Emotions run high when companies downsize and reorganize to meet the demands of a tough economy. Some employees will do whatever it takes to raise cash if their financial situation is desperate or if they are disgruntled with their employer. In this litigious society, no business can rest easy, especially with the steady increase in employment practices allegations. With attorney fees alone averaging $200,000 per claim, businesses can’t afford to ignore potential lawsuits that employees can instigate and today, filing employment practices claims is more common than ever before.
Michael Finn, account executive, GMGS Insurance Services, has noticed a sharp incline in employment practices cases. Presently, he is handling 12 claims whereas his clients had two claims in the prior decade.
“No business is immune to employment practices lawsuits,” Finn says, noting that the state of California in 2004 cracked down on workers’ compensation claims with tighter regulations. “Employment-related practices claims seem to be the new workers’ comp,” he says. “And business owners don’t have to do anything wrong. No one has to actually discriminate against or harass the employee. An employee may simply allege that they were treated wrongfully and the court doors will fly open.”
Smart Business spoke to Finn about how businesses can protect themselves in this litigious environment.
What constitutes an employment practices claim?
Employment practices covers the human resources spectrum, including sexual harassment, wrongful termination and employee discrimination because of race, religion, age or any other reason. It also includes wage and hour claims, which allege that a company did not abide by the Fair Labor Standards Act (FLSA). Employees may claim overtime violations, saying that they were not paid for hours worked, or they can claim failure to pay wages for hours of work. Wage and hour claims may also allege that a company didn’t allow the legally allotted meal or rest time.
The problem with all employment practices claims is that a business does not have to be in the wrong for an employee to make a claim. A claim is as simple as an employee ‘saying so.’ Even frivolous, unsupported claims are not quickly dismissed. Aside from claims being litigated in court, the U.S. Equal Employment Opportunity Commission (EEOC) is required to investigate all claims.
Why are employment practices claims more common today?
We can blame it on our litigious society, the present economy and people’s desperation to find money any place they can. And the fact is, word-of-mouth travels very fast. Employees talk. When they learn how relatively easy it is to make an employment practices claim, it becomes an attractive option for almost anyone. Many employees do not automatically assume they are hurting their employer (or former employer). Often their legal counsel convinces the employee that the insurance company is picking up the tab at no cost to the employer. However, for businesses that do not have employment practices liability insurance (EPLI), the cost of litigation can cause serious financial harm especially with repeated or class-action lawsuits.
What implications does a business suffer when facing an employment practices lawsuit?
Time, money and reputation are at stake for businesses that face these claims. No company wants to spend time in court, and these cases can go on for some time since they are also investigated by a government agency. Again, the average defense costs are presently $200,000 per EPL claim. For businesses without EPLI, these fees can hit the bottom line hard, especially in this economy. There are also additional costs if a business decides to bring in human resources specialists to ramp up policies and procedures and expand company training. Many insurance companies that offer EPLI will provide these services for free.
What can businesses do on the front end to protect themselves against these claims?
First and foremost, maintain proper documentation of all human resource activities, from hiring to termination. Scrutinize company policies and procedures and ensure that everything is properly documented, from hours worked to when and how long employees take breaks. Take proper steps when terminating employees. Make sure there is a plan in place so the termination complies with state and federal laws. That documentation will serve as a defense when a lawsuit arises. Ensure that managers and employees have proper training in the areas of sexual harassment and discrimination. Document all training. Consult with an HR professional if you do not have an individual in house who can verify that all policies are airtight. Finally, an EPLI policy is essential to protect your business just in case an employee files a claim. Paying a small premium as opposed to the total cost of litigation is the best safety net to protect a business.
How does an employer place proper coverage?
Premiums can range from $2,500 to $25,000 for companies with 200 employees or less. The premium really depends on the size of the business, number of employees and historical turnover. In reality, for the price of 10 to 15 hours with a lawyer you can place a $1 million policy to protect your business. To secure proper coverage, consult with a risk management broker who can provide the proper guidance.
Michael Finn, CIC, is an account executive at GMGS Insurance Services. Contact him at email@example.com or (949) 559-3376.