Tag Archives: wrongful termination

The Two Must-Haves for Employment Practices Liability Insurance

If you own or manage an organization and have not experienced an employee claim, count yourself lucky—and know that the chances are very good that your luck will change.

Many employers purchase Employment Practices Liability Insurance (EPLI) because general business insurance policies exclude employment-related claims for issues such as discrimination, harassment and wrongful termination.  Many EPLI policies do not, however, cover commonly asserted claims such as wage and hour violations or statutory penalties. The issues are complicated enough that decisions on EPLI require the assistance of two experts: a knowledgeable and trusted insurance broker and an experienced employment defense attorney. The insurance broker will guide you through the various policy options available and provide a wealth of risk-management information.  The defense attorney will advise on the real-world impact a particular policy will have when an employment claim arises.

If you purchase EPLI, you should prepare for employment claims before they are even asserted, by following these steps:

  • Select Defense Counsel in Advance. If you already use trusted employment law counsel, your carrier may allow you to designate your chosen law firm at the time the policy is purchased or renewed.  Some policies allow the insured to select its own counsel without such pre-designation.  Asking the right questions of your broker and specifying at the outset the employment lawyer you want is the best way to ensure that you get the defense counsel of your choice.  
  • Train Staff on Claims Recognition. Train key personnel to recognize a “claim” as it is defined under the EPLI policy.  What constitutes a “claim” is generally defined broadly.  A “claim” may even include pre-lawsuit claims, such as a discrimination complaint filed at a governmental agency like the California Department of Fair Employment and Housing.  Even a “demand” letter from a threatening employee or lawyer may constitute a claim.  As policies change from year to year, the definition of a claim may also change.  Key personnel should know what to do when a potential claim is spotted, including the who, what and when of communicating with the insurance broker or carrier.
  • Develop Protocol for Receipt and Processing of Claims. It is a good idea to have a specific person designated to whom all “claims” are promptly forwarded. The protocol should also include things such as identifying the name of the employee who received the claim and the date, time and how the claim was received.  It is critical to ensure that a potentially covered claim is properly and quickly processed. Communication problems can arise inside organizations because finance and operations executives, who were involved in buying the EPLI policy, tend to be knowledgeable about the terms of the EPLI policy, while human resources personnel tend to be the first to know that a claim has been filed.
  • Be Thoughtful and Precise in “Tendering” Claims to the Carrier. Once a claim arises, carefully consider the requirements in the policy for tendering the claim.  This may involve discussions with legal counsel regarding the pros and cons of tendering a particular claim at all and will definitely include advice on how and what to communicate with the carrier. Careful consideration cannot result in much delay.  EPLI policies typically require very prompt communication of claims and potential claims.  Follow carefully the means and timing of “tendering,” i.e., providing written notice to the carrier, as stated in the policy.   A copy of the lawsuit, administrative charge or “demand” letter should accompany the tender.  Follow up to ensure that the carrier has received the claim and accepted it.

    As a general rule, attorneys' fees and costs incurred to defend a tendered claim may not “count” against the insured's retention (deductible) until the date of tender.   If you incur attorneys’ fees and costs before the claim is tendered to the carrier, your company will likely have to pay those fees plus the full amount of the retention.  Worse yet, if a claim is not tendered in the manner and time frame required by the policy, the claim may be denied.  

The great majority of employers in California should at least seriously consider the addition of an EPLI policy, but not just any policy will do.  Without the expert guidance of a knowledgeable broker and employment counsel, you might be shelling out premium dollars that do not effectively achieve your risk-management objectives.  Once you have a policy, the development of effective protocols for handling claims is essential.  Those protocols will ensure that claims are not denied and that they are positioned to be effectively defended.

Social Media And The Insurance Implications

Most marketing and communication departments know all too well that social media and social networking sites are a treasure trove of opportunity for elevating your personal or corporate brand. Employees use social media for personal use, but also use it as a forum to talk about their boss, their company, their products, their problems and whatever else is on their mind. There are 200 plus social media sites in English alone, Facebook recently reached one billion users, and Twitter puts out more than 170 million tweets per day. That is a lot of free advertising!

However, what many businesses fail to remember is that, despite all of the positive aspects social media brings to a firm's marketing, communication, and sales efforts, it's also ripe with opportunity to damage their brand and cause a financial loss. While it's free marketing, it's also a lot of unedited content being published online that could be about your business, about your products, or attributed to you. Could a competitor feel that your employees are slandering their people or products? Could a competitor gain inside information about your organization? Could an employee divulge information that could get them fired? Could you or your employees inadvertently offend prospects and clients? In short, yes. As social media use continues to evolve and grow, it's important to consider this exposure to your organization.

Using Social Media To Generate Business Leads
All of this can be scary, but you can't ignore the great opportunities created by social media. Any organization not taking advantage of social media sites is signaling that it is not evolving with the times, and there is nothing close to matching the immediacy of broadcasting your news through social networking sites. A well-crafted social media strategy can generate a lot of interest in your product or services and drive traffic to your website where more specific information can be provided.

“In time, the proper execution of a focused social media strategy is an efficient means of staying in front of prospects. When the prospect has a business problem, your positioning as a credible, knowledgeable resource can help you get in the door and, hopefully, close the deal,” says Randy Stoloff, Director of Marketing and Social Media at AmWINS Group Benefits in Warwick, Rhode Island.

It is critical to have all content reviewed by someone within your organization that can be responsible for stopping improper content from being released. It's also important to review applicable insurance policies such as a website media policy or cyberliability policy to be sure social media activities are covered.

Using Social Media For Crisis Response
Imagine a time down the road when your best customers follow your social media feed and you need to get news out in a hurry about something that could cause your most prized customers harm. Assuming you have or hire qualified public relations professionals that can help you craft the proper way to phrase the announcement, you can get important news out immediately to show your concern for your customers and for transparency. Social media provides the most immediate way to communicate to your target audience. There are many insurance products currently available that assist with handling the public relations aspect of a crisis response. Having your social media presence established prior to a crisis will help you deal with the crisis in a targeted fashion.

Can Social Media Sites Be A Network Security Risk?
Besides the potential for hackers to use employee information on social media sites to figure out passwords, the sites can also be used to transmit computer viruses and other dangerous malware. As a result, many corporations block employee access to social networking sites. If the corporation has a cyberliability insurance policy in place, be sure it addresses security issues emanating from social media. The coverage may be limited to networks owned or controlled by the corporation.

Should I Address Social Media In My Employee Handbook?
This is a topic that requires legal counsel with experience in employment law as well as social media. It makes sense as a business owner to establish a guideline on what social media activities are permissible for employees, but it must be carefully worded. The National Labor Relations Board has published guidelines that may help. Most companies work very hard to establish a professional image and reputation. Employees often mistakenly think that commenting in social networking sites is somehow exempt from personal responsibility. The press is full of examples of disgruntled employees commenting on working conditions, complaining about their managers or coworkers, or commenting on confidential internal activities. Employees have been terminated for their conduct and they've sued for wrongful termination. You are likely to find coverage for the wrongful termination claims on your employment practices liability (EPL) insurance policy. Working with a professional is critical for navigating this minefield. You may not be able to avoid the litigation, but you can lay the groundwork for an effective defense.

Do I Need A Social Media Component In My Employment Contracts For My Executives?
Your top executives can also make mistakes using social media. Sensitive information can be leaked out accidentally by people who see the most sensitive information. Similar to non-executive employees, managers who have been terminated due to their social media activities have sued their employers for wrongful termination. Again, look to an EPL policy for coverage for that type of claim.

Should I Review The Social Media Content Posted By Job Applicants?
Many states have enacted laws barring employers from requesting full access to an applicant's social media profile. We have all heard stories about a prospective employer seeing improper pictures or comments by the applicant which influence the decision to hire or not hire them. Some employers have taken it one step further and requested login credentials from job applicants in order to see all the content they have posted. It seems like an obvious invasion of privacy, so laws are being written to protect the rights of job seekers. The claims that can arise from this scenario could have coverage apply under the “wrongful failure to hire” coverage on an employment practices policy, as well as an “invasion of privacy” policy as part of a cyberliability policy.

Scared Yet?
There are reasons to be concerned, but the opportunities need to be investigated with a proper foundation of preparation. It is also important to remember that there are insurance products available to help protect you after missteps. If you have an employment practices liability policy, you likely have some protection from wrongful termination claims and invasion of privacy claims brought by your employees. If you have an internet media or cyberliability policy, you could have remedies for allegations of libel, slander, defamation and invasion of privacy claims brought by other parties. A strong cyberliability policy will have protection from breach of security claims if hackers use social media to access your computer network for malicious purposes. It's possible that other insurance products can offer assistance as well. AmWINS represents multiple insurers with all of these insurance products and can help you select the proper coverage for you and your clients.

Performance Evaluations Without Pain … And Without Lawsuits

As the current business culture evolves into one riddled with legal battles and threats of lawsuits coming from discharged employees, many managers and supervisors feel cornered when addressing employee performance evaluations. Even those employers who follow stringent documentation guidelines often feel pressured into keeping unproductive employees in their positions or giving ambiguous performance feedback, due to their fear of employees taking legal action against the company.

Lawsuits charging discrimination typically are a result of negative evaluations or adverse employment actions. Much to their leaders’ dismay, the employees they fired for valid reasons can win such cases thanks in part to their very own performance evaluation procedures. Using subjective performance standards, failing to effectively address performance problems and not clearly warning employees about the consequences of unsatisfactory performance are the three most common reasons why jurors award damages and appeals courts uphold those judgments. While employers do have the right to insist on quality and productivity from every employee, they must also make legally defensible decisions when it’s time to reprimand or terminate an employee.

For any viable evaluation and disciplinary system to work fairly, evaluators must have proper qualifications and training. The more specific their evaluation procedure, the less likely supervisors are to make a costly legal error. Therefore, employers should supply managers with specific guidelines for acceptable supervisory actions. Additionally, companies should build in a level of higher authority for senior management when they must make close judgment calls, analyze unique problems, or terminate an employee for which the prior documentation is less complete.

Good documentation of evaluations and disciplinary action is critically important, as it provides credible evidence to help verify whether an employee has received prior notice concerning a particular rule or deviation from acceptable job performance. It also provides a record of whether an employee has previously been disciplined and, if so, the appropriate form of discipline for subsequent misconduct. In addition, it creates a vehicle for examining precedents when one employee engages in the same or similar conduct that has resulted in discipline of other employees.

When designing a performance appraisal process, managers must be careful to appraise employees based on job-related criteria and maintain adequate documentation. Develop a consistent appraisal process for all company employees. Any deviation from these objectives could result in costly legal battles.

Managers and supervisors can take several concrete steps to ensure consistency, objectivity, accuracy, and fairness throughout the performance appraisal process. Use the following guidelines to manage employees within legal limits, without paralysis.

1. Clearly Communicate Expectations. Managers must consistently communicate standards or expectations to employees and clearly identify each aspect of the required performance. If an employee fails to meet expectations, address the deficiency immediately (or as soon as reasonably practical) and specify where the employee’s performance requires improvement. When employees don’t know their assessment criteria, they can win a legal battle by simply stating, “I didn’t know what was expected of me.” Be sure to specify objectively measurable performance, such as quality, quantity, and timeliness of work, as well as important soft skills, such as teamwork, initiative, judgment, integrity, and leadership.

2. Perform Candid Appraisals. Rather than let a fear of lawsuits affect your ability to conduct performance ratings, address performance issues consistently for all employees on a timely basis. Be accurate and objective in your performance ratings, and remember to always rate poor performance as well as good performance. When you fail to point out poor performance, the problem continues, as employees cannot correct problems they are unaware of. Additionally, failure to document poor performance is legally risky should the employee later be discharged and sue for wrongful (or retaliatory) termination. Consistently addressing issues of concern with employees defends against the “I didn’t know I wasn’t meeting performance expectations” claim.

3. Maintain Objectivity At All Times. Focus the performance evaluations on objective job-related criteria. Examples of objective criteria that courts have upheld include quantity, quality, or timeliness of work and specifically articulated expectations for interpersonal skills, teamwork, exercise of judgment, and displays of initiative. You can establish objective expectations even with subjective standards when you articulate what you consider acceptable behavior. For example, you may say, “You will exercise better judgment if you come to me early and let me know you can’t meet a deadline so that I can help you prioritize your workload.”

4. Stick To Job-Based Criteria. Always relate the appraisal to the employee’s particular job. If an item on the evaluation form is not relevant to an employee, indicate “not applicable” in the appropriate space. Also be sure to consider the full rating period. Avoid the tendency to let recent performance events cloud what may have happened months earlier. Finally, compare the employee’s performance to a norm or performance standard rather than the performance of other employees.

5. Record And Memorialize. Put all evaluations in writing and document any verbal feedback made during the meeting. Keep the language in written proposals simple and as easy to understand as possible.

6. Be Specific. Review appraisals to ensure that both high and low ratings have sufficient documentation and anecdotal information that details what the employee did or did not do to earn the rating. Avoid vague or descriptive personal criteria that others could misinterpret.

7. Address Performance Problems Promptly. Discuss and/or deal with performance problems at the time they occur. If the employee’s performance is unsatisfactory, immediately counsel the employee on deficiencies and suggest concrete ways to improve performance. The courts may question your motive in a poor performance discharge if the incident prompting the discharge occurred substantially prior to the time of the discharge.

8. Specify the Consequences Of Non-Performance. Clearly specify a final warning on the performance appraisal if the employee’s performance is so poor that a demotion, change in assignment, or discharge may occur. This will help defend against the single most common legal deficiency in the performance management process: the employee’s truthful claim that “I didn’t know this adverse action would occur if I didn’t improve or correct my performance.” Employees routinely win lawsuits with such a claim because supervisors often don’t like to give negative feedback due to concerns about defensive confrontations, a desire not to hurt a likeable employee’s feelings, or worst of all, the fear of drawing a lawsuit that alleges discrimination or harassment.

9. Maintain Consistency. Be consistent with performance appraisals and any corresponding pay adjustments. Document poor performance if it is a basis to delay or deny a pay adjustment just as you would document good performance to substantiate a pay raise. Inconsistency will reflect poorly in any subsequent legal proceeding, especially when the employee claims that he or she was singled out for negative action. Consistency further enhances your ability to defend against discrimination claims, as it demonstrates that the needs of the particular job consistently required adherence to concrete, well-articulated performance expectations, and that all similarly situated employees are held to the same standards.

10. Plan Your Documentation. Contrary to popular belief, poor documentation techniques actually increase your chances of liability in a lawsuit. Avoid making any notes on appraisal forms that the courts could view as discriminatory or that reflect a “mixed motive.” Avoid contrived or pre-textual statements such as “the chemistry isn’t right.” Also, minimize your use of labels, such as “self starter,” unless you tie it to a measurable performance standard, in this case “initiative.” When in doubt, have a jury who doesn’t know you or the employee review the appraisal. Can they misinterpret it? Above all else, never backdate appraisals and never attempt to document something that did not occur. Always document events as they occur to assure that your memory is fresh and your examples are relevant.

11. Be Careful When Referring To Job Protected Leave In Performance Evaluations. Front-line leaders often don’t realize that comments they make on performance evaluations can come back to haunt them. That’s especially true when those comments relate to absences that are covered by job-protected leave, such as the Family & Medical Leave Act (FMLA). Several recent FMLA cases have concluded that commenting upon an employee’s absence due to authorized FMLA leave is the legal equivalent of interfering with the right to take such leave, giving rise to substantial damages against the employers.

In Goelzer v. Sheboygan County, An Administrative Assistant got consistently good performance evaluations for 20 years. She took FMLA leave for her own serious health condition and to care for her ill mother. On her performance appraisal, her supervisor wrote, “[Y]ou were out of the office having eye surgery. In the past two years, using sick leave and vacation, you were out of the office 113 days. As the only support person in the office, this has presented challenges in the functionality and duties associated with the office.” When she was terminated on performance grounds, she sued. A Federal Appeals Court concluded that Goelzer presented compelling evidence for a jury to believe that she was fired for taking FMLA leave. The Court emphasized the supervisor’s evaluation language, which expressed frustration with her use of FMLA leave, the total absence of documentation supporting any concern with her deficient skill set, and her consistent good performance ratings prior to her FMLA leave.

Employers cannot interfere with or discriminate against an employee who exercises FMLA rights. Taking FMLA or other job-protected leave does not insulate an employee from performance-based adverse actions. But, in order to effectively establish that the adverse action is due to performance deficiencies and not the exercise of FMLA rights, the facts must support and document an appropriate, job-related and non-discriminatory explanation.

When you know, understand, and implement the criteria for lawful performance management, you enable your company to operate at peak efficiency while you stay within specific legal parameters. The more proactive steps you take to reduce your chances of a wrongful termination lawsuit, the more successful and lawful your company becomes.