Economy and Politics Fuel Workplace Charges Against Employers

Small business owners worry about rising employment claims. With escalating layoffs and a souring economy, discrimination charges have reached record levels. Hard times make it more likely that workers will file a complaint. Increasing the risk is a new administration in Washington, new laws that expand rights for workers and an aging and more diverse workforce.

It’s a challenging climate for all employers. They must be prepared for a range of employment claims, including alleged discrimination, sexual harassment, retaliation and other unlawful employment acts. Class-action suits are also expected to increase. Small businesses are particularly at risk. Many don’t have resources such as in-house legal counsel and employee relations staff to set risk management policies and procedures. They may not have policy manuals or uniform performance appraisals. Even when they do, allegations can be made at any time.

The U.S. Equal Employment Opportunity Commission (EEOC) reports that workplace discrimination charges filed in 2008 soared 15%compared to the previous year to a record 95,402. A total of $376 million was awarded to workers.

Charges of age bias were up 29% and retaliation increased 23%. Of the total number, discrimination claims based on race, retaliation and gender continued as the most frequently reported. It was the second consecutive year of sharp increases in claims that last spiked in the recession of the early 1990s.

In addition to the economy; the EEOC cites a greater awareness of workers’ rights as a factor in the rise of discrimination claims. Combine the recession with new employment laws, and the result is more legal exposure for employers.

The number of charges may rise further with new legislation and employment policies. President Barack Obama supports several key bills and the federal agencies responsible for workplace regulations are expected to be more aggressive. Obama also will also appoint federal court judges and possibly U.S. Supreme Court justices who have a long-lasting impact on employment laws.

Congress already has broadened the landmark Americans with Disabilities Act (ADA). An amendment effective Jan. 1, revised the definition of disability to include conditions that can be treated such as diabetes or carpal tunnel syndrome, expanding the pool of people who can make a claim under the ADA.

Other significant legislation includes:

• The first bill signed by Obama was the Ledbetter Fair Pay Act, which resets the statute of limitations for workers to sue for pay discrimination each time they receive a paycheck.

• The Employee Free Choice Act would make it easier to establish unions, require binding arbitration and increase penalties for unfair labor practices.

• Other proposed bills would eliminate caps on discrimination awards and establish a new federally protected class based on sexual orientation.

• Legislation could expand the Family and Medical Leave Act to include companies with fewer than 50 employees.

• Another measure would make it easier for undocumented immigrant workers to claim back pay.

On average, it costs more than $10,000 to defend against an employment claim. As charges spread to Main Street businesses, employment practices liability (EPLI) coverage is being extended to smaller companies. The challenge is to offer affordable products with the coverage and services that a smaller business requires.

In the past, EPLI coverage with a $1 million limit was generally the standard. Not only was that too expensive, it was not necessary for small employers since most employment claims are settled for far less. Most EPLI coverage also requires a separate application, employee count, and other time-consuming paperwork.

The new EPLI products for smaller employers help to fill this coverage gap. Cost and coverage is tailored to the needs of small businesses such as restaurants, small manufacturers, retailers and service companies. It’s important protection, since most small business policies leave the owners exposed for EPLI claims.

Although it’s hard to predict when the economy might rebound or which legislation will become law, employers face a difficult legal landscape. Employment charges and lawsuits investigated by the EEOC resulted in approximately $1.8 billion in employee awards from 2004 through 2008. Even when a claim is found to be groundless, employers still must pay in legal costs and time lost.

Jeffery O’Shaughnessy is a vice president for The Hartford Steam Boiler Inspection and Insurance Company’s Portfolio Employment Practices Liability program.