How to Protect Businesses from the Rising Trend of Employment Practices Lawsuits

Business owners today face tough economic challenges. One of those challenges is the increasing risk of employment practices liability (EPL) lawsuits.

According to a 2010 Chubb survey, some 30 percent of business owners will likely reduce their workforce in today’s tough economy, while another 20 percent of employers may be forced to outsource some job functions to reduce overall buisness costs.

“Both of those things really increase employment exposures as you reduce the workforce,” said Catherine Padalino, vice president and employment practices liability product manager for Chubb. “It certainly leads to increased exposure for wrongful termination claims, for example.”

In a recent interview with ClaimsJournal.com Editor Denise Johnson at the PLUS International conference in San Diego, Padalino discusses how EPL risks differ between large and small businesses, why EPL lawsuits are on the rise, and what businesses can do to reduce their exposure to EPL claims today and in the future.

Catherine Padalino: I think a lot of small companies that we see have a much more informal atmosphere. What that means is they are like family. They really don’t expect that someone that’s worked with them in a close-knit environment, for example, that if they do have to get downsized or leave their position, they don’t think in a million years that they’re going to be sued by this employee. However, in this economy, what we are seeing is that that employee, as much as they may have enjoyed that atmosphere, is certainly going to bring a suit if they feel that they have been wrongfully terminated.

The other thing that we see is in large companies, there’s certainly a recognition of policies and procedures. I think they do a really good job with respect to managing proactively the termination exposure. But … from a demographic statistical standpoint, when companies go to lay people off, the odds are someone is going to be of a protected class, be it of age, be it of a certain race, a certain national origin, just based upon the demographics of the organization. The area that we see is a real increasing trend, particularly for the larger employers, is the age discrimination case.

Employment practices liability lawsuits are on the rise. Can this be attributed to the recession?

Padalino: Absolutely. There is no doubt that the economy has attributed to an increase in claims. Employers are trying to navigate through a tough economy. They are not hiring new employees, and in fact, they’re obviously laying people off. The unemployment rates are sticking at double digits, and we don’t anticipate that they’re going to go down significantly. What happens from a claims standpoint is that aggrieved individual is going to bring a claim. In years past, we saw a charge that might be mitigated or settled out rather quickly because that person went on and found another job, they were happier in their new job, and in fact, many times they were paid more in their new job.

Well, now that job is so hard to come by they can’t find the next job. If they do find a job, they’re not making the same amount of money or perhaps don’t have the same opportunity they had in their old job. So they’re fighting and holding onto those claims. Those claims are going to trial a lot more. …

Certainly the economy leads to not just the lengthening of the case, but the severity of the case. All of those factors tie into an interest from a plaintiff attorney side, that the damages are going to be higher, and that there’s heightened interest in lawyers taking the cases as well.

What types of EPL losses or exposures are tied to an employee’s use of social media?

Padalino: Social media is such a hot topic in the employment arena. It doesn’t all tie to insurance per se, because there is productivity issues, there are copyright issues, invasion of privacy issues which can lead to employment suits. But where we see a real exposure, and something that the employers are navigating through today, is the issue for example of using as a recruiting tool or a hiring tool. As, for example, a profile picture is now evident on a Facebook, for example or a video resume comes across the desk. Years past, there was no way to determine, for example, the sex or race of that person. Now, if that person is not hired, they have an additional basis to bring a claim of discrimination.

The other area that we’re seeing some additional interest … the National Labor Relations Board has come out with some guidance with respect to concerted activity. Whether you’re union or not union, you have every right in the workplace to effectively complain about your workplace conditions without fear of retaliation.

Now, use of social media has heightened that exposure again, whether you’re union or non-union, that law protects you and it’s something that they’re really looking at closely. We’re looking at social media policies, and really looking at the exposure.

Another heightened exposure, is just the disparate treatment of individuals. “You looked at this Facebook page for me because I’m of a certain protected class, for example. You don’t look at everybody’s Facebook page.” That disparate treatment with respect to the enforcement of social media policies is something that we’re going to be keeping our eye on.

Besides EPL coverage, how should businesses protect themselves from these types of lawsuits?

Padalino: There’s a couple of ways that employers can protect themselves. First and foremost, aside from insurance, they should be reaching out to their general counsel, their outside counsel, for expertise with respect to those core anti-harassment and anti-discrimination policies. One of the things that we talk about a lot is social media. It’s great to have social media policies, but it comes back to the core premise that you don’t harass and you don’t discriminate within the workplace. That’s where those policies need to be vetted and updated on a regular basis with outside counsel.

Another thing that employers can do is tap into the resources that are available. Insurance carriers, for example, provide an array of loss mitigation services. These loss prevention services might include expert consultants, they might include handbooks, they include websites. And most of the time those services come along for free with the policy.

What are the typical cost expenses associated with an EPL lawsuit?

Padalino: From an EPL standpoint, one of the statistics we look at a lot is the Jury Verdict Research data. Their 2011 data just came out. The average award for that was over $600,000. That doesn’t include the defense expenses that go along with it. It really is sizable and has increased over the last couple of years, not surprisingly. From a Chubb perspective, we look at a variety of different claims. Of course, the costs depend upon the sophistication of the claim that’s being made. But a single plaintiff charge can cost tens of thousands of dollars, just to simply defend that charge. If it’s a lawsuit, for example, that number quadruples. If there’s a class action or any kind of mass activity, which includes groups of people, it’s easily 15 times as much as that.

Topics Lawsuits Trends