Tag Archives: employment practices liability

The Need to Educate on General Liability

In a perfect world, insurance buyers would understand their products just as well their insurance agents. This would save a few headaches for everyone involved, and it would probably streamline the process on all ends. However, the reality is that most business owners don’t understand the extent of the insurance products they purchase. Then again, no one should expect them to.

Insurance products are highly complex vehicles. Few business owners have the time to invest in becoming experts in the field or in the products they purchase. Even the best insurance agents spend years learning about the products they sell, many of which change frequently as the economy changes.

That being said, no business owner should simply buy a product without understanding the most important aspects regarding what it does and does not cover. In truth, a highly skilled insurance agent should never let them, either. Here’s where there can be a gap between how much insurance a business purchases and how much it actually needs, showing why educating business owners on the extent of their insurance really matters.

False Perceptions of General Liability Are Common

Many customers tend to believe their insurance covers more than it actually does. This situation could probably be applied to any insurance product, but general liability policies are often the most frequently misunderstood by buyers.

See also: What to Expect on Management Liability  

To put it simply, far too many businesses are purchasing less insurance coverage than they should. In a sense, many are taking a huge gamble, believing their risk exposure is less than what it actually is or that their preventative measures, such as employee training, can shield them from those risks. While risk prevention definitely helps, it’s ultimately far from the bulletproof shield many companies think it is. Most companies do it to help themselves get a better rate on their insurance, while maintaining the false perception that their general liability coverage protects them against a multitude of risks not actually defined in the policy.

As a company scales in size, so, too, does its likelihood of experiencing losses related to cyber liability, employee fraud, fiduciary liability, directors and officers (D&O) or workplace violence. Yet many companies seem not to realize their exposure.

This would, of course, be less troubling if companies were purchasing policies that actually covered those kind of risks. Overwhelmingly, they’re choosing to avoid those insurance products altogether. According to Chubb’s survey on private company risk, non-purchasers believed their general liability policy covered:

  • Directors and Officers Liability (65%)
  • Employment Practices Liability (60%)
  • Errors & Omissions Liability (52%)
  • Fiduciary Liability (51%)
  • Cyber Liability (39%)

Businesses aren’t failing to purchase enough liability coverage because they’re unnecessary risk takers. Most, it seems, simply have false perceptions about what their general liability will and won’t do.

A small business may think its general liability policy covers a server hack. Yet, lo and behold, when a server gets hacked and the ensuing liability claims start pouring in, that small business may quickly find itself underwater. In fact, the U.S National Cyber Security Alliance found that the 60% of small companies went out of business within six months of a cyber attack. This seems extreme, but the average cost for a small business to clean up after a hack is $690,000, according to the Ponemon Institute. How many small- or medium-sized businesses can easily absorb that kind of cost without insurance coverage? Not many.

Similarly, mid-sized companies may believe their general liability policy covers directors and officers, leaving the company with unnecessary risk exposures should an incident occur. If, for example, a company begins operating internationally and fails to effectively meet one of the federal regulations governing its industry, a general liability policy won’t help protect the company from impending lawsuits. Any directors held personally responsible may find their own personal assets at risk. Given what we learned from the Chubb survey, it’s quite likely that most directors may think they’re fine with the minimal coverage they receive from a general liability policy. A costly mistake, to be sure.

Who’s to Blame?

We’ll leave the finger pointing aside for now and settle on this: The customer is always right, but he’s not always well-informed. As every insurance agent knows, the amount of time it takes to fully understand an insurance product can be extensive. Business owners, in general, lack the time to invest in fully understanding the products they purchase. It should come as no surprise, then, that misunderstandings arise over what general liability policies actually cover and what risks they simply won’t mitigate.

See also: ISO Form Changes Commercial General Liability  

Insurance agents have a responsibility to use their knowledge to help business owners better understand and sift through those misconceptions. More needs to be done to help decision-makers understand what they are and are not getting from their insurance.

Helping businesses better understand the ins and outs of their general liability policy is a win-win all around.

Will Your Website Get You Sued?

Plaintiffs’ attorneys have discovered a new, rich litigation vein to exploit, potentially yielding a treasure of targets to sue. Using Title III of the Americans with Disabilities Act (ADA) and applying it to a modern societal institution (the internet) that was not in existence or contemplated when that law was enacted, lawyers may have hit pay dirt again by claiming that websites are not accessible to the disabled.

Title III of the ADA requires places that are open to the public to not discriminate against individuals due to their disability or otherwise deny them “the full and equal enjoyment of the goods, services, facilities, privileges, advantages or accommodations of any place of public accommodation.” These rules apply to any company that permits “entry” by the public. Although traditionally Title III of the ADA has been applied to physical structures, recent cases have raised issues as to whether these rules may apply to websites, as well.

To date, the case law addressing these issues is very limited and has been mixed. Case law from the Seventh Circuit has applied the ADA to websites, and the First, Second and Eleventh Circuits have applied the ADA beyond physical structures, providing ground for plaintiffs to argue that the ADA can extend to a virtual space such as websites. Meanwhile, the Third, Fifth and Ninth Circuits have applied the ADA provisions to physical locations only.

See also: Broad Array of Roles for Disability Coverage  

The Department of Justice, which is responsible for interpreting and enforcing Title III of the ADA, says that Title III does apply to websites. However, in typical government fashion, the DOJ has delayed releasing its “accessibility” guidelines for webpages, with an anticipated release date in 2018.

While the regulations and laws on website accessibility may be unclear, a few law firms are nonetheless sending out demand letters targeting specific industry sectors nationwide (for example, private universities and real estate brokerage firms) and demanding compliance with onerous website standards. The letters ask the recipient to hire the plaintiff’s law firm (or their preferred vendor) to help reach an “acceptable level” of compliance. In addition, several national retailers, including Patagonia, Ace Hardware, Aeropostale and Bed Bath & Beyond have been named in lawsuits regarding accessibility to their sites. According to Bloomberg’s BNA reports, 45 of these type of lawsuits were launched in 2015. That number is expected to increase substantially in 2016.

With the law so unclear on this topic, how should businesses navigate these murky waters? First, if you receive one of these demand letters, you should consider contacting an attorney and should avoid engaging in discussions with the plaintiff or their law firm without representation. Then, along with your attorney and an IT representative (in-house or a vendor), develop a strategy to bring your webpage into accessibility compliance. Although there is no “one-size fits all” approach to move toward compliance, depending on what is on your website, businesses can consider providing audible text on each webpage and providing audible captions for pictures. Ultimately, to play it safe you may want to take all reasonable steps to improve navigation and access on your website.

See also: New Products and Combined Approaches

Takeaway

Lawsuits related to website accessibility could likely be next cash cow for plaintiffs’ attorneys. As the early case law on this issue is so mixed, there is little guidance as to who has to be compliant and what exactly compliance would look like. Until the DOJ gets around to issuing guidelines (assuming they provide much guidance), businesses should consider reviewing their websites and documenting reasonable efforts to make the sites accessible to the disabled. Further, companies should consider purchasing a robust employment practices liability (EPL) policy with broad third-party coverage that can potentially pick up the defense of claims related to website access claims.

This article was co-written by Marty Heller.

3 Cardinal Rules for Managing EPL Risk

Last week, the U.S. Equal Employment Opportunity Commission (EEOC) released its data for FY 2014 for enforcement litigation related to employment practices liability (EPL). Continuing a recent trend, the EEOC reported that the percentage of charges that contained retaliation claims rose to a record 43% in 2014.

This is significant for EPL because the elements that an employee must establish with respect to a retaliation claim are quite different than the elements in a discrimination or harassment claim. Specifically, an employee does not need to establish that the employer discriminated against or harassed him to prevail on a retaliation claim. Rather, the employee only needs to prove that the employer took action against him in response to an internal or external complaint of discrimination or harassment that may deter the employee or others from lodging similar complaints in the future.

The EEOC report highlights that, for EPL, preventing retaliation is just as important as promptly addressing workplace complaints of discrimination or harassment.

A breakdown of all charges filed with the EEOC is as follows:

  • Retaliation — 43% of all claims
  • Race (including racial harassment) — 35%
  • Sex (including pregnancy and sexual harassment) — 29%
  • Disability — 29%
  • Age — 23%
  • Religion — 4%
  • Color — 3.1%
  • Equal Pay Act — 1.1% (but note that sex-based wage discrimination can also be charged under Title VII’s sex discrimination provision)
  • Genetic Information Non-Discrimination Act — 0.4%

In fiscal year 2014, the EEOC obtained $296.1 million in total monetary relief through its enforcement program for cases that were settled before the filing of litigation. Monetary relief from cases litigated, including settlements, totaled $22.5 million.

Takeaway:

From a risk management perspective, the aggressive investigations and litigation filed by the EEOC only emphasize the need for employers to faithfully obey what we kindly refer to as Socius’ “Three Cardinal Rules of Employment Practices Risk Management”:

  1. Continually update employment practices (i.e., adapt personnel policies to always be current with the EEOC’s strategic initiatives, litigation trends and new statutes).
  2. Keep all management and supervisory personnel thoroughly and continually trained (this ensures a smooth implementation of procedures and education of management’s agreed strategies to respond to retaliation, harassment and other employment-related allegations), and
  3. Further mitigate this risk through the purchase of a robust EPL insurance policy.

Medical Marijuana Law: Effect in Illinois

Last year, Illinois passed a “medical marijuana” law that became effective Jan. 1, 2014, known as the Compassionate Use of Medical Cannabis Pilot Program Act, 410 ILCS 130/1, et seq. The act allows doctors to recommend and certify the use of medical marijuana by patients who are under the doctors’ care for certain qualifying medical conditions.

Certain rights of employers are affected, but in other ways it will be business as usual for employers. Most notably, employers cannot discriminate against a registered patient on the basis of his or her registration (in most cases). This mandate may require employers to reconfigure their drug policies and certain provisions in their employee handbooks to ensure compliance with the act. Also, there will need to be management training to educate managers and supervisors.

Contrary to what you might first think, the act still permits employers to operate a Drug Free Workplace. Employers are allowed to prohibit possession or consumption of marijuana on their property. Further, the act specifically allows employers to enforce work rules, give drug tests and discipline employees exhibiting signs of impairment while at work. Employees beware! The act is not a license to possess or be high at work.

Based on the rights that employers still retain, it appears inevitable that sticky issues will arise as the act is implemented and employers struggle with compliance as well as enforcing their own policies. For example, while the act expressly allows employers to conduct drug testing, what if an employee’s drug test registers marijuana use, but the test cannot differentiate whether that use was hours, days or months ago? Would refusing to hire that individual be okay as enforcement of a Drug Free Workplace, or would that decision be discriminating against an individual for his or her “status” as a registered medical marijuana patient? Moreover, the law allows employers to maintain a Drug Free Workplace “provided the policy is applied in a non-discriminatory manner.” It is unclear whether patients will be able to assert disparate impact claims arguing that employers’ facially neutral workplace policies have a statistical impact on their “protected class.” Additionally, the law requires that an employee disciplined for exhibiting signs of impairment must be given an opportunity to contest the basis for the determination, but the law does not provide any guidance as to what type of procedural protection the employee must receive. Finally, it is unclear what, if any, interplay this Illinois law will have with the federal Americans With Disabilities Act.

Unfortunately, we believe that many of the gray areas surrounding the act will likely be resolved through future litigation. To make sure your clients are prepared, we suggest that you have a lawyer review your policies and procedures and provide training to your management personnel. Also, ensure that your clients have a robust Employment Practices Liability policy in place that will respond and defend the employers in case they are faced with a discrimination suit in relation to violation of the act.

Skiing The Slippery Slope Of Employment Practices Liability In The Nonprofit Sector

One of your employees has been out on disability with a workers’ compensation injury and you have been getting great advice and service from your workers’ compensation carrier regarding managing the employee while out on leave. Ultimately, you are advised that it has been determined in the workers’ compensation case that the employee has reached maximum medical improvement (known as permanent and stationary in some states) and cannot return to her job due to a permanent disability. With regret, you terminate the employee since she is now receiving workers’ compensation vocational rehabilitation benefits and you have heard that workers’ compensation is the exclusive legal remedy for employees suffering workplace injuries.

Not so fast! If an employer has 15 or more employees, it is subject to the Americans with Disabilities Act (ADA) and/or a state disability accommodation law with a different threshold for applicability. In this instance, even though you acted appropriately in terms of not discriminating based on a work-related injury in violation of workers’ compensation law, you have violated the Americans with Disabilities Act for failing to engage in the interactive process to determine if there is any reasonable accommodation that would have allowed the employee to return to work for you — perhaps in a different job. Failing to engage in the interactive process prior to terminating a disabled employee is a violation of the Americans with Disabilities Act and would subject you to legal liability resulting from the termination.

Okay, so maybe you knew about that issue. But what about the other employment law moguls out there just waiting for you? Let’s explore some of the common — and maybe not so common — employment practices law issues that face nonprofits, how to guard against mistakes, what it can cost if you do err, and how insurance fits into the picture.

Timing Really Is Everything
Culled from the claims files of the Nonprofits’ Insurance Alliance of California (NIAC) and the Alliance of Nonprofits for Insurance (ANI), member companies in the Nonprofits Insurance Alliance Group (NIA Group) that insures over 11,500 nonprofits around the country, here are just a few examples of seemingly appropriate terminations by 501(c)(3) nonprofits that failed to withstand scrutiny because of their timing.

  • A couple of disruptive employees whose paychecks had been withheld for failure to have reports done on time filed a complaint about not being paid and were then terminated. (Two strikes on this one!) First, most states prohibit withholding paychecks just for poor performance. Second, terminating these two employees after they complained resulted in valid claims under the state’s “whistleblower” laws.
  • A poorly performing employee complained of sexual harassment. A thorough investigation concluded no harassment had taken place. The employee was then terminated on performance grounds alone. Problem — no contemporaneous documentation of the alleged poor performance existed, so it appeared to the state administrative agency that the termination was a result of the harassment allegation because it followed closely behind the report of it.
  • A long-term employee of an elder daycare facility, who was a “mandatory reporter” under state law, filed a report with the state about inadequate staffing at the facility when an elderly client was left unattended and was found wandering around in traffic. She was terminated for not following “internal reporting procedures” (in this case a warning was the appropriate remedy, not immediate termination).

So What’s An Employer To Do?
Let’s start with the exposures under Employment Practices Liability (EPL) that give rise to liability claims. Both federal — and most state — laws proscribe the most commonly known unfair employment practices of wrongful termination, sexual harassment, discrimination and ADA violations. Embedded in each of those categories, however, are some lesser known prohibitions and strict liabilities.

By now most everyone knows that in most jurisdictions you can’t terminate someone based on age, race, gender, or sexual preference. But what if a poor performing employee is the only one working for your nonprofit that’s in a protected category? Termination here may have the appearance of discrimination sufficient to subject you to administrative or civil exposure.

You know that sexual harassment is illegal and that procedures need to be in place to train supervisory and management personnel about its ins and outs. But what if you’re in a state that imposes strict liability on an employer, even if the employer didn’t know the harassment was occurring? Or what about a delivery person that’s been making inappropriate suggestions to your receptionist, or if the delivery person believes that one of your employees has been harassing him or her? That can get you into as much trouble as the typical case.

So, what to do? Defense of Employment Practices Liability claims starts with your agency having documented procedures in place that you and your counsel can use to demonstrate to an administrative agency or a court that you intended to be — and were — in compliance. This is best accomplished from the beginning with a robust personnel handbook that includes policy statements and procedures around at least 12 key subjects.

Twelve Components of a Model Personnel Handbook

Following are twelve components that we recommend all personnel handbooks contain:

  • Introductory Statements
  • Nondiscrimination and Sexual Harassment
  • Organization and Structure
  • Training and Orientation
  • Employee Classifications and Categories
  • Employment Policies, Including Wage and Hour Regulations
  • Benefits Disclaimer
  • Leaves of Absence and Time Off
  • Standards of Performance
  • Workplace Violence Prevention and Safety
  • Search and Inspection
  • Drug-Free Workplace

At a minimum, the handbook should include statements regarding at-will employment, probationary, introductory or benefit waiting periods, and examples of disciplinary offenses (always prefaced with “including, but not limited to” language). Always have employees sign a written acknowledgment that they have read and understand the policies, or you might as well not have created them in the first place.

Next comes training and adherence. Regardless of size, every nonprofit needs to train its management personnel about the employment laws relevant to their jurisdiction and the policies and procedures the agency has adopted. Include here any state mandates such as sexual harassment training for supervisory personnel. Then, walk the talk! Follow those policies and procedures diligently — every day. Oh, and did you remember to include your board members in the training? They are at risk as much as the Executive Director because they are ultimately responsible for the agency’s overall management.

The Old “Ounce Of Prevention”
The last, and most overlooked, step in Employment Practices Liability claim prevention is checking in with experienced employment counsel before taking a significant personnel action. A poorly drafted employment offer letter can bind you for a lot more than you thought. So can the improperly announced new personnel policy or procedure — even if it’s meant to be a “positive” for employees.

More than anything else, however, is every Employment Practices Liability defense lawyer’s wish that you consult counsel before termination. There would be obvious questions about clear documentation of performance issues, protected classes of employees, and compliance with your own policies and procedures, but some circumstances might require some “drill down” inquiry. Suppose a health issue, disclosed or not, is involved. Is the employee perhaps entitled to an ADA accommodation? What about Family and Medical Leave Act entitlement, or workers’ compensation benefits?

Always, always, check with counsel experienced in employment law. Some are available on a pro bono basis — check with your local bar association. A number of Directors and Officers and Employment Practices Liability insurance carriers provide this service to their policyholders, although sometimes on a limited basis. So ask them if they do. If they don’t, ask them for a referral. At ANI-RRG and NIAC, we feel so strongly about the importance of our members getting good advice before they take an important employment action that we have three experienced labor law attorneys dedicated solely to providing preventative advice on this subject to our member-insureds.

And The New “Pound of Flesh”
If you haven’t heard or read about it, employment practices law is one of the latest and greatest fertile fields for aggressive plaintiff’s attorneys. It matters not that you are a charitable nonprofit (particularly if you have good insurance limits). Six-figure jury verdicts have become more frequent, particularly in metropolitan areas where the majority of the nonprofit sector does its work. Need convincing? Think about this data from ten recent years of our closed claim files:

  • One out of every 100 nonprofits (regardless of size) will have an EPL claim this year
  • 97% of all claims against directors’ and officers’ policies are in the EPL category
  • The average cost to defend when a claim has some merit is $29,000 and the average loss on those claims is $44,000 — a combined average of $73,000
  • 40% of EPL claims have some merit and when they do, one in ten will cost more than $100,000
  • When claims do not have merit, the average cost to defend is only $5,000, thanks to early intervention by our experienced employment defense counsel
  • The two largest claims cost $1 million and $400,000 respectively

Did You Say Something About Insurance?
Unless you have tens or even hundreds of thousands of dollars just sitting around, you probably want to think about how your agency can protect itself in this vulnerable area and one other that directors and officers should be concerned about.

When Employment Practices Liability claims first came into vogue years ago, the insurance industry’s “knee jerk” reaction was to find a way to exclude the exposure. Smarter heads prevailed, fortunately, so that today EPL coverage is readily available. But like many things, it comes in different shapes and sizes, and not always where you think it is.

Let’s talk first about Employment Practices Liability as a stand-alone coverage. It’s available and commonly protects the nonprofit from damages claimed as a result of an adverse employment action. The defense component provides for payment of attorney fees and costs, and the indemnification component provides for payment of actual damages, if any. There are exclusions as discussed below.

It is more common, however, to find EPL coverage as either an attachment to, or embedded in, the nonprofit’s Directors and Officers (D&O) coverage. The components are generally the same as described above. Key issues to consider are detailed below, but look out for some tricky provisions such as the one that requires your consent before the carrier settles a claim, but makes you responsible for all the ongoing legal expenses if you don’t accept the carrier’s recommendation.

Typical exclusions include fines, penalties and sanctions (these are uninsurable risks), back wages, multiplied damages and plaintiff’s attorney’s fees. Wage and hour claims are one of the biggest uncovered liabilities that a nonprofit faces. Properly classifying an employee as exempt from the overtime requirements of the Fair Standards Labor Act (or similar state laws) can be tricky business and sometimes requires extra sensory powers of hindsight. To be properly classified as exempt, an employee must make a threshold salary as defined by federal and state law and pass the duties test of either the professional, executive or administrative exemptions. While most insurance policies do not cover payment of back wages and penalties, a few at least provide some defense costs to cover wage and hour claims.

So what are the key EPL components of a good D&O policy? At a minimum, expect the following:

Adequate policy limits

  • $1 million is generally adequate for small to mid-size nonprofits. Larger agencies should consider higher limits or an umbrella policy.

Broad definition of who is an insured

  • Is the nonprofit agency itself insured in addition to its directors and officers?
  • What about prior directors and officers?
  • Committee members?
  • Employees and volunteers? (Volunteers don’t have all the federal or state immunities you may think.)

Broad coverage for employment practices liability

  • Either by endorsement or imbedded in the D&O policy itself

Duty to defend

  • Does it extend to administrative proceedings (where most EPL claims start) or just to suits in civil courts?

Advancing of defense costs

  • The carrier should pay for defense costs as incurred, not after the nonprofit has paid for them and is seeking reimbursement

Anything Else?
Make sure that you understand your policy before you need to use it. For example, be sure that you understand when you need to report facts that may result in employment practices liability. For example, you may decide not to report to the insurer an employee grievance filed with your Human Resources Department pertaining to the employee’s termination, perhaps thinking that a legal claim may not develop from it. Unbeknownst to you, your policy may require you to report potential claims, including grievances filed with your HR Department. By the time the terminated employee files a legal complaint with the district court, the reporting period has passed and your insurer may deny coverage.

Don’t be disappointed if your insurance carrier insists on using defense counsel of its own choosing. It has the right to do so and generally has developed over time a panel of attorneys experienced in employment law defense who understand the nonprofit sector better than most.

While not directly EPL-related, make sure your Directors & Officers policy also protects you for fiduciary liability claims such as failure to properly account for grant funds.

If unsure about the nature and extent of your Employment Practices Liability coverage, by all means consult with your insurance agent or broker. They are usually paid commissions when they place your coverage, and providing appropriate advice is part of what they are paid for — and a service you have a right to expect.

Happy skiing!