In 2013 over 93,000 discrimination claims were filed against U.S. employers according to the U.S. Equal Employment Opportunity Commission (EEOC). Claims alleging discrimination and other employment practices are especially burdensome for small businesses. They are time-consuming and stressful. Moreover, the cost of defending them can be substantial. Thus, these claims can be expensive even if no damages are paid to the claimant.

Federal Anti-Discrimination Laws

Does your company employ 15 or more workers? If it does, you are subject to a number of federal  anti-discrimination laws. These include Title VII of the Civil Rights Act of 1964, the Pregnancy Discrimination Act (an amendment to Title VII), the Age Discrimination in Employment Act, and the Americans With Disabilities Act. You must also comply with the Equal Pay Act, which applies to all employers. All of these laws are enforced by the EEOC.

The most comprehensive anti-discrimination law is Title VII. It prohibits discrimination on the basis of race, color, religion, national origin, sex, or pregnancy. Because harassment is a type of discrimination, it is outlawed by Title VII as well. The law also prohibits retaliation against a worker who has complained of discrimination or who has filed a discrimination claim against you.

EEOC Claims

Suppose that a female employee of yours believes that you have violated Title VII by discriminating against her based on her sex.

Can she immediately file a discrimination suit against you? No. The worker must first file a Charge of Discrimination with the EEOC.

The EEOC will send you a copy of the complaint. It may then dismiss the claim, conduct an investigation, or ask you and the worker to engage in mediation. If the agency determines that you have committed a violation, it may try to work out a settlement between you and the worker. If no settlement is reached, the EEOC may file a lawsuit against you.

If the EEOC dismisses the claim or decides not to pursue it, the agency will send the employee a Notice-of-Right-to-Sue. Once the worker has received this notice, he or she may file a lawsuit against you. The lawsuit must be filed within 90 days of the date the worker received the notice.

State Anti-Discrimination Laws

In addition to the federal government, many states have enacted anti-discrimination laws. Laws in a number of states prohibit discrimination based on sex. Some states prohibit discrimination based on sexual orientation and gender identity. It's important to know what laws apply in your state. If you aren't sure, ask your attorney or insurance agent.

Types of Lawsuits

Most employment practices claims fall into one of the following three categories.

• Discrimination The employee claims that you have violated a federal or state anti-discrimination law. Alternatively, he or she alleges that you have violated public policy (committed a discriminatory act that is against the good of the public).
• Wrongful Termination The employee alleges that you have breached a written or implied employment contract.
• Workplace Tort The worker claims that you have committed a workplace tort. This term refers to an act (other than discrimination or wrongful termination) that is committed by an employer in the workplace and that violates an employee's civil rights. Most workplace torts are intentional acts. Examples are negligent hiring, wrongful discipline, failure to hire or promote, deprivation of a career opportunity, and employment-related defamation.

Employment Practices Liability Coverage

Protection against the types of claims described above is available under employment practices liability insurance (EPLI) coverage. This coverage is included in some package policies (albeit at a low limit). It is also available via an endorsement or a separate policy. EPLI coverage typically applies on a claims-made basis.

What to Look For

Here are some things to look for when shopping for EPL coverage:

• Covered Acts Most EPLI policies cover discrimination, wrongful termination and various workplace torts. Coverage is typically limited to the acts that are listed. Read the list carefully so you know which acts are included.
• No Retroactive Date Your EPLI policy should provide full prior acts coverage (meaning it has no retroactive date). It should cover claims arising from covered acts committed before the policy begins. When you complete the application you will be required to verify that you are not aware of any prior acts that could lead to a claim.
• Punitive Damages Make sure your policy covers (does not exclude) punitive damages.
• Employees Be sure the policy covers claims filed by the types of workers you employ (temporary, seasonal, contract, leased etc.).
• Defense Some policies permit you to select your own attorney to defend you. Others require you to use an attorney provided by the insurer. Also, some policies cover defense costs in addition to the limit. In other policies, defense costs reduce the limit. Be sure you understand how your policy applies.
• Settlement Many policies will pay only a portion of a loss if you refuse to accept a settlement recommended by the insurer.
• FSLA Defense Virtually all EPLI policies afford no coverage for "wage and hour" claims, meaning claims alleging violations of the Fair Labor Standards Act. However, some policies provide limited coverage for the cost of defending FSLA claims.
• Self-insured Retention Some EPLI policies include a self-insured retention. This is a specified  amount you must pay out-of-pocket for each claim.
• Third-party Suits Discrimination suits may be filed by people other than employees. Examples are customers, vendors and contractors with whom you do business. Many insurers provide an option to purchase coverage for third-party discrimination claims.