Insurables — Australian business risk, sourced and dated
Cover type

Employment practices liability: what it covers and who carries it

Cover for claims by employees over matters such as unfair dismissal, discrimination and bullying allegations.

This is usually a section inside a management liability, not a policy sold on its own. Which sections a policy includes is shown on its schedule, and insurers group and name them differently. Management liability insurance

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In short

  • Employment practices liability responds to claims by employees and former employees about how they were treated.
  • It is usually a section of management liability rather than a separate policy.
  • It covers the cost of defending an allegation, not the cost of paying wages or entitlements that were always owed.

Employment practices liability is the cover for the claims that arrive from inside the business: unfair dismissal, discrimination, bullying and harassment allegations, and claims about the process by which somebody was managed or let go.

It is one of the most commonly triggered sections in small business insurance, because these disputes do not require anything to be damaged or anyone to be injured.

Also called: employment practices liability, EPL cover, employment liability

What it responds to

The trigger is a claim by a person in an employment relationship, current or past. Defence costs and settlements are the two components, and defence costs are usually the larger.

Because these matters are resolved through commissions and tribunals rather than courts, the process is fast, and the cost is incurred early.

  • Unfair or wrongful dismissal claims
  • Discrimination and harassment allegations
  • Claims about failure to promote or to follow process
  • Defence costs at a tribunal or commission

What it will not turn into a wages policy

Underpaid wages, unpaid entitlements and superannuation are debts the business always owed. Insurance does not convert an obligation into a claim, and policies exclude them.

The distinction is between being wrong about a payment and being accused of treating somebody unlawfully.

What people get wrong about it

The first error is assuming a small team has no exposure. A single dismissal can generate a claim, and the smallest businesses are the least likely to have documented a process.

The second is expecting the policy to fund a payout that was simply commercially sensible. Settlements generally need the insurer involved before they are agreed.

The third is confusing this with workers compensation. A psychological injury claim by a worker is a scheme matter; an allegation about the fairness of a dismissal is this cover.

Questions

Does this cover underpaid wages?
No. Wages and entitlements that were owed are a debt rather than an insured loss, and policies exclude them. The cover responds to allegations about how a person was treated.
Do we need it if we have management liability?
Employment practices is usually one of the sections inside a management liability policy. Whether it is operative, and to what limit, is set out on the schedule.

Occupations that commonly carry it

Ordered by how central this cover is to each occupation in the graph. A pattern in the data, not a statement that any business is required to hold it.

  • HR consultants — Employment advice, policy and investigations for employer clients.
  • Recruiters — Placement and on-hire of staff, including labour hire into host workplaces.
  • Nursing agencies — Supply of registered and enrolled nurses to facilities and homes.
  • Aged care providers — Approved home and residential care for older people.
  • Lawyers — Legal advice and representation delivered by an admitted practitioner.
  • Accountants — Preparation of accounts, tax returns and advice for businesses and individuals.
  • Real estate agents — Licensed sale and leasing of property on behalf of owners.
  • Strata managers — Administration of owners corporations, including insurance placement and levies.
  • Mortgage brokers — Credit assistance and loan placement under a credit licence or as a representative.

Sources