Fired an Employee? You Are About to Be Sued. Why 'General Liability' Won't Save You from Wrongful Termination

⚖️ The "At-Will" Employment Myth (2026 Edition)

You own a growing business. You have a toxic employee who is chronically late and abrasive with clients. Finally, you reach your breaking point. You summon them to your office and state: "You're fired."

You feel secure because you operate in an "At-Will" employment state. You believe you can terminate anyone, at any time, for any reason.

Two weeks later, you are served with a formal complaint. The employee isn't suing for lateness. They allege they were terminated due to their Race, Religion, Gender, or Age.
They are demanding $400,000 in damages. You immediately call your insurance agent, expecting your "General Liability" policy to shield you. Your broker delivers the bad news: "We don't cover HR disputes."

Fired an Employee? You Are About to Be Sued.

The "Gap" in Your Protection

Most business owners fundamentally misunderstand the scope of "General Liability" (GL).

• General Liability: Covers bodily injury (slips, falls) and property damage.
• Workers Comp: Covers employee injuries (broken bones, carpal tunnel).
• EPLI (Employment Practices Liability Insurance): Covers violations of employee rights (discrimination, emotional distress, harassment). GL pays $0 for this.

What Does EPLI Actually Cover?

EPLI acts as your dedicated legal defense fund against claims from past, present, and even prospective staff.

Top 5 Claims Covered in 2026

1. Wrongful Termination: "You fired me illegally."
2. Discrimination & Harassment: Allegations based on protected classes (including new 2026 gender identity protections).
3. Retaliation: "You fired me because I reported a safety violation."
4. Failure to Employ: "You didn't hire me because of my age."
5. AI Recruitment Bias: "Your AI screening software automatically rejected my resume due to algorithmic bias." (A rapidly rising claim type).

⚠️ State Law Alert (MT, NY, CA): "At-Will" employment is not absolute.
• Montana (MT): The only state that is NOT truly "At-Will." You need "good cause" to fire an employee who has passed their probationary period.
• New York (NYC): "Just Cause" protections now apply to fast-food workers, making termination legally complex.
• California (CA): Extensive protections (CROWN Act, pay transparency laws) make CA the most litigious environment for employers.

The "Third-Party" Endorsement Secret

Here is a critical nuance most agents overlook. Standard EPLI covers employees suing you.
But what if a Customer or Vendor sues you for harassment?

Example: A delivery driver claims your receptionist made a discriminatory remark. He sues your company.
Unless you have the "Third-Party EPLI" endorsement, you are completely exposed. Always request this add-on; the premium difference is often negligible.

🛡️ Chief Editor’s Verdict

The defense costs alone can bankrupt a small business.

Even if you did everything right and prevail in court, the average legal cost to defend an employment claim in 2026 exceeds $125,000.

Plaintiff attorneys target small businesses knowing they lack in-house counsel. EPLI provides that counsel. For an annual premium of roughly $800 - $2,000, it is arguably the most essential "sleep insurance" a founder can purchase.

Disclaimer: This article is for informational purposes only and does not constitute legal or insurance advice. Employment laws vary significantly by state (especially in CA, NY, and MT). Insurance policy terms, exclusions, and premiums differ by carrier. "At-Will" employment is subject to numerous federal and state exceptions. Always consult with a qualified employment attorney or licensed insurance broker to assess your specific risks.