About two years ago, a small article about an obscure U.S. Supreme Court ruling on workplace discrimination ran in the Washington Post.
The article may have been small, but that ruling greatly increased the power employees have to sue their employers and has changed the face of workplace lawsuits across the country.
Carole Kolstad sued her former employer, the American Dental Association, claiming she was sexually discriminated against when a male employee with less experience was promoted ahead of her. Kolstad was awarded $52,718 in back pay, but was not allowed to seek punitive damages in trial court. Punitive damages, as we've seen, can reach into the millions of dollars and signal a death knell for a small- or mid-sized company.
Kolstad appealed the decision and the case found its way to nation's highest court. The justices ruled that employees could seek punitive damages if they could prove they were intentionally discriminated against on the basis of sex or race.
But there's a loophole. If a company can show it made a good faith effort to protect against bias on the job, the burden falls directly on the employee's supervisor and away from the company.
The number of employment discrimination lawsuits in federal court has increased by 2,000 percent in the last 20 years. Even if a case is without grounds, defense costs can exceed $100,000 for a typical discrimination lawsuit.
Just over half of the employers who responded to the Workplace Practices Survey from the Employers Resource Council and SBN Magazine say they keep Employers Practice Liability Insurance, an increase in the number who last year said they had it. Only 20 percent of employers this year reported an employee has sued them in the last two years, well below the national average.
William Edwards, a member of the employment and labor group at Ulmer & Berne LLP, says that in light of the Kolstad case, an EPLI policy is vital, but not a replacement for good, common-sense management practices.
''If you're in the business long enough, you're going to get sued regarding some type of employment-related practice,'' he says. ''You need to carefully shop for and scrutinize the EPLI policy that is best for your company.''
In response to the mind-boggling increase in litigation, there's been an equally dramatic increase in the number of EPLI policies available. In 1992, there were three; today, there are more than 100. Edwards offers the following tips for picking an EPLI policy that's right for your company.
Your best defense
Much like with heath insurance, EPLI policy holders are not always entitled to use the law firm of their choice. In fact, your law firm may not necessarily be the one assigned the case if you're sued.
The EPLI policy carrier could even assign an insurance defense firm that doesn't have the expertise in employment law that you need.
An EPLI insurer will often have a provision in the policy that gives it the final say about whether a case should settle before a trial. If the employer disagrees and wants to keep fighting, it's usually on its own for defending against the claim.
That's called a hammer clause. Edwards says you can usually negotiate a modified hammer clause with which you only pay a percentage of damages and fees if you go against the insurer's recommendations.
How to reach: Ulmer & Berne LLP, (216) 621-8400
Morgan Lewis Jr. (email@example.com) is senior reporter at SBN Magazine.