Picture this: you have a small business with more than fifteen employees. Tough economic times require you to lay someone off. You lay someone off who happens to be female. She sues for sex discrimination. You now have to hire an attorney to defend the claim. The attorney wants a retainer of $10,000 and estimates that to defend the case will cost at least $100,000. You know the claim is baseless but offer $20,000 to settle, just to make it go away. The claimant won’t take it. What do you do?

You have two options at this point: defend the case or offer more to settle.

But before you get into this situation, consider purchasing employment practices liability insurance, or EPLI.

EPLI covers legal fees for businesses who are accused by employees of wrongful employment acts, such as discrimination, harassment, and retaliation. The cost is often negligible when compared with the cost of defending a lawsuit. So if you have 15 or more employees, which is the threshold for many employment laws, purchasing EPLI often makes business sense.

A few tips:

• EPLI usually does not cover claims made by independent contractors.
• EPLI usually does not cover wage and hour claims.
• EPLI usually does not cover third party liability.

Consequently, if you want coverage for these type of claims, you may need to ask for it.