits in the past, some insurers may charge more or deny coverage.
- Wage & Hour Coverage: Highly recommended in California, but often optional or expensive.
You can purchase EPLI as a stand-alone policy or bundle it with your general liability or business owner’s policy (BOP).
Final Thoughts: Don’t Wait for a Lawsuit to Act
California is a great place to do business—but it also comes with risks, especially when it comes to employment laws. Even the most well-meaning employers can find themselves in hot water.
Employment Practices Liability Insurance coverage isn’t just a “nice-to-have”—it’s a smart move for any business, big or small. When paired with solid HR practices, it’s one of the best ways to protect your business, your reputation, and your future.
