With growing regularity, workers are suing their employers for countless alleged infractions, from workplace harassment to sexual discrimination to wrongful termination. Some of the lawsuits may be justified; others may be the vengeful plots of disgruntled employees.

Warranted or not, employers must address these lawsuits, with what are invariably costly and time-consuming results. Even companies with the best human resources practices and employment systems in place are finding themselves on the hot seat.

Employers can find protection, however, through Employment Practices Liability Insurance, or EPLI, which covers companies against many of the more common categories of employee-related legal claims, including:

• Wrongful termination
• Breach of contract
• Sexual harassment
• Discrimination (e.g., race, age, gender, religion, disability, pregnancy, sexual orientation, etc.)
• Mismanagement of employee benefits

These insurance policies reimburse companies for the costs of their legal defenses, as well as judgments or settlements. Litigation costs are covered whether the employer wins or loses the lawsuit.

Many small- to mid-sized businesses are unaware of the existence, let alone the benefits, of EPLI. The majority of smaller firms typically focus on the more routine insurance policies for business, such as general liability or auto insurance coverage. However, general liability does not cover these same employee-related claims.

There’s another reason some firms might not invest in EPLI: the cost of the premium, which can be prohibitive for many smaller employers. But considering these sobering FY 2007 statistics, companies can’t afford to go without EPLI:

• The Equal Employment Opportunity Commission recorded 82,792 private sector discrimination charges in 2007 – the highest volume of incoming charges since 2002 and the largest annual increase since the early 1990s.
• The EEOC recovered $345 million for victims of job bias.
• The most frequent allegations were based on race, retaliation and sex.

Companies would be wise to view EPLI in the same way as they view auto insurance. In the event of a car crash, you wouldn’t want to be without auto insurance. In the event of an employee lawsuit, you wouldn’t want to be without EPLI.

Yet there is a way for companies to find the coverage they need, through Professional Employer Organizations, or PEOs. Many PEOs offer EPLI to their clients as part of a full range of human resources, employee benefits, payroll and other related functions.