Employment-Related Lawsuits: Are You at Risk?

As an employer, you are more likely to be sued by someone who works for you than by an outsider. In fact, one in five civil cases involves employment. So for you, it's probably just a matter of time, and you don't know what employees will allege.

What if …?
A manufacturer of a high-end bicycling accessories employed several female immigrants from Central America in relatively low-paying jobs at its manufacturing plant. Unbeknownst to senior management, the women were subject to groping and explicit requests for sexual favors by male managers and coworkers. The conduct occurred for several years. After a lengthy administrative investigation, the Equal Employment Opportunity Commission (EEOC) brought a lawsuit against the company on behalf of 22 female employees. Defense costs amounted to $650,000 and the corporation settled for $1 million.

This is a true case. In other words … MALE HARASSING FEMALE = $1,650,000

OR

A manager at a warehouse for a mail-order catalogue allegedly told an employee that he was "useless," "done with the business" and "could not fill orders fast enough." Shortly thereafter, the employee was terminated based on a series of very poor performance evaluations. This employee had muscular dystrophy, and the employer had previously denied the employee's request for a ramp into the building, the use of a cart and the use of a canopy-covered parking space.

Another true case. Confronted with the prospect of an expensive trial, the employer settled the case for $100,000. Defense costs exceeded $125,000. In other words… AMERICANS WITH DISABILITIES ACT = $225,000 +

When do you have an exposure to employment-related loss?
Above are just two examples of the kinds of allegations employers face. If you have employees, you have an exposure. This is true whether you have past, present or prospective employees. Further exposure exists if the employees are part-time, volunteers or temporary employees. Leased workers and even independent contractors can sue a company. You also have exposure from directors, officers, trustees, customers and vendors.

These individuals may allege:

  • wrongful dismissal, discharge or termination (either actual or constructive) of employment;
  • breach of an implied employment contract;
  • employment-related misrepresentation(s);
  • violation of federal, state or local statute, regulation, ordinance or common law concerning employment or discrimination in employment;
  • sexual harassment or other illegal workplace harassment;
  • wrongful failure to employ or promote;
  • wrongful reference, discipline or deprivation of a career opportunity;
  • wrongful demotion or adverse change in terms, conditions or status of employment;
  • failure to grant tenure or adopt workplace or employment policies and procedures;
  • illegal retaliatory treatment of employees;
  • negligent hiring, supervision, evaluation or retention of employees;
  • employment-related invasion of privacy or defamation;
  • employment-related wrongful infliction of emotional distress;
  • employment-related libel, slander, false arrest, detention or imprisonment; or
  • other workplace torts

Employment Practices Liability insurance can provide coverage for these costs.

 What expense does your company incur with employment-related allegations?
Just read the papers. Listen to the news. Everyday, companies are being accused of discrimination, wrongful termination, harassment and a host of other employment-related torts listed above. These situations can become costly and ruin a company's reputation. They may even put you out of business!

The financial impact can be staggering. For example, the cost to properly investigate and respond to an EEOC charge typically amounts to thousands of dollars. This is just to handle the EEOC investigation and response. Factor in the potential costs for an employee who has been granted the right to sue and/or if the case winds up in court. You may legally be required to pay damages including back pay, front pay, judgments, pre-judgment and post-judgment interest and claimants' defense costs. Defense costs alone can easily reach high five and six figures. This is before any judgment or settlement. Defense costs on average are three times any indemnity payment. Claimants may also be awarded punitive damages. In fact, employee plaintiffs are awarded punitive damages more often than in any other type of case.

Employment Practices Liability insurance can provide coverage for these costs.

How do you protect your company?
The most important thing you can do to help prevent or mitigate loss is to develop proactive and responsive employment policies and procedures. To ensure that your policies and procedures comply with the law, it is recommended that you utilize a law firm that specializes in employment law to create and/or review these procedures. By doing so, they can identity problem areas and recommend solutions to help eliminate or reduce losses. Also, having such policies and procedures in place can provide your company with a mechanism to assist in raising an affirmative defense to such allegations.

A few examples of such procedures:

Create an employee handbook that is well drafted, carefully communicated and consistently followed throughout the organization. The handbook should be disseminated to all employees, and it is recommended that you ascertain a signed acknowledgment that each employee has received and read the handbook. Some important features to a handbook include:

  • Employment-at-will provision
  • Signed acknowledgment that the employee has received and read the handbook
  • Disclaimer that makes it clear the handbook is not a contract and may be revised by the employer without notice
  • Strictly enforced nondiscrimination and harassment policy
  • Procedures for investigating complaints of harassment and discrimination
  • Equal Employment Opportunity Policy
  • Americans with Disabilities Act/Reasonable Accommodation Policy
  • Family Medical Leave Act Policy
  • Privacy Policy
  • Email/Internet Policy


Conduct supervisory training. Management needs to express the company's attitude of zero tolerance to all forms of harassment and discrimination. Supervisors must be advised that it is their responsibility to put an end to any harassment or discrimination they observe in the workplace. Training should be conducted on a regular, ongoing basis and not a "one-time" quick get together. Documentation of the training should be signed by each participant and placed in his or her personnel file.

Develop hiring protocols, which include utilizing an employment application with an at-will statement and an equal employment opportunity statement. Train interviewers not to ask inappropriate or unlawful questions, as well as to refrain from making promises regarding job advancement.

Complete employee evaluations on a regular basis. Ensure that they are in writing, uniform, systematic and objective. Identify future performance goals and suggest avenues for improving performance. Evaluations should not include any promises. They should include an opportunity for employees to respond. Evaluations should be signed by both supervisors and employees.

Develop disciplinary action and termination practices. Criticisms regarding tardiness, absenteeism, attitude and performance problems should be communicated to the employee. A written report of the criticisms should be included in the employee's personnel file. Employee responses should become a part of their personnel file. A procedure should be in place to allow employees to overcome performance deficiencies. All disciplinary and/or probationary actions must be taken on a uniform basis.

Conduct exit interviews in all cases of termination, i.e. voluntary, involuntary and workforce reduction. All topics discussed should be documented. Include any employee comments or questions. Reiterate the reason for the termination. Develop a standardized exit interview form. Require the departing employee to sign it.

You may also find helpful information at the following websites:
www.eeoc.gov
www.nela.org
www.law.com

We are presenting this information based on our experience as underwriters of Employment Practices Liability insurance. It is not intended to, and should not be relied on to, provide legal advice or specific advice concerning coverage under your insurance policy. You should discuss this information further with your legal counsel and/or insurance broker, as appropriate.

 Kemper Financial Insurance Solutions…for the very best in corporate and executive protection.

 This article is provided to you courtesy of:
Richard “Rick” Mortimer, Broker
(714) 221-1800

For further information please contact me at:

rick@rickmortimer.com

 

 

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