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EMPLOYMENT LAW MORPHS INTO A MONSTER
EPL Insurance Essential In This Environment

The "at will" employment principle is under attack. The standards to which employers are held in sexual harrassment cases are unreachable. "Emotional distress" is now casually tossed into into the basket of damages awarded, even in simple discharge or promotion cases. The employment relationship is a minefield for employers.

"..The Defence was naturally in a very ticklish and difficult position. Yet that, too, was intentional. For the Defence was not actually countenanced by the Law, but only tolerated..." From The Trial by Franz Kafka.

At Will Employment

Most employee handbooks contain language similar to the following:

“Our company is an at-will employer. Irrespective of any provision in this employee handbook or any other document or statement, either you or we may terminate this employment relationship at any time, for any reason, with or without cause or notice. Nothing in this employee handbook or in any document or statement, written or oral, shall limit our right to terminate your employment at-will. No officer, employee or representative of the company is authorized to enter into an agreement – express or implied – for employment other than at-will employment.”

According to this principle employment is a relationship of mutual benefit. When it no longer benefits either side, it can be terminated. However, the concept is being perverted by the courts. An employer, ideally, would not need to provide reason for terminating employment. And certainly, terminations for insubordination or incompetence would be unassailable. Not in this environment, however.

Management styles come in all flavors. Employees come in all personalities, and all sensibilities. A match is not guaranteed. Free and easy movement to and from companies, and free and easy hiring and firing, are necessary, and are what at will employment is all about. Plaintiff lawyers do not openly question its right to exist, they simply subvert it, exploiting the various anti-discrimination laws, both state and federal.

An employer can hire and fire according to its standards, but it must treat all employees alike with respect to those standards. This can be an admirable principle, but it bogs down in actual practice. Some employees are superstars. They may be given extra leeway with respect to the everyday rules. Think of pro athletes for an example. However, other employees are merely competent; they are expected to follow the rules, and may be dismissed for breaking them. To some this is discrimination; to others it is only an employer exercising his or her judgement. This can be the basis for a claim, however. It is similar with employee attitude. Some employees show up and are competent, but have an uncooperative attitude. They do not do anything negative that can be specifically cited, but they are not the motivated team players the employer may want. How does an employer prove non-discrimination in such a case. When the burden of proof switches from the employee to the employer, the employer's position is indefensible. This is the current environment. Judgement and intangibles are the difference between average companies and the most productive companies. Employment law bean counters do not leave room for these factors.

Sexual Harassment

Most companies have moved to eliminate sexual harassment from their workplace. They certainly have procedures in place to respond to a sexual harassment event. Companies of this ilk may (falsely) rest easy with respect to the possibility of a sexual harassment claim. In fact, according to previous guidelines they would be generally immune. Action taken by an employer after knowledge of an incident was the key to defense. This, along with reasonable policies to try to prevent harassment in the first place, would have protected an employer --- prior to evolution of the standard to what it is today. No longer are preventive policies and immediate response sufficient. Currently the standard appears to be summarized by the statement "you should have known." Management does not follow every employee around every minute of the day. What any one employee will do (sometimes contrary to what employee screening would predict) at any given time is not necessarily foreseeable. It would appear that the employee-victim no longer has much, if any, responsibility for mitigating the problem or allowing an innocent employer a reasonable amount of time to act.

Emotional Distress

A 2004 case in Massachusetts involved a suit by a teller against a major regional bank. The teller had been at the bank for a year and a half. The teller was bypassed for a promotion, and the position was given to someone who had been at the bank for a shorter period of time. The teller's boss explained to the teller that they wanted to promote someone with a more "bubbly personality" - this was the smoking gun. The teller-plaintiff was awarded $100,000 for "emotional distress." The state agency involved indicates that some people are more sensitive than others and that the emotional distress component is based on how the claimant personally feels, not on whether it is reasonable for the claimant to feel that way (eliminating any sort of "reasonable person" benchmark).
Contact us for cases illustrating the above trends.

The Need for EPL Insurance

Employment Practices Liability insurance should no longer be considered optional. Awards against plaintiffs are reaching unaffordable levels, and can include punitive or multiple damages and emotional distress. Defense against some claims is virtually impossible. There will almost always be serious legal expenses. The number of claims is extremely high. Insurers will help with employment policies and procedures before the fact, and they may help with a potential incident before it becomes a claim. The policy, subject of course to limits and deductibles, will cover defense costs and settlements or judgements.
Legal advice should also be sought for employment policies and before taking significant employment actions such as a termination.
Individual employers cannot fight the system. They need to devote resources to running their businesses. When employment becomes an entitlement rather than a mutual contractual arrangement (as it has become), the cost becomes socialized. All companies will have the insurance, the premium being simply a cost of doing business. The financial burden will be spread throughout the economic system as an increase in the cost of goods and services.

Given the inevitability of losses, you'll be judged not by whether you were the victim of an event, but by how well you planned for it.

(C) 2005 Licata Kelleher Risk and Insurance Advisers, Inc. Permission granted for distribution as is (with full attribution).

Contact us for risk management strategy and implementation. We stand ready to be your partner in your business ventures.

Licata Kelleher is a risk management and insurance advisory firm. The firm does not sell insurance, but does counsel clients on the effectiveness of insurance, on reducing the cost of insurance and on the risk management process.

The above is intended to be general information, and should not be construed as specific recommendations.

 For more information, contact Debora Wu, at DWU@LicataRisk.com

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Reports

Fall 2005 INTERNATIONAL RISK MANAGEMENT
 
Spring 2004 EMPLOYMENT LAW MORPHS INTO A MONSTER

Fall 2004 INSURANCE BROKER SUED BY NEW YORK ATTORNEY GENERAL

Summer 2004 UNDERSTANDING THE DYNAMICS OF THE INSURANCE MARKET

Winter 2004 WORLD TRADE CASE UNVEILS INNER WORKINGS OF INSURANCE BROKER

 Fall 2003 A RISK MANAGEMENT APPROACH CFOs (AND THEIR ACCOUNTANTS) CAN LOVE

Summer 2003 PRESERVING COVERAGE FOR INNOCENT INSUREDS

Spring 2003 LEAVING TERRORISM COVERAGE ON THE TABLE

Winter 2003 COMPUTER SECURITY IS NOT A BLACK HOLE

Fall 2002 "LET'S BE CAREFUL OUT THERE

Spring/Summer 2002 WHAT WARREN BUFFET KNOWS ABOUT INSURANCE COMPANY FINANCIALS

Spring 2002 OPPORTUNITIES ABOUND IN DEVELOPMENT OF CONTAMINATED PROPERTIES

Winter 2001 "YOU CAN'T PAY US THIS MONTH? WHAT DO YOU MEAN 'NEW DEVELOPMENTS?"

Fall 2001 WORLD TRADE TERRORISM -- REPERCUSSIONS FOR INSURANCE MARKET

Summer 2001 ENERGY AVAILABILITY: CURRENT REALITY OR FOND MEMORY?

Spring 2001 "HOLD THAT BALLOT UP TO THE LIGHT"