Employment Practices Liability and Fiduciary Risk Management Guide
Five Essential Strategies to Prevent Employment Practices Liability Claims
Employment practices liability (EPL) claims involving discrimination, harassment, or wrongful termination can devastate organizations financially and reputationally. Implementing proactive measures helps create positive workplace cultures while reducing legal exposure. Here are five critical prevention strategies:
Develop Comprehensive Employee Handbooks
Effective handbooks establish zero-tolerance policies for discrimination, harassment, and retaliation while clearly outlining behavioral expectations and disciplinary procedures. These documents require regular updates and universal employee acknowledgment to maintain their protective value.
Implement Ongoing Staff Education
Regular training throughout the employee lifecycle—from onboarding through career development—ensures staff understand workplace policies, legal requirements, and respectful conduct standards. Mandatory sessions covering harassment prevention, diversity, and inclusion are particularly essential for maintaining compliant workplaces.
Ensure Fair Employment Decisions
Organizations must establish discrimination-free recruitment processes with compliant job descriptions and properly trained hiring managers. All employment decisions should rely on objective, documented criteria rather than subjective preferences that could create liability exposure.
Cultivate Supportive Work Environments
Strong workplace cultures begin with leadership modeling appropriate behaviors and consistently enforcing handbook policies. Management should encourage open dialogue about problematic practices while ensuring employees can report concerns without fear of retaliation.
Maintain Detailed Documentation
Comprehensive record-keeping of employment practices and investigation procedures proves crucial during legal challenges. Organizations should document all processes while complying with data privacy requirements and consider engaging outside counsel for sensitive investigations and corrective actions.
Despite these preventive measures, EPL claims remain possible, making specialized insurance coverage essential for protecting against potentially devastating lawsuit costs.
Recent Federal Court Ruling on EEOC Guidance
On May 15, 2025, the U.S. District Court for the Northern District of Texas significantly limited EEOC authority by vacating portions of the agency's April 2024 updated Enforcement Guidance on Workplace Harassment. The court ruled that the EEOC exceeded its authority when expanding Title VII's definition of "sex" to include sexual orientation and gender identity.
The Texas ruling specifically vacated language defining "sex" to encompass sexual orientation and gender identity, sections addressing harassment based on these characteristics, examples of hostile work environments involving misgendering, and classifications of sexual orientation and gender identity as protected classes under Title VII.
However, the Supreme Court's 2020 Bostock v. Clayton County decision still prohibits employment discrimination based on sexual orientation and gender identity. Additionally, various state and federal laws continue protecting these characteristics. Employers must therefore maintain compliance with all applicable discrimination and harassment regulations despite this federal guidance limitation.
Protecting Fiduciaries from Legal Exposure
Fiduciaries managing employee benefit plans face significant legal and financial risks under the Employee Retirement Income Security Act (ERISA). These individuals—including board members, benefits administrators, and investment advisors—bear responsibility for preserving plan participants' financial wellbeing through prudent plan selection and management.
Core Fiduciary Responsibilities
ERISA mandates that fiduciaries uphold duties of loyalty, prudence, investment diversification, and plan document compliance. These obligations require acting in participants' best interests while exercising administrative diligence and protecting against investment volatility losses. Violations can result in personal liability for fiduciaries.
Common Risk Exposures
Fiduciaries frequently face claims alleging benefit mismanagement, conflicts of interest, and administrative errors. Under ERISA, violations can trigger civil penalties and, in cases involving willful misconduct or fraud, criminal charges. Additionally, affected employees may pursue costly litigation that damages both finances and reputation.
Risk Mitigation Strategies
Organizations should provide comprehensive fiduciary training covering responsibilities, compliance requirements, and breach consequences. Establishing internal controls including audit procedures, role-based access controls, and detailed decision-making processes promotes proper oversight and corrective action capabilities.
Engaging experienced benefits administrators and investment advisors within fiduciary processes provides essential expertise for maintaining solid plan management and ERISA compliance. Organizations should also consider specialized fiduciary liability insurance to protect both fiduciaries and operations from potential financial exposure.
Conclusion
Proactive risk management through comprehensive policies, ongoing education, and appropriate insurance coverage helps organizations navigate complex employment law and fiduciary responsibility landscapes while protecting their most valuable assets—their people and reputation. Connect with a Pearson Wallace insurance agent if you need a consultation regarding an EPL policy.
Disclaimer
This blog post should not be construed as legal advice. Consult an attorney if you have any legal questions regarding EPL insurance or Fiduciary Risk Management.