Employment Liability Risks to Watch in 2027

• November 2, 2026

By Vanessa Matsis-McCready

As businesses close out 2026 and prepare for the year ahead, employment-related risks deserve a closer look. With employment laws changing and workplace expectations evolving, even routine management decisions can create liabilities that may not become apparent until a complaint or legal claim arises.

For independent insurance agents, these challenges present an opportunity to have more meaningful conversations with clients about their exposure. While employment practices liability insurance (EPLI) can provide important protection against certain employment-related claims, coverage alone cannot address the underlying workplace practices that often lead to disputes.

Understanding where those risks originate can help agents identify potential coverage gaps and encourage clients to take a more proactive approach to managing employment liability. Here are four risks to watch in 2027:

1) The regulatory landscape is changing. One of the biggest challenges for employers heading into 2027 is keeping pace with employment requirements that vary across jurisdictions.

Federal, state and local laws can impose different obligations regarding wages, paid leave, workplace accommodations and hiring practices. For businesses operating in multiple states, a policy that complies with requirements in one location may not be sufficient in another. Employers must ensure that managers understand these requirements and apply workplace policies consistently.

Agents can encourage clients to revisit their practices and policies and consider whether recent regulatory changes warrant additional HR or employment law guidance. This is especially important for growing businesses that may have expanded into new markets or added employees without updating existing policies.

2) Everyday decisions can create liability. Employment liability does not always stem from major organizational decisions. Exposure often develops through routine management decisions, particularly when handling employee complaints or disciplinary matters.

For example, an employer may discipline two employees differently for similar conduct. While there may be a legitimate reason, a lack of documentation can make the decision difficult to defend if an employee later alleges discrimination or retaliation.

It often surprises managers how a seemingly innocent comment can lead to a claim. Sometimes these innocent interactions can cause a manager to not realize a workplace concern is actually a workplace complaint. This could lead the manager to dismiss a workplace complaint without proper review, which may expose the organization to additional risk.

Employers should establish clear procedures for handling workplace concerns and documenting employment decisions. Regular manager training can also help ensure workplace concerns are handled consistently rather than leaving individual supervisors to make decisions without guidance. Having a central department, usually HR, to have these types of issues come through is also invaluable for consistency.

3) The cost of a claim begins before a courtroom. Employers may underestimate the financial and operational consequences of employment allegations, particularly when they believe a claim lacks merit.

Responding to a complaint can require internal investigations, record preservation, legal counsel and significant management time, even before liability is determined. For smaller businesses with limited internal resources, these responsibilities can disrupt daily operations and create unexpected expenses.

There is also the hidden impact of managerial attention being diverted from their primary work and the morale impact on the remaining employees.

EPLI may help cover certain defense costs. However, not every employment-related expense or allegation is necessarily covered. Agents can help clients understand these distinctions while reinforcing the importance of sound workplace practices.

4) Exposure reaches beyond employees. Employment-related liability can also involve individuals outside an organization’s workforce. A customer who alleges discriminatory treatment by an employee, for example, may pursue a claim against the business.

Depending on the policy, certain EPLI coverage may extend to third-party allegations. This is particularly relevant for businesses in hospitality, retail, healthcare and other industries with frequent public interaction.

Agents should consider whether clients face third-party exposure and whether their existing coverage addresses those risks.

Make Employment Risk Part of Year-End Planning

As clients evaluate their insurance programs for 2027, agents can use a few targeted questions to identify potential employment exposures:

• Have employee handbooks and workplace policies been reviewed recently?
• Are managers trained to recognize and escalate workplace complaints?
• How are performance issues, disciplinary decisions and terminations documented?
• Have changes in staffing or operations introduced new risks?
• Does the organization have access to qualified HR or employment law resources?
• Does existing EPLI coverage reflect the business’s current operations and potential third-party exposure?

For small and midsize businesses without dedicated HR departments, professional employer organizations (PEOs) can provide access to HR professionals who assist with workplace compliance and employee relations. This support can help employers establish consistent management practices and address potential concerns before they escalate into more significant disputes.

Independent agents do not need to serve as their clients’ HR or legal advisers to help identify potential employment risks. By connecting EPLI conversations with the workplace decisions and practices that influence liability, agents can help clients take a more comprehensive approach to managing employment exposure in 2027.

Vanessa Matsis-McCready is associate general counsel and vice president of HR services at Engage PEO.

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