Top 5 Ways to Prevent Employment Practices Liability Claims

Employment Practices & Fiduciary Risk Summary

This guide outlines key strategies for managing employment practices liability (EPL) and fiduciary risks. For EPL prevention, employers should create comprehensive handbooks, provide regular training, make fair hiring decisions, foster supportive environments, and document all practices. Recent developments include a federal court vacating portions of EEOC guidance on sexual orientation and gender identity harassment definitions.

For fiduciary protection, organizations must ensure compliance with ERISA requirements through proper training, internal controls, and professional consultation. Both areas require specialized insurance coverage—EPL insurance for employment claims and fiduciary liability insurance for benefits plan management—to protect against costly litigation and financial losses. Here is the full article:

Employment practices liability (EPL) claims—such as alleged discrimination, harassment or wrongful termination—can be complex and costly, leaving impacted employers with lasting financial and reputational fallout. Taking steps to reduce EPL exposures and promote a positive workplace culture can help prevent such claims and related lawsuits. Here are five best practices for employers to consider:

Create an employee handbook.

An effective handbook generally includes zero-tolerance policies for discrimination,harassment and retaliation; summarizes behavioral standards; and outlines disciplinary measures. It should be reviewedoften and acknowledged by all employees.

Educate staff.

Employees should receive regular training—both during the onboarding process and throughout their tenure—on workplace policies, legal obligations and respectful conduct. This training should include mandatory sessions on harassment prevention, diversity and inclusion.

Make fair employment decisions.

Employers should implement procedures to avoid discrimination during the recruitment process for new positions. Job descriptions must comply with relevant employment legislation, and hiring managers need to be trained on proper interview and background check methods. All employment decisions should be based on objective criteria.

Foster a supportive environment.

A strong workplace culture starts at the top. As such, employers and management should model appropriate behaviors by enforcing the standards and policies outlined in their employee handbooks, encouraging open discussions regarding any problematic employment practices, and ensuring employees can report issues without fear of retaliation.

Document employment practices and investigations.

Employers should keep records of employment practices whilecomplying with applicable data privacy laws. They should also investigate allegations of wrongful practices and clearlydocument these processes. Employers may rely on outside counsel to conduct investigations and, if necessary, determinecorrective actions.

Despite preventive measures, employers may still face EPL claims. That’s why it’s vital to have EPL insurance. This coverage can help reimburse employers for losses stemming from allegations of harmful employment practices and associated litigation. Such coverage is essential for all employers, as even one employment-related lawsuit could lead to considerable losses. Employers can consult trusted insurance professionals to assess their specific coverage needs. Contact us today for more risk management guidance and coverage solutions.

Federal Court Vacates EEOC Guidance

On May 15, 2025, the U.S. District Court for the Northern District of Texas ruled that the U.S. Equal Employment OpportunityCommission (EEOC) exceeded its authority back in April 2024 when the agency issued updated Enforcement Guidance onHarassment in the Workplace that expanded the definition of “sex” to include “sexual orientation” and “gender identity.” In itsruling, the Texas District Court vacated certain elements of this updated guidance, including:

All language defining “sex” in Title VII of the Civil Rights Act (Title VII) to include “sexual orientation” and “gender identity”

The entire section of the updated guidance outlining harassment based on sexual orientation and gender identity

The example that states misgendering an employee may constitute a hostile work environment

All language defining “sexual orientation” and “gender identity” as protected classes under Title VII

All other portions of the updated guidance remain in effect. Although the Texas ruling affects how the EEOC may evaluateclaims of harassment at the federal level, the Supreme Court’s 2020 decision in Bostock v. Clayton County still prohibitsemployment discrimination based on sexual orientation and gender identity. In addition, employers may be subject toprohibitions on sexual orientation and gender identity harassment and discrimination under state and federal laws. Therefore,employers should continue to ensure compliance with all relevant discrimination and harassment laws and guidance.

Key Strategies for Protecting Fiduciaries

A fiduciary is an individual or entity acting on behalf of others. In the context of employee benefits plans, certain board members, benefits administrators or investment advisors may serve as fiduciaries responsible for selecting and managing such plans (i.e., health insurance and retirement accounts) for an organization. Fiduciaries are ethically and legally required to take all necessary steps to preserve plan participants’ financial well-being. Fiduciaries found in breach of their duties could be subject to serious legal penalties and costly lawsuits, threatening their personal assets and their company’s image. With this inmind, it’s crucial for organizations to properly protect their fiduciaries.

Fiduciary Responsibilities

Fiduciaries are bound by the Employee Retirement Income Security Act of 1974 (ERISA). This legislation requires fiduciaries touphold several key duties, including loyalty, prudence, diversification of investments and compliance with plan documents.These duties center around acting in plan participants’ best interests, practicing administrative diligence and protectingparticipants against large-scale financial losses from investment volatility. ERISA also sets up the legal framework under whichfiduciaries may be held personally liable for breaching their duties. As a result, noncompliant fiduciaries could experience majorconsequences.

Fiduciary Exposures

Due to the nature of their roles, fiduciaries face many risks and liabilities. These exposures typically stem from claims allegingthat fiduciaries breached their duties in some way. Common claims include allegations of mismanaged benefits, conflicts ofinterest and administrative errors. When such claims occur, they can carry severe ramifications. Under ERISA, fiduciaries andorganizations could encounter both civil and, in cases of willful misconduct or fraud, criminal penalties. Furthermore, fiduciariesand organizations may face costly legal action from impacted employees, prompting lasting financial fallout and reputationaldamage.

Risk Management and Coverage Considerations

To help minimize fiduciary risks and liabilities, organizations should:

Conduct training.

Fiduciaries should clearly understand their core responsibilities, compliance requirements and theconsequences of breaching their duties. They should be encouraged to voice any concerns about meeting theseexpectations before they become larger issues.

Establish internal controls.

Organizations should set up audit procedures, role-based access controls and detaileddecision-making processes to promote proper oversight of fiduciary actions and take corrective measures as needed.

Consult trusted professionals.

Involving experienced benefits administrators and investment advisors within theirfiduciary processes can equip organizations with the information and resources to uphold solid plan management andensure ERISA compliance.

Organizations may also want to explore specialized coverage options (e.g., fiduciary liability insurance) to help financiallysafeguard their fiduciaries and operations. Contact us today for more information.

This document is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. © 2025 Zywave, Inc. All rights reserved.