EPLI’s forgotten stepchild: employee behavior – Liability

Mindy W. Toran

A dramatic increase in employment-related lawsuits over the past decade has left employers searching for ways to reduce their liability. An aggressive approach to compliance may be just the answer they’re looking for.

When it comes to workers’ compensation and disability management programs, prevention is the key. Employers that focus attention on educating employees about their benefits and well being, encourage employees to remain productive and to return to work as quickly as possible, will see success. Unfortunately, when it comes to employment practices issues–where emphasis on employee behavior should be especially significant–the same cannot be said.

Employers have seen a dramatic increase in employment-related claims in the last 10 years, largely because of the state of the economy, an aging workforce, an uncertain job market and general unease among employees following Sept. 11. In addition, jury awards in employment cases continue to rise, increasing 44 percent between 1999 and 2000–up from $151,000 to $218,000–according to the “Employment Practice Liability: Jury Award Trends and Statistics–2001 Edition,” published by Jury Verdict Research of Horsham, Pa.

Frequent changes in both state and federal employment laws, in addition to a hardening insurance market–with employment practices liability insurance (EPLI) premiums and deductibles skyrocketing–make matters even more complicated for employers. Employers are being forced to pay more for less coverage at a time when their risk is greater than ever.

“We’re seeing two conflicting tensions when it comes to employment practices issues,” says Chris Thrutchley, an associate with the law firm Newton O’Connor Turner & Ketchum, based in Tulsa, Okla. “Economic pressure is causing employers to tighten their belts on spending, while they can’t really afford not to pay attention to EPL issues. In times of economic recession, employment practices issues become even more prevalent, as increasing layoffs and corporate downsizing lead to spikes in employment-related claims.”

While EPL insurance can protect employers from such claims, to a certain extent, there is an increasing need to address the issue directly rather than take the traditional reactive view–“if we get sued, then we’ll deal with it.”

“There are numerous things employers can do to reduce the chance of employee lawsuits,” says attorney Anita Weinstein, a member of Cozen O’Connor’s Labor & Employment Department in Philadelphia. “Having good employment practices policies and procedures in place, particularly regarding sexual harassment, equal employment opportunity (EEO) issues and antidiscrimination policies, is a good first step. In addition, education is key to eliminating a number of lawsuits.

“Many managers and employees simply don’t know or understand the laws, which underscores the need for appropriate training and monitoring. Employers need to implement appropriate procedures for investigating claims, create adequate recordkeeping measures and make sure decision-makers are aware of any changes in state or federal employment laws. In addition to having appropriate insurance coverage, the key is to make sure there’s an awareness of employment practices policies in the workplace, there is a method in place to monitor whether policies and procedures are being implemented properly and ensure that any claims that do occur are handled in a consistent, even-handed manner,” she stresses.

“Employers often don’t understand how much the culture of their organization plays into employment practices,” says Donald Phin, an attorney and president of Employer Advisors Network Inc. in Carson City, Nev. “Companies that build powerful employment relationships and attract and retain quality employees have a higher degree of loyalty and productivity, and far less absenteeism, turnover and employee lawsuits. Employers need to take an integrated approach to workforce risk management, rather than focusing solely on employment law compliance or optimizing employee performance,” he notes.

Employers need to keep abreast of changes employment-related laws and translate those changes into meaningful policies, disseminate that information to employees and track their comprehension of those policies. Once employers begin actively paying attention to employment practices concerns and educating their workforce about the proper procedures, they’ll be on their way to addressing the issue in an aggressive manner.

“It’s important to align employment practices with the strategic objectives of the company, based on your organizational culture, strategies and goals,” says Ronald Adler, president of Laurdan Associates, a Potomac, Md.-based human resource consulting firm. “Training of both managers and employees is a critical element of employment practices loss control. In addition, you need to understand where claims are coming from, what it takes to control losses and identify issues of concern for supervisors and employees. The key is to identify your risks, eliminate those you can control, manage those you can’t control, and transfer or finance the remaining risk.”

While you can’t always control the situation, you can control your response, says Thrutchley of Newton O’Connor Turner & Ketchum. “Employers need to work employment practices into their daily routines and create an atmosphere that lets employees know the company cares about them. The emphasis should be on making sure employment practices policies and procedures are up to date, making sure employees and supervisors are aware of these policies and actively engaging them in the compliance process,” he stresses.

“Employers need visibility into the risk across their organization,” says Ken Thrasher, president and CEO of Compli, a Portland, Ore.-based technology company that offers an Internet-based compliance system to help employers actively manage the frequency and severity of employment-related claims and negotiate lower insurance costs. The company offers an integrated set of tools that enable employers to better manage regulatory, training and legal issues related to employment practices.

Compli developed an Enterprise Compliance Management System (ECMS) that allows employers to forecast and reduce risk by monitoring compliance enterprise-wide. The system helps companies demonstrate good-faith efforts to reduce the frequency and severity of employment practices and corporate governance-related claims, engage employees in the compliance process, benchmark progress, and identify trends in risk exposure to better negotiate the cost of insurance.

“Many insurers are now requiring evidence of strong policies against sexual harassment and other forms of discrimination, thorough employee handbooks, proper procedures for investigating complaints, and training for managers and employees that instills awareness of the company’s employment practices policy before they’ll even consider underwriting the risk,” says Adler of Laurdan Associates. “Employers need to show insurers that they’re actively managing exposures and pursuing loss control efforts, or risk losing coverage,” he stresses.

“Increasing premiums, deductibles and exclusions in EPLI policies are making it even more difficult for employers to manage these exposures,” Thrasher also adds.

“For too long,” he continues, “employers have focused on paper documentation–employee handbooks, posters, etc.–to address compliance. Simply having employees sign off on a document doesn’t mean they understand it. Companies need an assessment piece to gauge their understanding of the employee handbook, sexual harassment, EEO issues, and other discrimination policies.”

A Help to Employers

Compli’s ECMS helps employers adopt compliance policies relative to state and federal regulations.

ECMS also helps employers distribute employment practices policy information, and helps employees sign off on it to show their understanding. In addition, it enhances training to determine whether employees and managers understand their roles and responsibilities regarding employment practices compliance.

“Constantly changing employment practices laws and regulations compound compliance issues,” says Thrasher, “especially for employers operating in multiple states. The ECMS provides employers with automated updates of employment-related laws, giving employers a proactive tool to reduce the frequency and severity of employment practices claims and evaluate, monitor and document compliance.”

“In today’s uncertain environment, it’s key that we document employees’ understanding of employment practices policies and procedures,” says Mike Don, CFO of Columbia Distributing, a Portland, Ore.-based beverage distributor with locations in three states. “The Compli program provides us with a method to get the word out to employees and follow up to make sure they understand all relevant employment practices policies and procedures. This is especially important in a dispersed environment, with employees in remote locations in numerous states.

“When it comes to litigation issues, how we’ll you’ve informed your employees and how you track their understanding of compliance issues is directly related to damage awards and the ability to settle claims’ he also says. “Using an automated system that provides us with compliance alerts and validates employee acknowledgements provides us with an essential tool to limit risk and avoid potential damages.”

There is no doubt that a strong compliance management system, coupled with appropriate employment practices liability insurance, can provide employers with a higher standard of protection against employment-related risk.

Mindy Toran can be reached at mrtoran@comcast.net.

COPYRIGHT 2003 Axon Group

COPYRIGHT 2003 Gale Group

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