5 employment litigation trends companies need to address

By Claudine English, Employment Practices Liability, Crime and Fidelity Product Officer, Zurich North America

Employment Practices Liability Insurance (EPLI) has long been viewed as discretionary coverage for companies. Protecting their organizations from lawsuits by employees who feel their legal rights have been violated — including but not limited to discrimination, sexual harassment, wrongful termination, and retaliation — has not traditionally earned EPLI the same attention as Directors and Officers (D&O) or Errors and Omissions (E&O) protection.

The pandemic compelled companies to reconsider purchasing EPLI. COVID-19 claims have fallen in lockstep with traditional EPL claims such as discrimination, harassment and retaliation, which in turn have been further heightened by the #MeToo movement and social justice issues. Indeed, diversity, equity and inclusion (DEI) and social justice-related claims are heavily impacting employers and shining a spotlight on a company’s internal policies — or lack thereof. 

As important as EPLI is, organizations must take a variety of proactive measures to help stem employment litigation in the first place. Companies that disregard the consequences of lawsuits from their workforce do so at their own risk. Whatever the size of your business, and whether it is public, private or not-for-profit, this is a growing challenge you need to prepare for. No company is immune from complaints or charges made against them for employment practices violations.

Here are five things to consider, both from a risk perspective as well as the proactive measures you can take.

1. EPL claims are rising in severity. Since 2016, overall U.S. Equal Employment Opportunity Commission (EEOC) charges, which typically precede an EPL claim, have been in decline,¹ thanks in part to a strong labor market that lets dissatisfied employees find other jobs more readily. That’s the good news. Unfortunately, the severity of claims continues to escalate. Consider that a Los Angeles jury recently awarded more than $464 million to two men who accused their employer of forcing them out of their jobs after complaining about sexual and racial harassment. The jury award included $24.6 million in compensatory damages and $440 million in punitive damages.² That number will increase significantly once attorneys’ fees are calculated.

Unfortunately, outsized jury awards or settlements are not an anomaly. Social inflation, a term that relates to increased litigation and higher jury awards, is rightly putting EPLI solutions at the top of many boards’ agendas as they consider the costs, both financial and reputational, of these lawsuits.

It cannot be emphasized enough that even as monetary costs associated with litigation are rising, the reputational costs can exact an enormous toll. Large settlements, runaway jury awards and even regulatory fines not only directly hit a company’s bottom line but also create headlines that can cause irreparable harm to an organization’s brand.

It’s also important to consider jurisdictional factors, specifically states that are particularly challenging for companies involved in EPL lawsuits. For instance, California employment laws are among the most far-reaching in the U.S. and provide workers with significantly greater levels of protection than those offered by other states or federal laws.

2. Regulatory scrutiny is increasing. The EEOC is accelerating its commitment to fighting systemic discrimination, which can be defined as institutional policies and procedures that put underserved groups at a disadvantage in the workplace. “The Biden Administration has called for a whole-of-government approach to addressing systemic discrimination and advancing equal opportunity, and the EEOC has a critical role in achieving that vision,” notes the commission’s 2021 Annual Performance Report.  

The report makes it clear that the EEOC plans to use its enforcement capabilities, as well as education and outreach, to combat discriminatory patterns, practices and/or policies that impact an industry, company or geographic area. “In fiscal year 2021, the EEOC focused on the following broad areas — addressing systemic discrimination in all forms and on all bases, promoting racial justice, preventing and remedying discrimination in pay, addressing the civil rights impact of the pandemic, and strengthening and rebuilding the agency to ensure it has the resources needed to effectively enforce the law,” notes the report.

Employers should read the report for a deeper understanding of the EEOC’s initiatives as it works to promote inclusive workplaces. The EEOC’s successes have proven costly to some employers. Consider these notable developments:

• The EEOC resolved 342 systemic investigations on the merits and obtained more than $24.4 million in monetary benefits for victims of discrimination. In addition, resolutions include targeted equitable relief designed to change employment practices, prevent future discrimination, and bring employers into compliance with the law. The EEOC secured targeted equitable relief in 100% of successful systemic conciliations.
• It resolved 26 systemic lawsuits, obtaining over $22.7 million for 1,671 individuals and significant equitable relief.
• The EEOC filed 13 new systemic lawsuits. The allegations involved challenges to employment policies that limit the rights of individuals with disabilities, sex-based failure to hire, harassment based on sex and pregnancy, discharge based on race and national origin, and age-based layoffs.

Retaliation continues to be the most frequently filed claim included in charges, with 56% of all charges filed in fiscal year 2021 representing a retaliation claim.1 Discharge or wrongful termination is a leading driver of employees bringing claims. These litigation trends are expected to continue throughout the remainder of 2022, with a focus likely on pay equity, DEI, sexual harassment and LGTBQ+ issues.

3. Avoid behaviors that may increase/aggravate EPL claims. As the evolving EPL landscape creates more risks in an increasingly litigious world, companies must conduct a deep dive into how they are conducting their business. Here are a few red flags to watch out for:

• Lack of written policies, procedures and/or a handbook.
• Failure to accommodate your workforce. “Failure to accommodate” is a type of disability discrimination that must be top of mind for every organization. Pandemic-related failure-to-accommodate claims have been elevated and can include everything from exposing employees at high risk to COVID-19 or mandating COVID-19 vaccines on workers who have religious objections. Non-COVID applications are equally important. Accommodation also needs to be provided consistently across the various layers of your organization. The EEOC’s guidelines are a good place to start familiarizing yourself with this topic.
• Delayed or inappropriate responses to an employee’s allegation. You risk the accusation of being indifferent, which can harm your defense should the situation be brought to court.
• Taking a lackadaisical approach to employment laws.
• Inexperienced/untrained management can create unnecessary problems and promote systemic discrimination, even unwittingly.
• Inadequate investigation and poor documentation of employee complaints.

4. Note the building blocks for a compliant, employee-focused organization.As mentioned earlier, employers should familiarize themselves with the EEOC’s Annual Performance Report, compare their internal practices and policies against it, and deploy risk-mitigation protocols.

Additional considerations include:

• Develop and distribute an employee handbook and corporate policies, and ensure all of your employees have read them. Having policies and procedures in writing may help protect you against EPL claims or assist in mitigating damages. These documents set the standards and objectives for both your management and employees. Of course, it’s important to draft this in accordance with governmental regulations and have legal counsel review it. Moreover, audit your handbook, policies and/or procedures on a regular basis, so your communications remain up to date on current federal and state regulations. Consider posting relevant policies throughout the workplace, too (many states require this).
• Monitor changes in employment law. The employment landscape is constantly changing on both the federal and state levels. It is critical to consult with counsel to stay abreast of federal and state statutes to ensure regulatory compliance and be aware of changes in the employment legal landscape that may impact your company. Follow through and take appropriate actions to address them.  
• Establish a Human Resources department, or functional equivalent, that is staffed with trained professionals and policies that will pass regulatory muster.
• Create an internal, robust investigation process to properly and fairly document and address employee complaints. Whenever a worker alleges discrimination or harassment, it’s crucial your company responds swiftly and appropriately.
• Establish periodic training for management to help ensure they effectively and compliantly engage with the employees they’re leading. Empathetic and well-trained front-line managers can be your best defense against litigation.
• Consider hiring a DEI officer to help ensure your organization is hiring and promoting with fairness and inclusivity. This individual can also communicate the importance of diversity to current employees and managers, as well as oversee training programs for your workforce.
• Perform a pay equity audit. Even in 2022, pay inequalities exist across the country. Find out where your organization is falling short. Also, keep detailed documentation of policies related to wage and hour matters.
• Ensure that adequate COVID-19 protection measures remain in place, safeguard your employee vaccination information, and handle accommodation requests in a fair and consistent manner.

5. A reminder on the importance of EPLI. EPLI coverage can help protect your business from employee lawsuits that allege either unfair or inappropriate acts committed against them by someone who represents your company, as well as legal costs incurred. It’s not only important for organizations to have this protection, but it’s also key that they have sufficient coverage limits.

Both current and former employees, as well as third parties, can file lawsuits against your business if they believe that their rights have been violated. EPL insurance policies can address claims related to:

• Harassment, from senior managers, supervisors, co-workers or even non-employees
• Discrimination, which includes unfair treatment based on religion, age, ethnicity, gender, disability, skin color, sexual orientation or race
• Wrongful termination
• Retaliation
• Breach of an employment contract
• Negligent evaluation
• Failure to hire or promote
• Wrongful discipline
• Deprivation of a career opportunity

Don’t go it alone.  Partnering with a trusted insurance professional can assist you in navigating even the most daunting employment claims and provide much needed comfort during an uncertain, challenging time.

Learn more about Zurich’s EPLI solutions.

Claudine English is a Vice President and Employment Practices Liability, Crime and Fidelity Product Officer for Zurich North America. She has over 15 years’ experience in the insurance industry in legal and underwriting capacities and is a subject matter expert in Employment Practices Liability, Directors and Officers Liability, Fiduciary Liability, Labor Management Trust Liability, Crime, Kidnap/Ransom and Extortion, Workplace Violence and Financial Fidelity lines of business.

She is admitted to practice law in New York, New Jersey (in-house counsel), and the Southern and Eastern Districts of New York. Claudine frequently serves as a Continuing Legal Education lecturer on Employment Practices Liability at organizational and industry-sponsored events, is a regular panelist at professional liability insurance seminars, and has lectured on all aspects of employee benefits, labor and employment law across the U.S., including the New York State Bar Association and Columbia University.

 

References

1. U.S. Equal Employment Opportunity Commission website. “Charge Statistics (Charges filed with EEOC) FY 1997 Through FY 2021.” Accessed 27 June 2022.

2. Winton, Richard. “Jury awards over $460 million to 2 ex-Edison employees in lawsuit over sexual harassment and retaliation.” Los Angeles Times. 2 June 2022.

The information in this publication was compiled from sources believed to be reliable and is intended for informational purposes only. All sample policies and procedures herein should serve as a guideline, which you can use to create your own policies and procedures. We trust that you will customize these samples to reflect your own operations and believe that these samples may serve as a helpful platform for this endeavor. Any and all information contained herein is not intended to constitute advice (particularly not legal advice). Accordingly, persons requiring advice should consult independent advisors when developing programs and policies. We do not guarantee the accuracy of this information or any results and further assume no liability in connection with this publication and sample policies and procedures, including any information, methods or safety suggestions contained herein. We undertake no obligation to publicly update or revise any of this information, whether to reflect new information, future developments, events or circumstances or otherwise. Moreover, Zurich reminds you that this cannot be assumed to contain every acceptable safety and compliance procedure or that additional procedures might not be appropriate under the circumstances. The subject matter of this publication is not tied to any specific insurance product nor will adopting these policies and procedures ensure coverage under any insurance policy.

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