Workplace changes put focus on employer liability

According to the Equal Employment Opportunity Commission, employment-related lawsuits are a growing concern for employers of all sizes. More than 75,000 charges are being filed with the EEOC annually for harassment alone. Those charges are equal to costs of more than $250 million to bring the cases to resolution. The average costs associated with these claims are estimated to be in excess of $100,000 excluding settlements.

The three most common employment-related lawsuits today are wrongful termination, which results when an employee is discharged for invalid reasons; discrimination, the denial of equal treatments of workers who are members of a protected class; and sexual harassment, when a worker is subject to unwelcome sexual advances, obscene or offensive remarks, or the failure to stop such behavior.

Strategies for protection

It is essential that employers have effective strategies in place to cover their risks due to the ever-changing legal and employment environment. Possible sources of liability include recruitment practices, employment applications, employment offers, employee orientation, annual conduct reviews, performance policy enforcement, termination and improper documentation.

The first strategy to protect against these exposures should be a comprehensive human resources policy that encompasses all issues regarding the work environment. Employment handbooks that outline all policies and terms of employment in easy-to-understand language should be in place. Employers must analyze their recruitment, hiring, disciplinary and termination policies to ensure they are not leaving themselves open to claims. Training and supervision of managers that includes interviewing skills as well as handling job reviews and measuring standards of job performance must be done. Due to the complexity of employment laws, a well-communicated and -organized employment plan can prevent litigation and ensure fair treatment of all employees.

The second strategy to protect employers is employment practices liability insurance coverage. This is used to protect against lawsuits by employees alleging wrongful termination, discrimination, harassment or other specified employment-related exposures. To obtain coverage, employers will need to provide proof of current practices and policies in regard to several issues, including sexual harassment, discrimination, disabilities and accommodations, grievances, employee discipline, termination, evaluations, Internet use, employee privacy, pregnancy leave, internal job postings and dispute resolution.

Some employers assume they have coverage under their current commercial general liability policy, but most of these policies exclude employment practices liability. The employment practices liability policy can protect the actions of the corporate entity, employees, volunteers, and, in some cases, directors and officers. Employment practices liability insurance policies commonly cover the costs of investigating, defending and settling claims. Defense costs can be included within policy limits, rather than being offered in addition to policy limits. In this case, defense costs will reduce and could deplete the limit of liability. Be sure to check your policy language to verify if defense costs are inside or outside of your limits.

Exclusions of the policy vary depending on which insurance company is providing the coverage. Some of the more common exclusions are failure to comply with the law, dishonest acts, bodily injury, sickness or disease, and property damage liability.

The climate

Laws regulating employment have grown more complex. But many employers have not given much thought to how these changes affect one area: the temporary work force. When a temporary employee brings suit for alleged discrimination or harassment, both the temporary agency and you, the employer, may be held responsible.

Temporary workers are terminated more quickly and frequently – often for performance problems less documented and considered more unusual than those of regular employees. Think back to some of the temporary workers you have used and then asked not to have sent back again – the receptionist whose voice wasn’t quite right, or the factory worker whose one-day orientation fell far short of the one-week orientation given to regular employees.

Under the circumstances, you may have thought you could not be held responsible for your actions because the terminated employee was “only a temp.” Not true.

As our labor and employment law attorney told us, “Employers put themselves at great risk if they ignore the many legal obligations that they hold jointly with the temp agency.”

What to do about it

Your responsibility is to ensure that standards you use to comply with anti-discrimination, anti-harassment and other employment laws apply to temporary as well as regular employees. Temps deserve as much training, respect and guidance as anyone who performs a service for you. Shaping this kind of culture begins with creating guidelines and policies.

However, because problems can crop up despite the best of intentions, employers should protect themselves from legal expenses, settlement costs or punitive damages. That’s where employment practices liability insurance comes in. Most policies will cover temporary employees as well, but you should confirm that coverage with your agent.

David Endacott is a commercial insurance agent at Ollis & Co. He can be reached at DavidEnd@ollisco.com or www.ollisco.com. Some information was provided by Ollis & Co.’s Mywave Portal.