Employee-related litigation trends companies need to manage

Choosing a provider who can meet your employee needs is critical

Litigation risks for businesses typically call to mind threats from outside a company. But the reality is that litigation within the workplace is becoming more common. Whether it can be attributed to greater media coverage, broader awareness of social inflation, or even the changing demographics within the labor force, companies should take steps to reduce their exposure to employee-related litigation. For private companies and nonprofits, which may lack the legal staff and financial resources of a larger company, even one lawsuit could produce devastating financial consequences.

Here are some litigation trends we are seeing in a few segments:

Artificial Intelligence, especially in employment decisions

With artificial intelligence (AI) becoming a growing factor in our personal and business lives, it is not surprising that AI has become a tool in the hiring and employee assessment processes at many employers, and not without controversy.¹ In 2019, a public interest group filed a U.S. federal complaint against a major AI hiring tool for deceptive hiring practices.² The application was already in use at hundreds of companies, and appeared to favor certain facial expressions, speaking styles and tones of voice, disproportionately disadvantaging minority candidates.

In 2018, Amazon stopped using its own AI recruitment tool after discovering it was biased against women.³ The algorithm, which had been trained on male-dominated resumes submitted over 10 years, favored male candidates by downgrading applications including the word “women’s” and penalizing graduates of women’s colleges. Amazon engineers tried to address these biases but could not guarantee neutrality. Ultimately, it led to the tool’s cancellation.

These examples highlight growing concerns among human resources professionals overusing AI in recruitment and selection. Given the rapid integration of AI into human resource practices and issues across many organizations and industries, companies need to raise awareness about the opportunities and risks of relying on AI to help make recruitment and hiring decisions.⁴

Pay transparency

Pay transparency laws requiring employers to clearly disclose information about pay ranges and promotions in job postings are gaining momentum across the country. While Maryland began requiring employers to provide applicants with salary ranges upon request in 2020, in 2021 Colorado became the first state to enact an actual law requiring employers to publicly post salary ranges. Connecticut, Nevada, Rhode Island, Washington, California, New York and Hawaii followed.⁵ States with pay transparency laws taking effect in 2025 include New Jersey, Illinois, Massachusetts, Minnesota and Vermont.⁶

With pay transparency laws likely in additional states, companies with operations and employees in jurisdictions subject to such requirements need to consider steps to ensure compliance and to avoid potential civil penalties.⁷

• Conducting pay equity audit reviews of existing compensation structures to identify and address disparities before applicable pay transparency laws take effect.
• Updating job posting templates to ensure required disclosures about salary ranges, benefits and other compensation.
• Streamlining promotion notification processes to ensure compliance with pay transparency requirements.
• Training HR and Recruitment professionals on state pay transparency requirements and how they will impact pay ranges and the communication of compensation information.
• Ensuring multistate compliance by monitoring laws across jurisdictions and keeping abreast of proposed legislation in states that may be considering pay transparency proposals.

Nuclear verdicts in employment law

While huge, “nuclear” jury verdicts—$10 million or greater—are often associated with personal injury, product liability, and professional liability litigation, employment litigation is no stranger to such outcomes.

In July 2024, a North Carolina jury awarded a $22 million verdict to an employee suffering bladder and colon issues after the employer refused to allow him to work from home following the COVID-19 pandemic. Earlier in 2024, a jury in Pennsylvania awarded $20.5 million to a woman who had allegedly been harassed by coworkers using racial slurs while at work. In 2023, a Washington state jury awarded $16 million to university employees who claimed workplace discrimination. These verdicts pale in comparison to a $366 million award to a woman in Texas in November 2022, and another verdict in Tennessee for $365 million that same month for a discrimination claim.⁸

While insurance industry initiatives, in concert with concerned state legislators, are attempting to tame massive jury awards driven by social inflation, the challenges presented by today’s liability environment continue to evolve. An example is an innovative courtroom strategy called “reptile theory,” a technique the plaintiff’s attorney may use to trigger emotional responses in the minds of jurors. The aim is to prompt jurors to visualize themselves in the “shoes” of the plaintiff, eliciting a sympathetic response that can be effective in inflating verdicts. Another is the rise of litigation funding arrangements, in which third-party investors cover the upfront costs of lawsuits in anticipation of a share of any judgement. These are among the reasons why the threat of nuclear jury verdicts in employment litigation is still very much with us. However, employers can take some of the following steps to build defenses against such negative outcomes.⁹

• Up-to-date employee handbooks providing clear anti-harassment guidelines and instructions about what to do to respond to harassment complaints and alleged discrimination.
• Clarity about the risks of social media access and texting on company platforms that could be construed as harassment.
• Anti-harassment training for managers and employees.
• Procedures for robust investigations of harassment allegations.
• Guidelines for documenting important findings and corrective actions.

In short, the best defense against the potential of a nuclear jury verdict is building a good offense.

Crime

Another area of evolving risk exposure is employee theft and other crimes. A 2024 report by the Association of Certified Fraud Examiners (ACFE) notes that organizations can lose up to 5% of their annual revenue to occupational fraud.¹⁰ On a global basis, the aggregate loss could run as high as $5 trillion.  In addition, the rapidly accelerating pace of digital payments is providing criminals with new ways to exploit victims. According to Experian, usage of mobile wallets increased by 12% in 2024, up 73% over prior year. The adoption of retail apps saw the highest growth, with usage rates increasing from 51% in 2023 to 81% in 2024.¹¹

The increasing use of online payment regimes provides fraudsters with an expanding universe of possibilities for criminal enterprise, a threat that will continue to grow. In one study reported by Experian, losses from online payment fraud could exceed $362 billion globally by 2028.¹² No surprise that with rising fraud losses being reported by organizations around the world, businesses are increasing their fraud prevention budgets and focusing on high-risk areas such as APP (Automatic Push Payment) fraud, transactional payment fraud, identity theft, and synthetic identity fraud.

A trusted insurance provider

Insurance from a reputable provider is also a key part of managing risks related to employee litigation. With years of experience and deep knowledge in this area, Zurich can offer tailored solutions, such as Employment Practices Liability Insurance (EPLI), Crime Insurance and Fiduciary Liability Insurance (including ERISA Fidelity Bond coverage). Zurich Resilience Solutions, can offer risk assessment services that can reveal vulnerabilities which our risk specialists can then help you to address to strengthen your company’s resilience.

For more information regarding management liability, visit Zurich Management Liability Insurance.

References 

1. Rafi, Melnaz. “When AI plays favourites: How algorithmic bias shapes the hiring process.” The Conversation. 14 October 2024. https://theconversation.com/when-ai-plays-favourites-how-algorithmic-bias-shapes-the-hiring-process-239471
2. Harwell, Drew. “Rights group files federal complaint against AI-hiring firm HireVue, citing ‘unfair and deceptive practices.” The Washington Post. 6 November 2019. https://www.washingtonpost.com/technology/2019/11/06/prominent-rights-group-files-federal-complaint-against-ai-hiring-firm-hirevue-citing-unfair-deceptive-practices/
3. Cole, Samantha. “Amazon Pulled the Plug on an AI Recruitment Tool That Was Biased Against Women.” Vice Magazine. 10 October 2018. https://www.vice.com/en/article/amazon-ai-recruitment-hiring-tool-gender-bias/
4. Kelly, Jack. “AI Recruiting Will Be A Game Changer.” Forbes. 21 November 2023.  https://www.forbes.com/sites/jackkelly/2023/11/21/ai-recruiting-will-be-a-game-changer/
5. Gabriel, Barbara A. “The Real Effects of Pay Transparency in Business.” SHRM. 27 January 2024. https://www.shrm.org/topics-tools/news/all-things-work/pay-transparency-equity
6. Martinez, Alonzo. “New 2025 Pay Transparency Laws: What Employers Need To Know.” Forbes. 22 November 20204.  https://www.forbes.com/sites/alonzomartinez/2024/11/22/new-2025-pay-transparency-laws-what-employers-need-to-know/
7. Gabriel, Barbara A. “The Real Effects of Pay Transparency in Business.” SHRM. 27 January 2024. https://www.shrm.org/topics-tools/news/all-things-work/pay-transparency-equity
8. Zwilling, Melisa C., Sausaman, Alison H. “Best Practices to Avoid Nuclear Employment Verdicts.” USLAW Magazine. Winter 2024. https://www.uslaw.org/wp-content/uploads/2025/01/Best-Practices-to-Avoid-Nuclear-Employment-Verdicts_Carr-Allison.pdf
9. Ibid.
10. “Occupational Fraud: A Report to the Nations, 13th Edition. Association of Certified Fraud Examiners (ACFE). 2025. https://www.acfe.com/-/media/files/acfe/pdfs/rttn/2024/2024-report-to-the-nations.pdf
11. Global Insights from Experian. Global Identity & Fraud Report 2024. https://www.experian.com/blogs/global-insights/wp-content/uploads/2024/11/Global_Fraud_Trends_Report_2024_FinalV.pdf
12. Ibid.