Eric M. Alderson, Risk Manager - Promark Partners Insurance Services
In today’s business environment, profession design firms face a variety of risks beyond design and construction. One of the most significant yet often overlooked threats is employment-related liability. Employment Practices Liability Insurance (EPLI) is a crucial safeguard that protects firms from costly legal claims related to workplace issues.
Why Employment Practices Liability Matters
Employees are a company’s greatest asset, but disputes can arise despite best practices in hiring, management, and termination. EPLI covers claims related to wrongful termination, discrimination, harassment, retaliation, and other employment-related allegations. Even firms with strong HR policies and training programs can find themselves facing legal action, making EPLI an essential risk management tool.
Common Risks for Professional Services Firms
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Discrimination and Harassment Claims – Firms with diverse and growing workforces must ensure a safe and inclusive environment. Even unintentional missteps can lead to costly claims.
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Wage and Hour Disputes – Overtime pay, employee misclassification, and improper payroll practices can result in lawsuits and penalties.
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Retaliation Allegations – Employees may claim unfair treatment after whistleblowing or filing a complaint, regardless of the firm’s intent.
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Hiring and Firing Practices – Poor documentation of hiring decisions, terminations, or performance management can open the door to legal exposure.
Claim Example: The Real-World Impact of EPLI
A mid-sized engineering firm faced a lawsuit when a former employee alleged wrongful termination due to age discrimination. Despite having a strong case, the firm had to spend over $150,000 in legal fees and settlement costs. Without EPLI, this expense would have significantly impacted their financial stability. The policy covered legal defense costs, allowing the firm to continue operations with minimal disruption.
The Cost of Not Having EPLI
Legal defense costs alone can be financially devastating, even if a claim is unfounded. Small to mid-sized firms may struggle to absorb the expense of prolonged litigation, potential settlements, and reputational damage. EPLI provides financial protection, covering legal fees, settlements, and judgments that could otherwise impact a firm’s bottom line.
Proactive Steps to Reduce Liability
While EPLI provides crucial coverage, firms should also implement best practices to minimize employment risks:
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Establish Clear Policies – Develop and communicate workplace policies addressing anti-discrimination, harassment prevention, and employee rights.
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Train Management and Staff – Regular training on proper workplace conduct and compliance with labor laws reduces exposure.
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Document Employment Decisions – Maintain detailed records of hiring, performance reviews, and disciplinary actions.
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Create an Open-Door Culture – Encourage employees to report concerns early to resolve issues before they escalate.
Design firms operate in a complex professional landscape, and employment-related claims can be just as disruptive as project disputes. EPLI is a vital tool for safeguarding firms against costly litigation and ensuring a stable, productive workplace. By combining strong policies with proper coverage, firms can protect their reputation, financial stability, and most importantly, their employees.