Tag Archives: eeoc

Navigating EEOC and Labor Department

Trends in 2013 suggest that the Equal Employment Opportunity Commission is stepping up litigation, potentially involving large dollars.

Recoveries by the EEOC were $39 million in 2013, slightly down from the $44 million recovered in 2012, but 2013 featured some high-profile cases. In 2014, the focus is likely to be on the Americans with Disabilities Act (ADA) and on the Genetic Information Nondiscrimination Act (GINA).

Even though GINA has been in effect since 2009, it wasn’t until 2013 that the EEOC filed its first lawsuit alleging genetic discrimination. The suit, against Tulsa-based Fabricut (Civil Case No: 13-CV-248-CVE-PJC), alleged the company violated the ADA by refusing to hire a woman because it regarded her as having carpal tunnel syndrome and violated GINA when it asked for her family medical history in a post-offer medical examination. Employers need to be very aware that GINA prohibits requesting family medical history, even with a contract medical provider during a post-offer examination. In May 2013, Fabricut agreed to settle the suit for $50,000 and to take specific actions to prevent future discrimination.

Just nine days into 2014, the EEOC settled its first systemic lawsuit alleging GINA violations, for $370,000. According to the complaint (EEOC v Founders Pavilion Inc. No 13- CV-06250), Founders Pavilion conducted post-offer, pre-employment medical exams and asked applicants to provide information about their family medical history. The suit also alleged that Founders Pavilion: fired an employee after refusing to provide her with an accommodation, a violation of the ADA; refused to hire two women because of a perceived disability; and either refused to hire or fired three women because they were pregnant.

It appears that there will be a major focus in 2014 on ADA and GINA violations –- which go hand in hand. Note that the trend in EEOC litigation regarding ADA claims has shifted from disability to a focus on an employer’s obligation to provide reasonable accommodations.

For federal contractors, the key question in 2014 is: “Are you disabled?” The Labor Department issued new rules that will require federal contractors with 50 or more employees or with more than $50,000 in government work to pose that question to workers, in an effort to reduce the ever-increasing jobless rate of people with disabilities. Employees aren’t required to answer the question, but federal contractors will have to show that at least 7% of their workforce has disabilities or will face fines and potential loss of contracts.

Although the ADA does not allow employers to inquire about disability, the EEOC has made an exception so employers can comply with the Labor mandate. But lots of issues will arise. Do employees want their bosses to perceive them as disabled? Will more employees qualify as disabled with the broader definition of disability enacted with the 2008 amendment to the ADA? What will happen to reasonable accommodations, given that the exception that allows employers to ask about disabilities doesn’t appear to then allow a disabled individual to ask for a reasonable accommodation? 2014 will certainly be interesting!

While we wait to see what shakes out, there are some practices and employer can follow.

Relative to GINA, it is important for employers to know that the new regulations provide a quasi-safe harbor to employers who have inadvertently received genetic information when that information was not sought. The EEOC suggests that the employer use the following language on any requests for medical information:

“The Genetic Information Nondiscrimination Act of 2008 (GINA) prohibits employers and other entities covered by GINA Title II from requesting or requiring genetic information of an individual or family member of the individual, except as specifically allowed by this law. To comply with this law, we are asking that you not provide any genetic information when responding to this request for medical information. ‘Genetic information’ as defined by GINA includes an individual’s family medical history, the results of an individual’s or family member’s genetic tests, the fact that an individual or an individual’s family member sought or received genetic services, and genetic information of a fetus carried by an individual or an individual’s family member or an embryo lawfully held by an individual or family member receiving assistive reproductive services.”

Relative to reasonable accommodations, employers are being urged by the EEOC to accept a doctor’s work release even if it has restrictions. Employers are also being urged to document entering into the interactive process if the reasonable accommodation is not straightforward or if the employer cannot meet the physician’s restrictions.

Although an employer may not ask disability-related questions or conduct a medical exam of an applicant until after making a conditional offer of employment, an employer may condition employment on the results of a medical examination or inquiries so long as all employees in a classification are subject to the same testing and or inquires and so long as the testing does not infringe on GINA. In addition, post-offer examinations may not be used to discriminate against individuals with disabilities. The testing must also be job-related and consistent with business necessity and evaluate some of the essential functions of the job. Furthermore, these tests cannot discriminate against a certain class. For example, they cannot be unduly difficult for a woman.

According to the ADA, the term “discriminate” includes an employer’s failure to make reasonable accommodations. The applicant should be provided the criteria for passing the test, based on the job description. It is very important for the employer to enter into the interactive process if performance of the essential job functions cannot be met.

Baseline testing — a tool that can assist employers in managing employees’ injuries by establishing if the injury arose out of the course and scope of employment — must follow the same guidelines as a post-offer test. Baseline testing must be conducted for all individuals in a classification, must be consistent with business necessity, cannot discriminate against a certain class and must evaluate some of the essential functions of the job. Baseline testing differs from post-offer testing in that it is usually not read until a work-related incident occurs.

2014 might be a trying time for employers, but the best defense for an employer is to be prepared.

Outlook For The Private Directors & Officers Marketplace

Private Directors and Officers Liability (D&O) policies are generally combined policies including D&O and Employment Practices Liability (EPL). Although they are typically marketed as Directors & Officers policies, and there are definitely D&O claims, claims frequently come from the Employment Practices Liability side of the form. Private Directors & Officers carriers find it challenging to cope with the high frequency of Employment Practices Liability claims that come with this line of business.

The premiums associated with these policies have been creeping up over the past few years, and now is an appropriate time to investigate and report on the causes. Rather than give you generalities that claims are frequent, here is some of the data that supports what the insurers are telling us.

2012 EEOC Complaints
Top Five States Total Complaints Percent Change Since 2010 2010 Total Complaints Total Population 2010*
Texas 8,929 -4.1% 9,310 25.1 million
Florida 7,940 2.1% 7,779 18.8 million
California 7,399 3.3% 7,161 37.3 million
Georgia 5,903 2.3% 5,771 9.7 million
Illinois 5,490 3.8% 5,288 12.8 million
Year Total Total Complaints – All 50 States
2012 99,412
2011 99,947
2010 99,992
2009 93,277
2008 95,402

* The population totals are included to show that the highest volume of claims generally come from the largest states.

The Equal Employment Opportunity Commission (EEOC) isn't the only regulatory body bringing employment actions against employers — state agencies like the California Department of Fair Employment and Housing (DFEH) are filing cases as well. In its 2010 annual report, the California DFEH notes that they filed between 17,500 and 20,000 cases each year between 2007 and 2010 (2011 and 2012 numbers are not yet available). The department also estimates that the average post-accusation case settled for more than $40,000.

Let's put this into perspective. The Betterley Report: Employment Practices Liability Insurance Market Survey 2012 (December 2012) estimates the total Employment Practices Liability market at around $1.6 billion in premium. Just for discussion purposes, let's assume that the Department of Fair Employment and Housing estimate is applied to all claims. At $1.6 billion in total premiums collected, the insurance marketplace could handle 40,000 claims and break even (40,000 claims X $40,000 average settlements = $1.6 billion). Considering we know there are more than two times that many EEOC complaints, plus tens of thousands of other state agency claims, we know that the volume of insured claims exceeds 40,000 per year.

Since we know that there are more than 40,000 claims a year, the second half of the debate is what these claims cost. The Department of Fair Employment and Housing has their estimate for out of court settlements at over $40,000. Jury Verdict Research, a publication that puts out jury trial settlement trend data, indicated in its 2011 report titled, “Employment Practices Liability: Jury Award Trends and Statistics,” that the average awards range from $600,000 for discrimination claims to as much as $790,000 for wrongful termination claims. Their median award range is from $200,000 to $260,000 based upon their research. This data implies that the average claims are going to be far greater than $40,000 to settle on a nationwide basis. These reports only show us awards, which do not include the defense costs paid to get to the award stage.

If we take this one step further and assume that the average claim will cost approximately $120,000 — though the Jury Verdict data tells us it's higher — then the amount of claims the insurers could handle in a year, and possibly break even, is more like 13,333 claims per year ($1.6 billion total annual premium divided by $120,000). If we factor in underwriting expenses and other transactional costs, then even less money is available for defense costs and settlements.

So, what's the bottom line? The insurers have been struggling to make a profit on this line of business for many years. While competition for market share has continually lowered the premiums they could charge and still write business, we've gotten to a crossroads and blown right through the stop sign. The pricing has been creeping up over the past three to four years, and we are still far from a corrected market. The dilemma for insurers has been how to adjust their pricing and terms in a way that still provides a valuable policy for insureds. The responses have varied from insurers pulling out of a specific region (like southern California), gradual elevation of retentions, increasing premiums, reducing limits available and declining risks with specific employee count ranges.

Bertrand Spunberg, Senior Vice President, Hiscox USA: “We have strived to maintain 'sustainable underwriting' since we opened up in 2009, even when the market was still very soft. That discipline is now starting to pay off as other insurers are adjusting their rates and retentions up to a point that's more comparable to what we have been all along. We are seeing some insurers revising their appetites or pulling out of jurisdictions and segments altogether. Other carriers are taking a portfolio view of the business, making them more prone to declining rather than underwriting around account-specific exposures. This creates an environment that is increasingly difficult to navigate for both insureds and brokers. EPL claims have been leading the way, but we are also seeing D&O claims arising from financial issues, such as bankruptcy. In response to that, we have seen insurers indicate that they would be looking to limit or even remove entity coverage.”

Mr. Spunberg's comments should serve as a warning to all brokers. While pricing and retention changes are typically obvious changes to renewal terms, you need to pay extra attention to any other changes in coverage terms. On some policy forms, the inclusion of entity coverage may only be signified by an “X” in a box on a declarations page or quote letter. It could be easy to miss the removal of this subtle notation. Also watch out for changes in endorsement numbers and titles. You may find an insurer substituting an endorsement with the same title as previous years but adding a new clause that removes or restricts coverage from what you've come to expect.

Steven Dyson, Executive Vice President, ERisk Services, LLC: “We track a lot of data on our insureds and claim performance. Rather than penalize all insureds in every state, we have evaluated where our claims are coming from and adjusted our rates in a targeted fashion. Difficult venues like southern California, Illinois, southern Florida and metro New York, are getting more rate adjustments than less litigious parts of the country. We drill down to the county level when evaluating the performance of our book and adjust accordingly.”

As brokers, we appreciate ERisk's targeted approach. As insurance professionals, it can be a difficult message to give to insureds that an underwriter is penalizing them for the poor performance of another risk, or that the underwriters may have misunderstood the risks of the businesses they underwrite.

No insured likes to see their premiums rising. It helps when underwriters are doing their best to stabilize the marketplace and articulate the logic behind rate changes.

Joseph Casey, President, ACE Westchester: “At Westchester, we have seen a significant increase in the number of Private Company D&O submissions, apparently based in part by some markets reacting to an increase in Employment Practice Liability claims. The increase in EPL litigation and the corresponding rise in defense costs require, more than ever, greater underwriting discipline. However, the right carrier, with an expertise in EPL and a flexible approach, has the ability to look at the type of company, the jurisdictions in play and other factors unique to the insured, and provide suitable coverage.”

Our wholesale-dedicated markets like ACE Westchester and ERisk are less prone to some of the broad brush underwriting approaches taken by many of the standard markets. The wholesale markets are always looking for a way to differentiate and uncover risks that are neglected or underserved by the standard markets. When the retail-focused markets head out the door, our markets are usually running in; that appears to be what we are currently experiencing. We've had a sustained period of underpricing in the private D&O/EPL area as insurers compete for market share. With the loss frequency where it is and expenses rising, it is indeed time to reevaluate. While the wholesale markets are noticeably more competitive in a challenging market, they also do a great job when things are going smoothly.

Baseline Testing: Book End Solution – Does It Qualify as Business Necessity?

Congress enacted the Americans with Disabilities Act in 1990 which included the terms “job-related and consistent with business necessity” in Section 703(k) of Title VII as part of a Congressional compromise. The amendment to the act which went into effect in 2008 did not affect the business necessity provision.

Case law regarding business necessity is very limited; however, a recent case in point is Atkins v. Salazar, 2011 U.S. App. LEXIS 25238 (5th Cir., Dec. 12, 2011), in which the Fifth Circuit issued an instructive opinion analyzing the business necessity defense in the context of diabetes.

The Fifth Circuit described the business necessity standard as follows:

For a qualification to be “job-related,” “the employer must demonstrate that the qualification standard is necessary and related to 'the specific skills and physical requirements of the sought-after position.'” Similarly, for a qualification standard to be “consistent with business necessity,” the employer must show that it “substantially promote[s]” the business' needs.

The court further noted, based on an earlier ruling, that it must “take into account the magnitude of possible harm as well as the probability of occurrence … the probability of the occurrence is discounted by the magnitude of its consequences.”

Under the Americans with Disabilities Act, not only must a medical exam be job-related, it must also be consistent with business necessity. This means that the medical exam must relate to the essential functions of the job. The medical exam must test the ability to perform the primary functions of the job. For example, if you are a cashier at a grocery store, the essential functions of your job would be to ring people up and help them bag their items. Any medical exam your employer required would have to be related to how you perform those functions in order to be consistent with business necessity. It is important to note that as long as the medical exam evaluates some function of the job, it should satisfy the elements of business necessity.

Under the Americans with Disabilities Act, an employer may have the ability to make disability-related inquiries or require medical examination. After the applicant is given a conditional job offer, but before starting work, an employer may make disability-related inquiries and conduct medical examinations, regardless of whether they are related to the job, as long as it does so for all entering employees in the same job category (post-offer). After employment has commenced, an employer may make disability-related inquiries and require medical examinations only if they are job-related and consistent with business necessity.

The Americans with Disabilities Act requires that all medical information obtained during such inquiries or testing be treated as confidential medical information. While this provision covers all employees, only disability-related inquiries and medical examinations are subject to the Americans with Disabilities Act's restrictions. A disability-related inquiry is defined as asking questions or testing that is designed to elicit information about a person's disability. Therefore, questions or testing that is not designed to ask or evaluate information about an individual's disability are not prohibited under the ADA.

A medical test as defined under the Americans with Disabilities Act is a procedure or test that seeks information about an individual's physical or mental impairments or health. Factors that determine if it is a medical test include:

  • whether the test is administered by a health care professional;
  • whether the test is interpreted by a health care professional;
  • whether the test is designed to reveal an impairment or physical or mental health;
  • whether the test is invasive;
  • whether the test measures an employee's performance of a task or measures his/her physiological responses to performing the task;
  • whether the test normally is given in a medical setting; and,
  • whether medical equipment is used.

The topic of medical testing, especially functional testing, is a controversial subject. In the fall of 2009 two major case precedents brought to light these very issues — Indergard vs. Georgia Pacific and the class action lawsuit brought against Sears. On September 29, 2009, the U.S. Equal Employment Opportunity Commission (EEOC) announced a record-setting consent decree resolving a class lawsuit against Sears, Roebuck and Co. under the Americans with Disabilities Act for $6.2 million.

These recent rulings bear out that the Functional Capacity Evaluation (FCE) may be a medical exam. Even when classified as medical evaluations, Functional Capacity Evaluations don't physically correlate with true physiological function. The issue becomes whether or not these tests are able to accurately or objectively test for functionality. These rulings illustrate that Functional Capacity Evaluations that contain validity measurements that are subjective observations, do not correlate with effort and are not consistent with affected body parts are not legally defensible.

As we have seen with the Indergad and Sears cases, courts are examining these issues closely and unless there is an objective assessment, the employer or carrier is left virtually unprotected. For ADA compliance, the testing needs to be repeatable, objective, and address functionality.

Under the Americans with Disabilities Act, an employer may not require a current employee to undergo a medical examination unless the examination “is shown to be job-related and consistent with business necessity.” 42 U.S.C. § 12112(d) (4) (A). This section applies to all employees, whether or not they are disabled under the Americans with Disabilities Act. The Indergard decision clearly demonstrates the need for an objective measure of performance that must conform with business necessity.

In addition, recent case law — EEOC vs. Celadon Trucking — illustrates that if an individual does not meet the essential functions of the job, an employer needs to enter into the interactive process for the position for which they were applying or for any other open position for which the candidate is qualified.

Given all the legal mandates for the ADA and EEOC, coupled with state workers' compensation laws and Federal Mandatory reporting issues for work-related injuries, why do post-offer pre-placement tests? A better solution is baseline testing or a book end solution.

The Americans with Disabilities Act regulates testing that has the potential to evaluate a disability. So if a baseline test is non-invasive, captures the essential functions of the job with not only a reliable validity measurement but with an objective assessment of the muskuloskeltal system and is not read at the time of testing, it is not only acceptable under ADA but technically outside the scope. Why? Data is not evaluated at the time of the baseline test so no disability is identified and no medical questions are asked. It can be done at post-offer or with existing employees.

The book end solution is completed when there is a work-related incident, another test is performed under the workers' compensation pending case, and the results are compared. In the work-related case, the medical evaluation post loss test is allowed and not a violation of the Americans with Disabilities Act. Appropriate releases are signed prior to conducting the baseline testing, and the data is kept confidential. If no work-related injury occurs, the baseline data is never interpreted.

In summary, according to the Fifth Circuit ruling in the Atkins case, for a qualification standard to be “consistent with business necessity,” the employer must show that it “substantially promote[s]” the business' needs. The business needs in the case of baseline tests are to provide better and faster treatment for the injured worker and to accept claims that arise out of the course and scope of employment.