If you’ve ever had an employment related charge or lawsuit filed against your company, you know--they can be costly in terms of money and staff time. Unfortunately, such claims are increasingly common. For example, the Equal Employment Opportunity Commission (EEOC), which enforces federal employment discrimination laws, received nearly 100,000 discrimination charges each of the last three years. In 2012, the EEOC obtained $365.4 million in settlements from employers, the largest amount ever. The agency has decided to shift its focus to systemic pattern and practice discrimination litigation, especially gender compensation inequality. The goal is to have broad remedial impact by spending its considerable resources pursuing large group or class claims rather than individual claims. EEOC litigation can be very expensive, and it’s not just employment discrimination that employers need to worry about. The current administration, which can hardly be characterized as employer-friendly, is also moving to update and aggressively enforce other major workplace laws.
While federal discrimination laws apply to employers of 15 or more (20 or more in the case of the age discrimination), smaller employers are not immune from claims. They are usually covered by substantially similar state laws. Kansas employment discrimination statutes apply to employers with as few as four employees. The Kansas Human Rights Commission enforces these statutes and resolved more than 1,000 claims in 2012, collecting more than $800,000 from Kansas employers.
Discrimination claims are very common because they are so easy to file. It costs a current or former employee nothing and he/she doesn’t need a lawyer; the receiving agency will do all of the work. The employer has no such help. It has to spend its time and money responding to the allegations of the claimant and the inquiries of the investigating agency. If the agency concludes there is cause to believe there has been discrimination, the agency will seek a settlement, and failing that, it may sue the employer on the employee’s behalf using the agency’s considerable resources to do so. Otherwise, it will inform the employee of his/her right to sue.
Employment discrimination lawsuits are one of the most frequent types of claims filed in federal courts and are very costly. From 2003-2010 the average federal court award to a successful employment discrimination claimant was $640,477. Win or lose, the employer’s defense costs in such cases routinely exceed $100,000.
Discrimination is just one of several types of workplace claims employers may face. Claims of retaliation, wrongful discharge, harassment, wage and hour individual and class actions, defamation, invasion of privacy, negligent supervision arising in the employment context, are all increasing at the federal and state level. It is the rare employer that hasn’t had at least one employment related claim filed against it.
Because of the frequency and expense associated with workplace claims employers often seek insurance coverage for the defense costs and potential damages awards. Insurance companies have responded by selling employment practices liability insurance (EPLI) coverage, either as a separate policy or in conjunction with some other type of insurance. There is no standard EPLI policy. There are many variations in coverage, price and quality of legal representation. However, many employers do not realize that there is room for negotiation over policy terms. But, no EPLI policy is a silver bullet and purchasing coverage without careful consideration of the pros and cons of a proposed policy is a bad idea. Be a smart consumer--understand what EPLI can and can’t do for your company and shop accordingly. One size does not fit all. A policy tailored to your company’s specific needs and goals, while perhaps more expensive, may be preferable to the off the shelf EPLI product your broker is trying to sell you.
In the next posts we will focus on aspects of EPLI policies that should be carefully considered before you buy.