A Couple of Cases to Study
In 2012, Anu Allen filed an action against her former employer, Chanel, Inc. alleging employment discrimination, harassment, and wrongful termination in violation of Title VII of the Civil Rights Act of 1964 and other state and federal law. (Allen v. Chanel, Inc.). She had been offered a severance and release agreement from the company and had carefully edited the release section, changing the language and negating her waiver of rights to sue the company. Chanel didn’t catch the edits and awarded severance pay of $15,000. Ms. Allen accepted the money, then sued the company for age discrimination. The court ruled that Allen had not waived her legal rights and that the company could have seen that before issuing payment.
Last year, a class action suit filed against Merrill-Lynch and Co., Inc. alleged that the company failed to properly pay a group of “client associates,” employees who assist Merrill Lynch financial advisors. The group was paid a small salary, which was augmented from commissions earned by the financial advisors. They argued that Merrill Lynch’s system of payment was in violation of the Fair Labor Standards Act and New York state overtime laws and that the company also discriminated against female workers. Merrill Lynch agreed to pay $12 million to settle the lawsuit. (Martignago v. Merrill Lynch & Co., Inc. et al.)
Significant Business Risk
Employment related lawsuits are complicated and represent a significant business risk for U.S. businesses. Discrimination, sexual harassment, workplace injury, and wrongful termination claims are the most common lawsuits filed against U.S. companies. According to statistics cited by CNA Insurance, studies show that an employer is more likely to have an Employment Practices Liability claim than a general liability or property loss claim. According to the insurance company, almost 75% of all litigation against corporations today involve employment disputes. Over 40% of these lawsuits are filed against smaller employers (15 – 100 employees).
Employment related lawsuits are the fastest growing type of civil case in the U.S. According to CNA, employment disputes represent nearly 25% of all litigation in federal courts, and a higher percentage in most state courts.
More Scary Statistics
The Equal Employment Opportunity Commission (EEOC) publishes an annual report of litigation statistics. While the number of charges filed with EEOC for Fiscal Year 2013 actually decreased by 5.7% in comparison with FY 2012, monetary recoveries were the highest ever at $372.1 million. 93,727 charges were filed with EEOC in 2013. Georgia ranked 4th among the states with 5,162 charges recorded. Allegations of retaliation were the basis for the largest number of EEOC charges (41.1%), followed by racial discrimination (35.3%), sexual harassment and pregnancy discrimination (29.5%) and disability discrimination (27.7%).
Litigation can cost a stack of money. Payroll and outsourcing company XCELHR provides some additional data:
- The average cost of an out-of-court settlement for employment related cases is $40,000.
- 67% of employment cases result in a judgement for the plaintiff when taken to litigation.
- 6 out of 10 employers have faced an employee lawsuit within the last 5 years.
- The average defense cost for an employment related lawsuit (through trial) is $45,000.
- The median compensatory award for employment practices liability insurance cases is $218,000.
The Obvious Question
Reading the statistics can easily lead to the conclusion that the decks are stacked against employers when it comes to this kind of litigation. EPLI (Employment Practices Liability Insurance) policies can help to mitigate risks, but policies may not include all categories of claims or offer full protection for the business. What else can employers do to help prevent employment related litigation and to help protect themselves when it occurs?
A basic understanding of employment law is a good place to start. Clear policies and effective interviewing, hiring and evaluation practices can also limit the risk of expensive lawsuits. Finally, a strong and consistent system for documenting interactions with employees is necessary to demonstrate compliance with existing laws and regulations.
Do You Need to Learn More?
Georgia Employers’ Association’s Certificate Program in Employment Law continues through October 2014. W. Jonathan Martin, II of Constangy, Brooks and Smith will be the presenter for the next workshop, entitled Hiring Without Backfiring. Jonathan will address a range of subjects intended to help you reduce the risk of expensive litigation. A few of the topics for this workshop include:
- Title VII and EEOC Enforcement
- Age Discrimination
- Interview Do’s and Don’ts
- When in Doubt, Don’t Hire
Descriptions for all of the workshops and registration information is available on the GEA website. Please don’t hesitate to get in touch with us if you’d like more detailed information about the Certificate Program or about other services offered by GEA that can help your organization improve your HR processes and reduce risk.