One of the most common questions we hear at Anchor Insurance is: 'Do I really need EPLI if I only have a few employees?' The short answer is yes - and the smaller your team, the more a single employment claim can financially devastate your business.
This guide walks through EPLI considerations by team size, explains the legal thresholds that matter, and helps you decide when EPLI shifts from 'nice to have' to 'business-critical.'
Why Small Restaurants Are Not Immune to Employment Claims
Many small restaurant owners assume employment lawsuits only happen at large chains with big HR departments. That's a dangerous misconception. In fact, small restaurants often face higher risk because:
- They lack formal HR policies, employee handbooks, and documented processes
- Managers are often promoted from within and lack formal training on harassment, discrimination, and termination procedures
- Employment decisions (hiring, firing, scheduling, discipline) are made informally and inconsistently
- There's no in-house HR or legal counsel to catch problems before they escalate
- A single disgruntled employee can file a claim that costs more to defend than the restaurant's annual profit
Even if you're a solo owner-operator with three part-time employees, you're not exempt from federal and state employment laws - and you're not immune from lawsuits.
Legal Thresholds: When Employment Laws Start to Apply
Federal and state employment laws have different thresholds for when they apply. Understanding these thresholds helps you assess your legal exposure and decide when EPLI becomes essential.
Federal Law Thresholds
- Title VII (discrimination, harassment, retaliation): Applies to employers with 15 or more employees
- Americans with Disabilities Act (ADA): Applies to employers with 15 or more employees
- Age Discrimination in Employment Act (ADEA): Applies to employers with 20 or more employees
- Family and Medical Leave Act (FMLA): Applies to employers with 50 or more employees
- Fair Labor Standards Act (FLSA - wage and hour): Applies to virtually all employers, regardless of size, with very limited exceptions
State Law Thresholds (Examples)
Many states have their own anti-discrimination, wage and hour, and employment protection laws - often with lower thresholds than federal law. For example:
- California: Most employment laws apply to employers with 5 or more employees (some apply to all employers)
- New York: Human Rights Law applies to employers with 4 or more employees
- Illinois: Human Rights Act applies to employers with 1 or more employees
- Massachusetts: Discrimination laws apply to employers with 6 or more employees
Key takeaway: Even if you're below the federal threshold of 15 employees, you may still be subject to state or local employment laws. And regardless of legal thresholds, employees can still sue - and you still need to defend yourself.
EPLI by Team Size: A Practical Risk Assessment
Here's how EPLI risk and priority change as your restaurant grows.
1-4 Employees: Lower Legal Exposure, But Not Zero Risk
Your risk profile:
- You may be exempt from some federal employment laws (like Title VII and ADA)
- State laws may still apply, especially wage and hour laws (which apply to almost all employers)
- A single wrongful termination or discrimination claim could still cost $30,000-$75,000 to defend
EPLI recommendation:
- EPLI is optional but recommended if you have any employees who are not family members or co-owners
- Consider starting with a basic policy with lower limits ($100,000-$250,000) to control costs
- Focus on building good employment practices: written job offers, clear termination documentation, consistent policies
5-14 Employees: Moderate Risk, EPLI Becomes Important
Your risk profile:
- Most state anti-discrimination laws now apply (California, New York, etc.)
- Federal wage and hour laws (FLSA) fully apply
- More employees = more terminations, schedule disputes, and interpersonal conflicts
- You're large enough to have manager-employee dynamics, which increases harassment and discrimination risk
EPLI recommendation:
- EPLI is strongly recommended. A single claim can easily exceed your legal budget and distract from operations.
- Consider limits of $250,000-$500,000 depending on your location, turnover rate, and claims history
- Invest in basic HR tools: employee handbook, written policies, manager training
- Consider adding wage and hour defense coverage if available
15-49 Employees: High Risk, EPLI is Essential
Your risk profile:
- Federal Title VII and ADA protections now apply
- You're likely managing multiple shifts, multiple locations, or distinct FOH/BOH teams
- Higher turnover means more terminations and higher statistical likelihood of claims
- You may be subject to EEOC complaints and state labor agency investigations
EPLI recommendation:
- EPLI is essential. This is the team size where most employment claims begin.
- Consider limits of $500,000-$1,000,000 depending on your payroll and risk profile
- Implement formal HR processes: documented discipline, termination checklists, anti-harassment training
- Consider third-party HR support or an HR hotline (some EPLI policies include this as a value-added service)
50+ Employees: Maximum Legal Exposure, Comprehensive EPLI Required
Your risk profile:
- FMLA leave obligations now apply
- You're likely subject to EEO-1 reporting and increased regulatory scrutiny
- Class action and collective action wage and hour lawsuits become a real risk
- You may have dedicated managers, HR staff, or multi-unit operations
EPLI recommendation:
- EPLI is mandatory. At this size, employment claims are a matter of when, not if.
- Consider limits of $1,000,000+ and evaluate excess EPLI for catastrophic claims
- Invest in robust HR infrastructure: HRIS systems, formal policies, regular training, legal counsel on retainer
- Work with your broker (like Anchor) to review your policy annually and adjust limits as headcount grows
Other Risk Factors Beyond Team Size
Team size is important, but it's not the only factor that affects your EPLI risk. Here are other considerations:
- Turnover rate: Higher turnover = more terminations = more claims. Restaurants with 100%+ annual turnover face significantly higher risk.
- Management structure: Promoted-from-within managers with no HR training are a major source of liability. Formal training reduces risk.
- Tip pooling and wage practices: Complex tip pooling, tip credits, and irregular scheduling increase wage and hour claim risk.
- Location: States like California, New York, and Illinois have more plaintiff-friendly employment laws and higher claim frequency.
- Prior claims: If you've had employment claims in the past, underwriters will price that into your EPLI premium (or decline coverage).
- Workforce demographics: A diverse workforce (age, race, language, immigration status) requires more careful management and increases discrimination claim risk if not handled properly.
How Anchor Insurance Helps Small Restaurants Get the Right EPLI
At Anchor, we specialize in helping small and mid-sized restaurants find EPLI coverage that fits their size, budget, and risk profile.
- We shop multiple carriers: Different carriers have different appetites for small employers - we find the ones that will actually quote you
- We explain what you're buying: EPLI policies vary widely in coverage grants, exclusions, and limits - we translate the jargon
- We right-size your limits: We help you choose limits that protect you without over-insuring
- We bundle for savings: Many carriers offer discounts when you bundle EPLI with your BOP, General Liability, or Workers' Comp
Frequently Asked Questions
I only have 3 employees - do I really need EPLI?
You may be exempt from some federal employment laws, but you're not exempt from state wage and hour laws - and you're not immune from lawsuits. Even a frivolous wrongful termination claim can cost $30,000+ to defend. EPLI is optional at this size, but it's cheap insurance against a devastating legal bill. We recommend at least a basic policy if you have any non-family employees.
At what team size does EPLI become mandatory?
EPLI is never legally required (unlike Workers' Comp). However, it becomes practically essential once you hit 5-10 employees, when most state employment laws kick in and your statistical likelihood of claims increases significantly. By 15 employees, when federal Title VII and ADA apply, EPLI should be considered mandatory.
Can I add EPLI later, or should I get it from day one?
You can add EPLI at any time. However, EPLI policies typically exclude 'prior acts' - meaning they won't cover claims arising from events that happened before your policy started. If you wait until you have a problem employee or a brewing dispute, it may be too late to get coverage for that specific claim. We recommend getting EPLI as soon as you hire your first non-family employee.