I hired a video editor “freelance” for a flat rate of $500/week. They worked 60 hours a week for a year. I fired them, and they filed a lawsuit claiming they were misclassified as an Independent Contractor and are owed $30,000 in overtime and penalties.
Key Takeaways
- Misclassification is Expensive: In 2026, the Department of Labor is aggressive. If you control their hours and equipment, they are employees, not contractors.
- EPLI (Employment Practices Liability Insurance): This is the specific policy that covers lawsuits regarding wrongful termination, harassment, and wage/hour disputes (though wage payments are often excluded, defense is covered).
- General Liability is Useless: GL excludes all employment-related claims.
- Defense Costs: Even if you owe the back wages, the legal fees to calculate and settle the claim can be $20k. EPLI pays the lawyer.
The “Why” (The Trap): The Contractor Myth
You think: “They agreed to be a freelancer!”
The Law says: “You treated them like an employee.”
The Trap: Most creators skip EPLI because they think “I don’t have employees.”
If you have anyone helping you, you have risk.
Exclusion: GL policies have an “Employment-Related Practices Exclusion.”
[IMAGE: Checklist: “Contractor vs Employee” (Control, Equipment, Schedule)]
The Investigation: I Called Them
I asked, “My freelancer is suing for back pay.”
1. The Hartford (EPLI)
- The Verdict: They offer standalone EPLI or a BOP endorsement.
- Coverage: Covers legal defense and settlements for “Wage and Hour” claims (sub-limited, usually $100k).
- Cost: ~$500/year.
2. Gusto / ADP (Payroll)
- The Solution: Not insurance, but prevention. Using a payroll service often provides access to HR pros who warn you “You can’t pay $500/week for 60 hours.”
3. General Liability
- The Verdict: Denied.
Comparison Table
| Claim | General Liability | EPLI Policy |
| Harassment Suit | No | Yes |
| Wrongful Termination | No | Yes |
| Back Wages Owed | No | Defense Only (Usually) |
Step-by-Step Action Plan
- Audit Your Team: Are your mods, editors, and assistants W2 or 1099? If 1099, do they set their own hours? If not, switch them to W2 immediately.
- Buy EPLI: Add it to your business policy. It’s cheap compared to one lawsuit.
- Time Tracking: Even for salaried exempt employees, track hours. In 2026, the threshold for overtime exemption is high.
- Settlement: Wage and hour cases are hard to win. Settle fast.
FAQ
Can I just pay them cash to go away?
Yes, but get a signed “Release of Claims.” Otherwise, they can take the cash and sue you anyway.
Does this cover sexual harassment claims?
Yes, EPLI covers harassment defense.
What if they are in another country?
International labor laws apply. If you hire in the UK/Philippines, you must follow their laws.