Every employer can relate to the potential for lawsuits arising from allegations of unlawful employment practices or policies. In today’s litigation-happy society, employers of every size are targets, justly and unjustly, of disgruntled employees, unhired job applicants and irate customers.
A single allegation of an unfair or inappropriate employment practice, regardless of its merits, can wreak havoc on a firm. Most allegations are for discrimination, harassment or wrongful termination; however, according to studies by Jury Verdict Research and others, 75 percent of such lawsuits are found to be meritless. If you think large corporations are the primary targets of such claims, think again: 52% of employment practices lawsuits are brought against small businesses.
The cost to defend one’s company from such allegations can be staggering. Typical attorney fees for employment cases that settle prior to trial reach $100,000. For cases that go to trial, the median jury award was $200,000 in 2007 and costs continue to climb yearly according to industry studies. While amounts of this size might not cause a large corporation to blink, they can be devastating for a small business.
Today’s economic environment is giving rise to a steep increase in employment related lawsuits. Charges in 2008 were up 15 percent from 2007 and up 26 percent from 2006, according to the U.S. Equal Employment Opportunity Commission. Recent laws — including the 2008 federal Americans with Disabilities Act (ADA) and the 2009 Lilly Ledbetter Fair Pay Act — make it easier to find grounds for employment practice charges.
So what can an employer do to minimize its exposure to employment practices lawsuits? First and foremost, employers need to pay attention to the proper maintenance of personnel records. Personnel records provide key documentation necessary in defending employment claims therefore keeping personnel records in good order is your first line of defense. Here are five key points to consider when conducting your “HR risk management” review:
1. Maintain properly documented performance records for every employee. These documents are critical to an employer’s ability to get a lawsuit dismissed or win at trial.
2. Personnel records should not include information that identifies an employee as a member of a protected class (minority status, medical conditions, etc.). Keeping this information separate will help defend against any suggestion that demographic information was a consideration in making a personnel decision.
3. To ensure that you are fully complying with ADA and HIPAA laws, keep all medical-related documents in a separate file.
4. Investigation records should be kept in a separate file.
5. Treat information regarding former employees and non-hired applicants with the same sense of security as current employees. Their files include sensitive data, which if allowed to fall into inappropriate hands, will leave the employer exposed to privacy liability claims.
The Atlanta law firm Troutman Sanders, a well known name in employment law circles, offers a detailed summary of the actions employers should undertake to protect their personnel records: www.troutmansanders.com/lespring2009-01.
The next step in prudent risk management is to consider transferring this risk via an Employment Practices Liability insurance policy. EPL coverage pays the defense costs and liability damages involved in charges against an employer for employment practices violations. A “wrongful employment practice” may include discrimination; harassment; wrongful discharge; retaliation; workplace tort; wrongful employment practice, and any other act where the employer treats, or allegedly treats, one employee differently from another.
EPL policies differ widely in coverage terms so consult with a qualified insurance broker to determine which policy is most appropriate for your organization. Pricing for EPL coverage also varies widely from one insurance company to another based on a variety of factors including policy terms, conditions and exclusions.
Your employment practices represent a significant source of risk to your organization. Sound management practices, thoughtful planning and adhering to “HR best practices” will minimize the potential pain this risk can inflict.
This notice is provided as information only and should not be considered a legal opinion. If you have questions about this Client Advisory, please contact Seacrest Partners at 912-544-1900.