Nonprofit Employment Practices Liability: Why Small Organizations Get Sued by Their Own Staff

What does employment practices liability insurance cover for a nonprofit?

Employment practices liability insurance, or EPLI, covers a nonprofit's defense costs and settlements when a current, former or prospective employee claims the organization violated their employment rights, such as through wrongful termination, discrimination, harassment or retaliation. It also typically responds to charges filed with government agencies such as the EEOC or a state civil rights agency. Most EPLI policies are written on a claims-made basis and also name individual leaders, such as the executive director, managers and board members, as insureds. That matters because employment suits often name individuals personally alongside the organization.

• Wrongful termination and wrongful discipline.
• Discrimination based on protected characteristics.
• Sexual and workplace harassment.
• Retaliation after a complaint or protected activity.
• Failure to promote or hire.

Does nonprofit EPLI cover wage and hour claims?

Nonprofit EPLI policies usually exclude wage and hour claims, such as unpaid overtime or employee misclassification, although some carriers offer a small sublimit for defense costs only. The unpaid wages themselves are generally not covered by any insurance policy. Wage and hour issues can be a real risk for nonprofits, especially when program staff are classified as exempt or when part-time workers are paid a stipend. Because insurance offers little help here, the best protection is getting classification right with an employment attorney or HR professional.

Can volunteers and interns sue a nonprofit for employment practices?

Volunteers and interns can bring discrimination, harassment and retaliation claims against a nonprofit, and many nonprofit EPLI policies can be written to include them as covered claimants. Whether they are included depends on the policy's definition of employee, so it should be checked rather than assumed. Unpaid interns in particular may be protected by some state and local laws, and a volunteer who is harassed by a staff member may still file a claim. Nonprofits that rely heavily on volunteers should confirm with their broker that the EPLI policy extends to them.

Does nonprofit EPLI cover harassment claims from clients or donors?

Nonprofit EPLI can cover third-party discrimination and harassment claims, meaning claims brought by people who are not employees, such as clients, donors or members of the public, but this coverage is often an optional add-on rather than automatic. The wording and limits vary by carrier. Third-party coverage also works in the other direction. If an employee is harassed by a major donor or a client and the organization fails to act, the employee may bring a claim against the nonprofit. The organization has a duty to respond to harassment from anyone in the workplace, not only coworkers.

• Ask whether third-party discrimination and harassment coverage is included.
• Confirm any sublimit that applies to third-party claims.
• Train staff to report harassment by donors, clients and vendors.

Should a nonprofit buy EPLI with D&O in a management liability package?

Many nonprofits buy EPLI as part of a management liability package that combines it with directors and officers liability, which is often cost-effective, but the organization should know whether the coverages share one limit or carry separate limits. A shared limit means a costly employment claim can reduce the protection left for a claim against the board. Separate limits, or at least a separate EPLI limit, are commonly available for a modest added cost. The retention, which is the amount the organization pays before coverage begins, also matters. EPLI retentions for small nonprofits are often in the range of $2,500 to $25,000, and some policies apply a higher retention to certain types of claims.

How can a nonprofit board reduce employment practices claims?

A nonprofit board reduces employment practices claims by making sure the organization has an up-to-date employee handbook, consistent documentation of performance and discipline, and a clear process for reporting and investigating complaints. The board's role is oversight, not day-to-day HR, but it should ask regular questions about these practices. Many EPLI carriers include free HR hotline services, where managers can talk with an employment attorney before a termination or difficult decision. Using that resource early is one of the simplest ways to avoid a claim.

• Update the employee handbook with legal review every year or two.
• Document performance problems and discipline in writing.
• Use the carrier's HR hotline before terminations.
• Report potential claims to the insurer promptly.

Ready to review your nonprofit EPLI program?

If your nonprofit is weighing EPLI, reviewing a shared management liability limit, or not sure who your policy covers, we would be glad to talk it through with your leadership team. Schedule a conversation at calendly.com/grandbayfinancial.