Why should you be concerned about labor and employment related lawsuits, claims, charges, investigations and audits (“claims” for short) in the first place, if you don’t think you “have done anything wrong” as an employer? The reasons can be summarized in three phrases: (1) prima facie case; (2) summary judgment standard; and (3) high defense costs.
Prima facie case means that if a woman files a sex discrimination or harassment claim, or an Asian-American files a race, national origin or retaliation claim, and they were not hired, or were fired, for whatever reason, they automatically get to first base on a claim even if it’s only their “say so” that anything improper was involved! And there are at least 20 different such claims which can be made, so you must spend time and money to defend yourself (and face risk) even if the claim is pure fiction.
Summary Judgment is the procedure for early dismissal of claims, but it requires that your defense be ironclad and overwhelmingly supported by the witnesses and documents, such that the facts of the case can be said to be undisputed and the law clearly on your side. If the claim turns on “disputed facts” (he said/she said facts) and your defense can’t easily be corroborated by other witnesses or documents, you can’t win summary judgment and will have to go to trial or an administrative hearing. This can cost tens of thousands of dollars, and risk an adverse result from hostile juries or bureaucrats.
Defense costs are the club that forces employers who “haven’t done anything wrong” to pay thousands in “settlement payments” (you will have another name for those payments!) to avoid the higher costs and risk of responding to claims and going to trial or hearing. In the U.S., the defendant-employer can seldom recover its own costs or attorneys’ fees even if you win, so the leverage is all in favor of the ex-employee, union or government agency filing the claim, however meritless.
How do you manage these costs and the risk of a $300,000 verdict, or even a $25,000 settlement plus fees? The first line of defense is strategically drafted employee handbooks, payroll practices, employment policies and hiring and discipline procedures and adequate claim releases, reviewed and revised by competent labor and employment law (“L&E”) counsel for employers. These materials are simply too complex today for employers, even those with experienced HR directors, to draft on their own without running unnecessary risks. An audit by seasoned L&E lawyers can uncover risks and gaping holes in your defense you didn’t know you had and which you can repair for hundreds of dollars, rather than the thousands or tens of thousands required if a claim is made before you address the problem.
Our second recommendation is training for your supervisors and managers in harassment, discrimination, discipline procedures, complaint investigations and other key areas. You will have an additional defense, in many courts and agencies, simply by conducting training, because it tells outsiders you wanted managers to do the right thing, even if they strayed, and it can obviously help avoid problems by keeping your supervisory personnel on course. Training is the right choice and evidence of it can be critical to your defense.
Our third strong recommendation is to consider EPLI insurance against labor and employment law claims. Not every employer needs EPLI (only about half are buying it), but those in claim-prone industries should talk to their insurance agent and L&E counsel (preferably together!) about EPLI. EPLI is worth the cost for most employers. An EPLI policy will cost thousands per year, roughly proportional to the size of your workforce, but it will typically cover the defense costs for most labor and employment law claims and any liability or settlement payment, less a deductible and subject to liability limits. Because many employers’ risk of labor and employment law claims is far greater than any other claim (unless you make medical devices, generate hazardous waste, etc.), this is insurance you should consider. EPLI insurance, of course, must be in place before notice of any claim. You may decide to forgo EPLI, but be sure you can manage the risk of self-insuring.
If you do have or are considering EPLI insurance, our final recommendation is that you avoid “insurance carrier roulette” by having experienced L&E counsel, your insurance agent and your HR manager (not just your risk or insurance manager), audit the policy coverage for claims and additional insureds, deductibles, limits and “choice of counsel” provisions to be sure you have the protection you should have. You may have deductibles or limits which are too low or high. Your policy may exclude unfair labor practice charges at the NLRB, wage and hour claims or punitive damage or contract claims, or their defense costs, from coverage, or you may not have coverage for owners, directors or managers. Often, EPLI policies provide for defense by the insurer’s own “captive” lawyers, who do not know you and will give priority to the carrier’s interests and wishes over your own when there is a conflict. Many of the clients for whom we work have been unhappy with such counsel due to poor communications, unwanted settlements or unnecessary court trials. An audit can spotlight all these problems and can identify solutions, including designating your own counsel for claims defense under the policy. We have sometimes helped clients convince the insurer to retain Seaton, Peters & Revnew to defend a claim under the policy when other counsel were designated (we often work under EPLI for our clients), but generally all of these policy terms, including “choice of counsel,” can only be negotiated when the policy is purchased or at renewal, not after.
If you have questions on your choices on self-insuring or EPLI coverage for labor and employment claims, or if you would like to discuss these issues or obtain a free review of your current situation and/or EPLI insurance coverage without obligation, please contact the authors or any Seaton, Peters & Revnew lawyer at 952-896-1700, email@example.com, or 952-896-1704 (fax).