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JUL 2019

Risky Business: Employment Practice Litigation on the Rise TRENDS IN EMPLOYEE LAWSUITS AND BEST PRACTICES FOR EMPLOYERS

WHITE PAPER

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IntroductionWhen it comes to labor laws and employment practices, the past few years have been a challenge for employers large and small. What businesses across all industry sectors must realize is that they cannot go without the protection needed to respond to employment practices claims such as allegations of sexual harassment, discrimination, and retaliation — to name just a few.

The fact is, today’s employment-related risks can be among the most potentially damaging exposures any business can face. Even if a business isn’t at fault, it must still defend itself against a charge of employment practices misconduct, which is often a costly endeavor. In this white paper, we’ll look at the top trends in employment practices liability claims and what employers can do to better mitigate risks.

Top Trends Currently Driving Employment Practices Liability ClaimsNo employer is immune from employment-related lawsuits, particularly at a time when the Department of Labor, the Equal Employment Opportunity Commission, and the National Labor Relations Board are inclined to take an employee’s side in most disputes. The following are the top 12 trends driving employment practice liability claims today.

Over the past 20 years, employee lawsuits have risen roughly 400%, with wrongful termination suits jumping up more than 260%.Workforce.com

75% of employment-related claims filed by the EEOC are made against businesses with 50 or fewer employees.

EEOC 2018 Fiscal Year Enforcement and Litigation Data Report

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Workplace Sexual Harassment

The #MeToo movement has had a significant impact on the number of sexual harassment and retaliation charges filed with the Equal Employment Opportunity Commission (EEOC). An EEOC data report on sexual harassment claims for its 2018 FY shows that the percentage of sex-related charges increased in FY 2018 to 32.3% of all charges filed, up from 30.4% in FY 2017, resulting in the highest proportion of total charges since 1992. Of the sex-related charges filed, 7,609 alleged sexual harassment under federal law, a 13% increase from 2017’s figure of 6,718 charges. According to the commission’s data, the number of workers alleging they were victims of sexual harassment increased 12% from the prior FY, which represents the first increase in sexual harassment charges received by the EEOC this decade.1

Gender and Sexual Orientation Discrimination

LGBT charges have steadily increased for the last five years. Between FY 2014 (when full LGBT charge data first became available) and FY 2018, LGBT-based charges increased by 39% from 1,100 charges in FY 2014 to 1,811 in FY 2018. This dramatic increase is said to be a result of the cultural shift in society’s understanding of sexual orientation. Currently, there is no federal law that expressly prohibits employment discrimination on the basis of sexual orientation and gender identity. However, LGBT workers across the U.S. have taken protection under Title VII of the Civil Rights Act of 1964, which prohibits workplace discrimination on the basis of sex, and are taking their employers to court.

The Equal Opportunity Commission recovered nearly $70 million for the victims of sexual harassment through litigation and administrative enforcement in FY 2018 – nearly $25 million more than it recovered in FY 2017. 

LGBTQ workplace protections have become a complicated legal landscape that involves conflicting court rulings, differing interpretations of civil rights laws by federal agencies, a patchwork of state laws, and religious exemptions.Workforce.com

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Take Note! The Genetic Information Nondiscrimination Act (GINA) prohibits employers from using genetic information in decisions related to employment. It bans the request of any genetic information from employees, as well as classifying employees based on genetic information. Employers can avoid GINA lawsuits by ensuring the hiring process requests no family medical history or other genetic information from potential hires.

Retaliation Charges

Retaliation occurs when an employer penalizes an employee for engaging in legally protected activity. Federal law protects employees from retaliation for claims of workplace discrimination or harassment — even if the claim is unjustified — provided it was made in good faith. According to the legal website NOLO, retaliation can include any type of negative job action, such as demotion, discipline, firing, salary reduction, or job or shift reassignment.2 In FY 2018, retaliation claims resulted in 51.6% of the total number of all employee charges filed — an increase from 48.8% in FY 2017.3 The EEOC cites that the increase can be attributed in part to employees’ becoming better educated about their rights under federal, state, and local civil rights laws, as well as the U.S. Supreme Court’s clarifying the requirements for employees to prove intentional on-the-job discrimination, making it easier for employees to avoid having their case dismissed — which means that in many cases, the employer faces a jury trial if sued.

Age Discrimination

Age-related claims in FY 2018 increased to 22.1%, compared to 21.8% in FY 2017. The EEOC cites this as a growing problem that can be attributed to the large population of baby boomers nearing retirement who may feel they are being treated unfairly because of their age. This, coupled with the higher population of millennials entering the workforce, could result in a steady increase in age-related charges.

Disability-Related Charges

Disability-related charges filed by the EEOC increased in FY 2018 to 32.2%, compared to 31.9% in FY 2017. The commission has continued to see a significant rise in the number of disability-related charges, which began soon

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after the 2008 Americans with Disabilities Act Amendment expanded the definition of the term “disability” and advised employers to align employee best practices with the expanded understanding of what it means to have a disability in today’s workplace.

Gig Economy Litigation

Employers all over the country are facing increased challenges regarding gig economy workers who are initiating litigation seeking judicial recognition that they are employees entitled to protection under wage-and-hour regulations, antidiscrimination laws, and other employment-related legislation. Under the doctrine of respondeat superior4, an employer is liable for the actions of his or her employees if the employee’s actions were in the scope of his or her employment. For employers who use independent contractors or have contractors who work for them exclusively, the line that separates a contractor from an employee can be a gray area. In April 2019, the U.S. Department of Labor issued an opinion letter stating that an organization’s gig economy workers are independent contractors, not employees.5 However, this is only an opinion, and legal experts advise employers who are considering reclassifying workers as independent contractors to be cautious, as the laws continue to evolve.

Unpaid Internships and Lawsuits

In 2018, the U.S. Department of Labor (DOL) endorsed a seven-factor test for determining whether an intern is considered an employee under the Fair Labor Standards Act (FLSA). Although this test is less rigid than the 2017 rule, employers must be mindful to follow a consistent intern-hiring procedure to ensure proper classification of interns as unpaid trainees rather than paid employees. This is critical, as the FLSA authorizes the DOL and misclassified

“Employers will be well-advised to ensure their policies and practices are geared toward addressing claims of age-related mistreatment, and to train HR teams on the proper approach to investigating and effectively resolving age-related allegations.”Equal Employment Opportunity Commission 2018 Fiscal Year Enforcement and Litigation Data Report

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interns to bring suit for back pay and liquidated damages. In addition, a prevailing plaintiff is entitled to recover attorneys’ fees. Charges can also be brought against individuals in the company who are held responsible for the misclassification.6

Pregnancy-Related Discrimination

Pregnancy doesn’t qualify as a disability under the Americans with Disabilities Act (ADA), the federal law that prohibits workplace disability discrimination. However, the federal Pregnancy Discrimination Act makes it clear that pregnancy discrimination is a form of illegal sex discrimination and prohibits employers from discriminating against applicants and employees on the basis of pregnancy, childbirth, and related medical conditions. A rise in pregnancy-related lawsuits has stemmed from pregnant employees who were not provided the same opportunities as other workers in relation to their jobs. For example, a pregnant woman who worked as a driver for UPS was denied accommodations to not lift anything heavier than 20 pounds, yet the company had accommodated employees with other disabilities who were also unable to do heavy lifting.7 

Drug Testing and Marijuana Laws

In April 2019, the New York City Council passed a law that prohibits employers from conducting pre-employment drug testing for marijuana. Nevada passed a similar law in June 2019 — the first statewide law in the nation that bars employers from rejecting a job applicant because of a failed marijuana test. Both laws will go into effect in 2020 and will contain exceptions for certain safety-sensitive occupations. As courts continue to rule against employers in drug-testing cases, companies are advised not to rely solely on federal law or their status as a federal contractor when making employment decisions about applicants and employees who use marijuana.

Wage Gender Equality

The EPL Advisor’s 2019 EPLI Trends Report8 shows that recent trends toward enhanced pay equity laws, accompanied by a noticeable increase in pay equity suits brought by both agencies and private attorneys, are on the rise. According to the National Women’s Law Center, on average, women made 80.5 cents for every dollar earned by men, a gender wage gap of 20%.9 Over the past few

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years, several states, including California, Maryland, Massachusetts, New York, and Oregon, have implemented pay equity laws that are setting stricter standards on employers and lessening the burden for plaintiffs alleging wage discrimination. 

Wage-Hour Lawsuits

According to the annual Workplace Class Action Litigation Report,9 the growth in wage and hour settlements—which rose the past two years to a combined value of $1.2 billion—is the No. 1 exposure for businesses. Today, employers face an ongoing threat of claims brought by employees alleging violations of wage and hour laws under the FSLA, often filed as class actions. These types of lawsuits can be costly to defend and resolve. Adding to the complexity is the fact that state and local wage and hour laws have become much broader, expanding to include claims for the denial of wage supplements or wage benefits regarding paid sick day or other paid time off, as well as claims for employees having to work though meal breaks, not being compensated for overtime, and the deduction from the employee’s wages for uniform costs.

Family Medical Leave Issues of Concern

A denial of leave is a potential claim against the employer and/or the individual manager or HR professional. In fact, many courts have ruled that individual liability attaches to those involved with Family and Medical Leave Act10 (FMLA) decisions that affect aggrieved employees based on the FMLA definition of “employer,” which allows for personal liability of managers and company officials. FMLA violations often result in high-dollar costs for employers, allowing employees to recover damages for back pay, front pay, and attorney fees. Moreover, the FMLA allows employees to double their back and front pay by awarding liquidated damages. Unless the company can prove that the violation was made in good faith and based on reasonable grounds, liquidated damages will be granted by default.

Social Media Issues

A report by the EEOC11 noted that according to the Pew Research Center, 65% of all adults – 90% between the ages of 18-29 years old, and 77% of those 30-49 years old – use some form of social media. This widespread use has prompted

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the EEOC to focus on key issues relating to employee use of social media as a possible means of workplace harassment. As a result, the EEOC found that “harassment should be in employers’ minds as they draft social media policies and, conversely, social media issues should be in employers’ minds as they draft anti-harassment policies.”

Another issue surrounding social media involves privacy concerns. Today, there are number of reasons why a business may want to gain access to an employee’s social media accounts. However, improper monitoring can become a land mine, creating potential legal liability claims for invasion of privacy under statutory and common laws. As of May 2019, 26 states have enacted laws that prohibit employers from requesting passwords to potential or current employees’ personal internet accounts to get or keep a job.10

What an Employee Lawsuit Can Cost a Business

An article in Claims Journal12 reports that the cost of EPL claims are rising, as is the length of time it takes to resolve them, according to an Advisen study. On average, defense costs top out around $300,000, and resolutions take between 18 and 24 months. In addition, multiple claimant disputes are increasing, as federal, state, and city regulators and plaintiff attorneys can file a claim on behalf of an employee or group of employees.

Unfortunately, expenses associated with an employee lawsuit don’t end with settlement costs, judgment, and defense payments. In many cases, a business will incur expenses in addition to a claim that can include:

Loss of employee morale and productivity

Time lost for executives, human resources staff, and company legal representatives to address allegations

Expenses involved in investigating and closing a case

Loss of a company’s good reputation in the event charges are made public

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Best Practices for Business Owners in Mitigating Employee LawsuitsWhile there is no magic bullet for avoiding employment practice liability claims, businesses can better prevent incidents and mitigate risks by staying informed and by establishing a proactive risk-management program. Best practices include:

Ensure compliance with EOOC discrimination laws. The EEOC interprets and enforces Title VII’s prohibition of sex discrimination as forbidding any employment discrimination based on gender identity or sexual orientation. These protections apply regardless of any contrary state or local laws. Employers should consult with their HR and legal teams to ensure their trainings, policies, and practices sufficiently address this evolving area of employment law.

Be aware of enhanced pay equity laws. Employers must be proactive in reviewing their pay practices as pay equity laws evolve and adhere to labor law compliance policies established by the Fair Labor Standards Act.

Train managers in employment regulations, company policies, and HR best practices. Business owners can’t be everywhere at once. A good line of defense against workplace lawsuits is to properly train and equip managers with the skills and resources needed to help them minimize employee lawsuits.

Educate (and reeducate) your employees on sexual harassment prevention. Businesses should strive to conduct interactive sensitivity training classes to help them understand how certain behaviors can insult and harm others and expose the company and themselves to a lawsuit or EEOC charges.

Create clear, robust policies. Policies relating to equal employment, discrimination, harassment, and retaliation should be included in a company’s employee handbook and distributed to all employees. Be sure to confirm that these policies are consistent with applicable federal, state, and local laws.

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Encourage prompt reporting. Communicate to employees the importance of reporting discrimination, harassment, retaliation, or other wrongful conduct to management as soon as possible.

Secure broad EPLI coverage. Due to the complexity of employment laws and the increase in claims and lawsuits made by employees, having an employment practices liability insurance policy is a critical risk management strategy.

Today, brokers must impress upon their insureds the need for EPLI coverage, and a good starting place is to educate them on the employment practice liability claims and the impact of not having EPLI. Unfortunately, industry research shows that approximately six in 10 businesses mistakenly think they are protected by employment practice liability claims under other policies.13 In addition, smaller companies often feel that they have little or no risk, so they simply go without coverage.

The fact is, any business — large or small — is more likely to have an EPL claim than a general liability or property/casualty claim, which is why it’s important for businesses to consider how an EPLI policy can minimize exposures for employment-related lawsuits.

Although policies will differ, employment practices liability insurance generally covers claims related to the requirements laid out in Title VII, the ADA, the ADEA, the FMLA, and other laws and regulations related to employee lawsuits that can include:

• Sexual harassment.

• Discrimination.

• Invasion of privacy.

• Workplace torts.

• Wrongful termination.

• Mental anguish, humiliation, and emotional distress.

• Wage and hour.

• Breach of employment contract.

• Negligent evaluation.

• Failure to employ or promote.

• Wrongful discipline.

• Breach of oral/written employment contract.

• Employment-related misrepresentation.

• Wrongful failure to employ.

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Take Note! The cost to defend an employment-based lawsuit alone typically surpasses verdict, award, or settlement costs. According to employment attorney Jon Hyman, an employer with a lawsuit that goes through to a jury verdict should expect to spend up to $250,000 defending itself. Even a case that goes through basic discovery and summary judgment can result in a minimum cost of $75,000.14

ConclusionOver the next few years, employers should expect these and other employment liability trends to increase and expand in proportion to the total number of charges and retaliation claims filed, along with changes in the economy and the political climate, shifts in social expectations, and anticipated court rulings. As such, employment trends will continue to serve as a reminder of the critical importance of policies, training opportunities, and investigation procedures that will become the front line of an employer’s defense to better shield themselves and their companies against growing employment practice liability claims.

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About Worldwide Facilities, LLCEstablished in 1970, Worldwide Facilities is a national wholesale insurance broker, managing general agent, and program underwriter. Our team of insurance specialists has access to virtually every specialty domestic and international insurance market.

To learn more about how your employer clients can better mitigate employment practices liability risks, or for information on EPLI coverage, please contact Robert Skaggs, Assistant Vice President, at (213) 236-4664 or email rskaggs@wwfi.com.

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Notes1 U.S. Equal Employment Opportunity Commission, EEOC 2018 Fiscal Year Enforcement and Litigation Data Report, Press Release, April 2019.2 Lisa Guerin, J.D., “Workplace Retaliation: What Are Your Rights?” NOLO.com.3 U.S. Equal Employment Opportunity Commission, EEOC 2018 Fiscal Year Enforcement and Litigation Data Report, Press Release, April 2019.4 Cornell Law School Legal Information Institute, Respondeat Superior.5 U.S. Department of Labor, FSLA Opinion Letter, April 2019.6 Allen Smith, J.D., “Will DOL’s New Intern Test Revive Unpaid Internships?” Society for Human Resource Management, January 2018.7 NBC Washington, “Supreme Court Weighs UPS Pregnancy Discrimination Case,” December 2014.8 Jeffrey M. Schlossberg, “2019 EPLI Trends Report Published,” The EPL Advisor, May 2019.9 Gerald L. Maatman Jr., “Workplace Class Action Litigation Report,” Seyfarth Shaw, 2018.10 U.S. Department of Labor, Wage and Hour Division “Family and Medical Leave Act,” www.dol.gov.11 U.S. Equal Employment Opportunity Commission, “Social Media in the Workplace: Examining Implications for Equal Employment Opportunity Law,” March 2014.12 Denise Johnson, “Top Trending EPLI Claims,” Claims Journal, November 2014.13 Trusted Choice, “Even Good Employers Get Sued: The Cost of Not Having EPLI Insurance,” trustedchoice.com.14 Ibid.

Additional Sources• Workforce Staff Report, “How Much Does It Cost to Defend an Employment

Lawsuit?” May 2013

• NBC Washington, “Supreme Court Weighs UPS Pregnancy Discrimination Case,” December 2014

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