Employment Practices Liability Insurance (EPLI) for Dispensaries

What is EPLI?

Dispensaries and other cannabis businesses face the same challenges that any organization faces with hiring and firing employees. However, several factors make dispensaries vulnerable to employment practices lawsuits. For one, the industry has a high employee turnover rate, averaging 40 to 60% churn within the first two months of employment (according to the National Cannabis Association). Another issue comes from being a relatively new industry. Cannabis businesses, as they expand, often focus on other aspects of operations rather than setting up proper HR practices. And Forbes and other outlets have reported on lingering misogyny within cannabis. These factors mean that employee litigation is a severe risk in the cannabis industry.

EPLI, short for Employment Practices Liability Insurance, offers protection to employers against lawsuits filed by their employees for discriminatory practices (based on age, race, sex, or disability) and wrongful termination. An employment practice claim could come from former, current, or potential employees and might involve third-party vendors. Policies vary, but generally, EPLI helps companies cover the cost of legal fees and may provide guidance on reducing the risk of potential suits.

This post offers a guide to EPLI for dispensaries and other cannabis businesses.

Why dispensaries need EPLI

Really, any organization that has employees should have EPLI coverage. The average cost of EPLI claims are as follows:

  • $75,000 per claim if settled out of court
  • $200,000 per claim, if settled in court and including defense costs

If a business loses a lawsuit, they could be on the hook for substantial amounts and will be forced to cover the claimant’s legal fees. These numbers should alarm you if your current policy/carrier does not provide this coverage! Even if you only carry $25,000 or $50,000 limits of coverage – some coverage is better than absolutely none. If a claim turns out to be baseless, legal discovery alone can cost an organization upwards of $50,000. Additionally, a dispensary might find it cheaper to settle than to fight even an unfounded claim in court.

Learn more: An Introduction to McGowan Wholesale Cannabis Insurance

What does EPLI cover?

An EPLI claim could involve any type of employment malpractice. While discrimination and sexual harassment are among the most common types of claims brought against employers, according to the Equal Employment Opportunities Commission (EEOC), EPLI also covers:

  • Negligence or unsafe working conditions
  • Wrongful termination
  • Failure to promote or hire
  • Breach of contract
  • Assault
  • Many other employment issues

Most EPLI policies will cover at least some of the legal fees associated with an EPLI claim.

Types of EPLI claims

An EPLI complaint can come from within the company (1st party) or an external vendor that the dispensary works with (3rd party). In a 1st party complaint, a manager might be accused of passing an employee over for promotion due to race or gender. In contrast, in a third-party complaint, an outside salesperson for a cannabis brand who routinely visits a dispensary location might be accused of sexual harassment or assault. In either case, the dispensary could be liable and must defend itself in court.

How to mitigate the risk of EPLI litigation

It is crucial to establish and maintain good HR practices in order to minimize the risk of EPLI claims. Providing proper training to managers in handling employee benefits and Title VII issues is an example of such practices. Title VII is a section of the Civil Rights Act of 1964 that prohibits employers from discriminating against employees on the basis of their race, color, religion, sex, or national origin. This law applies to employers with 15 or more employees, including federal, state, and local governments, and also established the Equal Employment Opportunity Commission (EEOC) to investigate and take action against workplace discrimination complaints.

Questions you might ask yourself as a stakeholder or business owner when it comes to Employment Practices are:

  • Do we have a General Manager in charge while the owner is away?
  • What is the paper trail process at my company for reporting poor employee behavior?
  • Are we implementing or have a plan to implement Performance Improvement Plans (PIPs) or Behavioral Improvement Plans (BIPs)?
  • If we don’t have PIPs or BIPs in place or don’t have a plan to implement, how aware is your General Manager of your company’s termination process?
  • Does your GM operate with a reactionary “on the spot” mentality, or are they strategic about how to phase out or terminate?
  • Does our dispensary have clearly defined onboarding and offboarding policies in place?
  • Do we have a clear way for employees to make complaints and resolve interpersonal conflicts?

Additionally, having an up-to-date Employee Handbook can lower your premium in an EPLI policy. To be effective, an employee handbook should cover topics such as:

  • How to engage HR in an employee dispute.
  • Proper procedures for time off requests and payroll.
  • Establishing oversight of management.
  • Defining potential misconduct and what employees should do if they feel they have been mistreated.

Choosing an EPLI policy for your dispensary

Prevention is critical to mitigating the risk of EPLI complaints. Happy workers who can resolve issues in a compassionate workplace are much less likely to sue. However, dispensaries and other cannabis business stakeholders can do everything correctly and still end up on the wrong end of an EPLI lawsuit. And as we established, even getting an unfounded lawsuit dismissed can be extremely costly. That’s why dispensaries must seek out employee practices liability insurance coverage.

When obtaining EPLI coverage, negotiate policy limits and choose defense and counsel limits that meet your needs and budget. An experienced cannabis insurance broker can help you select the best policy. Combining EPLI with an existing policy can be more affordable, including other products such as Directors & Officers Liability (D&O).

McGowan Wholesale is an insurance and risk management firm specializing in cannabis that can help our clients navigate the minefield of EPLI claims. Our TRICHOME Dispensary Program offers optional EPLI sub-limits for more protection. The mission of TRICHOME is not only to help normalize rates for the retail side of cannabis but also to offer more protection and peace of mind as an owner and entrepreneur.

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