Even if the Trump administration dials back federal regulations pertaining to employment practices, it is likely that state regulations would increase. Furthermore, any decline in regulator-initiated litigation would likely be replaced by plaintiff attorneys who are eager to file suits on behalf of wronged employees. While it’s too soon to know what changes might unfold under the new administration, it’s never too soon to know what exposures can threaten your business and how to effectively manage them.
A recent survey revealed that 45% of employers are extremely challenged by employee engagement, 43% struggle with employee retention and 38% find it very difficult to align talent retention with business objectives.¹ As a result, many companies are turning their focus toward strategic and workforce planning to correct these issues. Given this growing interest in strategic planning, we’d like to address how these efforts could potentially become a source for EPL claims if not managed carefully.
Strategic Planning vs. Compliance Challenges
It is crucial that employers understand their responsibilities to employees prior to enforcing any strategic planning efforts that could inadvertently lead to a lawsuit. Some employers don’t fully understand the potential missteps that can lead to a claim (particularly smaller or newer companies that often lack legal departments or employee handbooks to guide certain activities such as hiring, disciplinary actions, termination, etc.). Employees can file a claim if they feel they’ve been wronged in a number of ways, including:
- Wrongful termination
- Failure to employ or promote
- Breach of employment contract
- Hostile work environment
- Negligent evaluation
- Sexual harassment
- Wrongful discipline
- Deprivation of career opportunity
- Wrongful infliction of emotional distress
- Mismanagement of employee benefit plans
Whether your strategic goals involve downsizing, altering pay structures, shifting corporate funds, restructuring management or increasing employee accountability, it is important to educate everyone on how to successfully execute change in this litigious environment.
To illustrate the level of risk associated with workforce planning, consider the recession of 2008. Many firms began downsizing during 2010 in response to the economic downturn, which led to an unprecedented 99,922 discrimination claims filed with the Equal Employment Opportunity Commission (EEOC) that year.² While layoffs were necessary to keep many businesses up and running, employees felt mistreated.
According to the EEOC, the average cost of a discrimination case exceeds $235,000. This can be a significant drain on company finances, time and resources. So how do employers balance the need for change with the risk of EPL claims? They can start with an employment practices liability insurance (EPLI) policy.
EPLI policies are intended to protect businesses from a variety of employment-related lawsuits, including wrongful termination, failure to promote and discrimination. Employers should thoroughly review their exposures with an insurance professional to ensure adequate policy limits are in place. Employers should also pay close attention to “shrinking limits” provisions within their policies. These relate to the insurer payment of defense costs (often a substantial part of a claim), which may reduce policy limits. The cost of an EPLI policy depends on a number of factors, such as company size and average turnover, but the expense is often worth the financial security provided by this coverage.
Proceed with Caution
In addition to insurance, employers should develop and enforce policies and procedures that encourage diversity and prohibit discrimination and harassment. Employee handbooks, updated job descriptions and documented evaluations are just a few more items that can help protect employers from potential claims. We know that change is often necessary to meet strategic goals, but it must be implemented carefully. As the new administration settles into the White House, we hope to have more guidance on new laws and emerging trends in the EPL field. Until then, it is important that employers remain proactive in their risk management efforts and practice vigilance with any strategic planning efforts. For more guidance on EPL, contact the risk management experts on our Property and Casualty Team.
This article originally appeared in the 2017 | ISSUE TWO of the SilverLink magazine, under the title “Change is in the Air.” To receive a complimentary subscription to the SilverLink magazine, sign up here.