Employers under Fire - Managing Employment Practice Liability

By Meindersma, Sandra Jane | Risk Management, January 1996 | Go to article overview
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Employers under Fire - Managing Employment Practice Liability


Meindersma, Sandra Jane, Risk Management


In the face of increased litigation, the employment practice liability insurance (EPLI) market has expanded greatly during the last three years. In addition to allegations of discrimination, wrongful termination and sexual harassment, organizations are being accused of failure to employ or promote, wrongful discipline or wrongful deprivation of career opportunity. Depending on the employer's business and hiring arrangements, an organization can also be sued for failure to grant tenure or a breach of an employment contract. In this environment, a growing number of employers are seeking protection in the insurance market. This article discusses key risk management issues associated with EPLI and surveys 10 of the leading carriers in this growing market.

TURNING POINTS

In the last several years, landmark court decisions and new legislation have made it easier than ever to win an employment-related lawsuit. In Harris v. Forklift Systems, the U.S. Supreme Court in 1993 rejected a lower court ruling that psychological injury must be proven for harassment to be deemed to have occurred. In the 1994 case Weeks v. Baker & MacKenzie, a California jury awarded Rita Weeks $7.1 million in her sexual harassment claim against the nation's largest law firm. Also in 1994, the California Senate Assembly voted to place sexual harassment in the workplace on equal legal footing with discrimination and civil rights violations. In 1995, Del Laboratories, Inc. of Farmingdale, New York, agreed to pay nearly $1.2 million to 15 female assistants in the largest sexual harassment settlement ever reached with the U.S. Equal Employment Opportunity Commission (EEOC). The president of the company, accused of fondling and insulting the women, agreed to participate in sexual harassment avoidance training as part of the settlement.

Not only is it becoming easier for an employee to win employment-related lawsuits, but more employees are considered members of protected classes. In the past, discrimination claims could only be brought if the allegations arose out of age, race, religion or gender. More recently, lawsuits alleging discrimination due to sexual orientation or the existence of a disability have been argued successfully. Part of the growth in sexual harassment claims stems from suits filed by an increasing number of men.

MANAGING EMPLOYMENT PRACTICES

Many employers are realizing the need to protect themselves against lawsuits brought by employees. The insurance coverages discussed in this article can help protect an organization but cannot be considered the sole solution to this exposure. Because the least costly lawsuit is one that does not occur, companies must implement prudent procedures to prevent litigation. Also, without established policies in place, employers may find themselves ineligible for EPLI coverage.

To avoid employment-related litigation, an organization's human resources policies must be fair and comply with all federal, state and local laws. Perhaps equally important is making sure the procedures are followed. Effective human resources policies should include an employment at will statement; equal opportunity and antiharassment policies; and appropriate disciplinary and grievance procedures.

The employment at will doctrine allows both the employee and employer to terminate the employment relationship at any time, with or without cause. Although this doctrine has eroded substantially in recent years, an employment at will statement remains a key defense in claims brought by terminated employees. An equal opportunity policy should state that the company offers equal opportunities for employment and advancement to all qualified individuals regardless of age, race, religion, gender, sexual orientation, disability or Vietnam-era veteran status. A separate policy should specifically prohibit sexual (and all other types of) harassment.

For these policies to be effective, organizations must train employees how to avoid inappropriate behavior.

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