Employment Practices Litigation Trends for 2026

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 driven by social inflation, regulatory shifts, or technology adoption, 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 employment practices litigation trends companies of all sizes should watch in 2026:

AI and Technology Risks in Employment Decisions

Artificial Intelligence has long been a tool in hiring decisions, but in 2026, its role—and the risks—have grown significantly. Early controversies involved cases of algorithmic bias which favored certain demographic profiles, prompting two states – Colorado and Illinois – to enact new laws governing the use of AI in hiring, with other states likely to follow.⁴  Today, litigation such as the landmark case Mobley v. Workday⁵ which extends potential liability to AI vendors, not just employers, when algorithmic tools contribute to discriminatory outcomes, highlights the growing legal risk in deploying AI for hiring decisions. Employers must ensure algorithmic transparency, bias audits and testing as AI becomes embedded in HR systems.

Pay Transparency and Global Compliance

Pay transparency laws requiring employers to disclose salary ranges and promotion criteria have expanded to more than a dozen states with additional state and local requirements continuing to change. Washington’s Supreme Court decision in Branson v. Washington Fine Wine & Spirits⁶ reinforced compliance obligations. Globally, the EU Directive 2023/970 mandates binding pay transparency measures by June 2026.⁷ Employers should begin preparing now by updating recruitment and pay policies, conducting pay equity audits, updating job posting templates to ensure required disclosures are included, and training staff. As legislation evolves, employers need to monitor compliance with laws across states and countries and monitor proposed legislation as well.

Regulatory Shifts

The DOJ Civil Rights Fraud Initiative and July 2025 guidance target unlawful practices such as preferential treatment based on protected traits.⁸  The elimination of OFCCP signals a shift in enforcement priorities, and the EEOC is aligning with anti-DEI initiatives. As employers recalibrate DEI programs, courts are also seeing a rise in reverse discrimination claims, with judges applying the same evidentiary standards as traditional discrimination cases (Ames v. Ohio Dept. of Youth Svcs., 2025).⁹ Meanwhile, UK regulators are advancing rules on nonfinancial misconduct to promote inclusion.

Moonlighting

Protections for moonlighting are expanding, with new regulations in California and Washington limiting employers’ ability to restrict outside employment. Employment Practices Liability Insurance underwriters are now placing greater emphasis on the importance of having clear, well-documented moonlighting and conflict-of-interest policies, as well as ensuring these policies are enforced consistently—especially in situations where conflicts of interest or wage and hour exposure may arise.

Nuclear Verdicts and Social Inflation

Employment litigation continues to see nuclear jury verdicts exceeding $10 million, fueled by social inflation and litigation funding. Recent awards include $22 million in North Carolina (2024) and $20.5 million in Pennsylvania (2024), alongside earlier verdicts of $366 million in Texas (2022).¹⁰ More recent EPL-specific verdicts further illustrate this trend. In 2025, a San Diego jury awarded $11 million in a workplace discrimination case involving the unlawful mishandling of a protected class.¹¹ In a separate case, a $10 million reverse race and gender discrimination verdict against a nonprofit health system highlighted the exposure arising from DEI-related employment decisions.¹² Additionally, a jury awarded $11 million in Roque v. Octapharma Plasma, Inc., involving age discrimination, failure to accommodate, and wrongful termination.¹³. Employers should maintain robust anti-harassment policies, conduct thorough investigations, and document corrective actions to mitigate risk.

Workplace Accommodations and Mental Health

Requests for workplace accommodations, particularly those tied to mental health, are increasing, heightening litigation risk for employers. Surveys show that nearly half of HR consultants express concern about potential lawsuits arising from accommodation decisions, with return-to-office mandates and mental health conditions cited as key drivers.¹⁴ In 2024, 75% of HR professionals reported an increase in accommodation requests, and 74% of those indicated volumes exceeded the prior year.¹⁵ At the same time, 43% of employees who do not disclose accommodation needs report not feeling safe to do so, reinforcing concerns around retaliation allegations and process failures.¹⁶

Risk Mitigation Strategies

As insurers navigate emerging exposures, taking critical risk mitigation steps can bolster a strong defense:

• Conduct pay equity audits and update job postings for compliance.
• Review and amend employment practices policies considering regulatory changes.
• Audit AI tools for bias and maintain transparency.
• Train managers and employees on harassment prevention.
• Document investigations and corrective actions thoroughly.

Insurance from a reputable provider is also a key part of managing risks related to employment practices 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.

Sources

1. EEOC Charge Statistics, FY 2024.

2. EEOC Systemic Program Report, FY 2024.

3. USLAW Magazine, Winter 2024: Best Practices to Avoid Nuclear Employment Verdicts.

4. How to Integrate AI into the Hiring Process. Risk Management. 5 March 2025.

5. Mobley v. Workday (U.S. Dist. Ct., Northern District of CA, 2025).

6. Washington Supreme Court Decision, Sept 2025.

7. European Union Directive 2023/970 on Pay Transparency.

8. DOJ Civil Rights Fraud Initiative Guidance, July 2025.

9. Ames v. Ohio Dept. of Youth Svcs., June 2025.

10. Jury Verdict Reports, North Carolina & Pennsylvania, 2024; Texas, 2022.

11. Proskauer, San Diego Jury Goes Nuclear with $11 Million Verdict in Workplace Discrimination Case, Jan. 2025.

12. Littler, $10 Million Reverse Race and Gender Discrimination Verdict Gives DEI Programs a Warning, 2024.

13. Venable, Roque v. Octapharma Plasma, Inc.: $11 Million Verdict, 2025.

14. HR Executive, RTO Is Driving Up Requests for Remote Work Accommodations and HR Stress, 2024.

15. AbsenceSoft, The 2024 Leave and Workplace Accommodations Forecast Report, 2024.

16. Inclusively, The State of Workplace Inclusion and Accommodations Report, 2024.