Some Surprising States Lead in Employment Litigation Lawsuits
Small and mid-sized businesses continue to get hit with employment practices lawsuits – with hot spots scattered across the country, according to the “2015 Hiscox Guide to Employee Lawsuits” report released last month by the Bermuda-based specialist insurer.
Companies based in New Mexico face the greatest risk nationwide, with a 66 percent higher chance of facing an employee charge than the national average, according to Hiscox’s analysis of data on employment charge activity from the U.S. Equal Employment Opportunity Commission and its state counterparts.
Other states and jurisdictions where employers are at a high risk of employee charges include Washington, D.C. (65 percent above the national average), Nevada (47 percent), Alabama (41 percent), California (40 percent), Mississippi (39 percent), Delaware (35 percent), Illinois (34 percent), Arkansas (22 percent) and Tennessee (20 percent).
Natalie Douglass, senior managing director, management liability practice at Arthur J. Gallagher & Co. in St. Louis, said the study results were “interesting and a little bit surprising.”
“When we think about employment risk, we tend to focus on severity of litigation to come up with hot spots like California or Florida. It’s a little surprising to see states like New Mexico or Alabama when we focus on charge frequency.” — Natalie Douglass, senior managing director, management liability practice, Arthur J. Gallagher & Co.
“When we think about employment risk, we tend to focus on severity of litigation to come up with hot spots like California or Florida,” Douglass said. “It’s a little surprising to see states like New Mexico or Alabama when we focus on charge frequency.”
The reason was that Hiscox adjusted the EEOC data for employer population, she said. For example, states like New Mexico and Alabama have between 1 percent and 3 percent of the total charges in 2014, but adjusting for the states’ employer population, “the data is shown in a new light.”
“From an insurance perspective, larger employers aren’t going to be as affected by increased charge frequency, as their retentions are likely large enough to address those claims,” Douglass said.
“The bigger impact will be with small employers, increasing their need for insurance, and also loss prevention measures in that segment.”
Laws Difficult to Navigate
Bertrand Spunberg, practice leader, executive risks at Hiscox USA, said that “some states … can be very difficult to navigate because their fairness laws are often broader than the federal law, so employers must commit themselves to comply with these state laws to a higher standard.
“Every business should expect a very real exposure from these lawsuits.” — Bertrand Spunberg, practice leader, executive risks, Hiscox USA
“But that’s a tall order for smaller companies that don’t have the resources and expertise to keep track and comply with changes in state laws; insurance can help protect them so they won’t be caught off guard,” Spunberg said.
Indeed, one in five small and mid-sized businesses will face employment charges with an average cost to defend of $125,000, which includes expenses such as attorney’s fees and settlement costs, according to Hiscox claims data for firms with under 500 employees.
For those that did have insurance coverage, the average deductible was $35,000, compared to the $90,000 balance paid out by their insurance company.
The median judgment for cases that go to trial was approximately $200,000 for employment lawsuits adjudicated by the courts, while one in four cases resulted in a judgment of $500,000 or more.
“Every business should expect a very real exposure from these lawsuits,” Spunberg said.
Robert Hale, a partner at Goodwin Proctor LP in Boston, said that there was no one explanation for why certain states have a spike in employment litigation, compared to the rest of the country “as it is clear that there are significant differences in both the legal landscape and the cultural and employment settings among these different states.”
“Bottom line, the reality is that we’re living in a time of transition in employment law, and if you are not paying attention, you’re going to get into trouble.” — Karl Lindegren, partner, Fisher & Phillips LLP
“If it were simply a matter of the degree to which there’s protective legislation for employees, then some of the Northeastern states would be in the mix,” Hale said.
Class-Action Litigation Risks
Of particular concern are cases involving independent contractors and classification of employees for overtime pay eligibility, he said.
Unlike most other areas of employment law risk, these create a risk of class-action litigation. Because of the number of employees affected, the costs associated with making a determination in those areas is potentially much greater than the cost for an employer that makes an individual employee termination decision.
Hale said there has been a “sea change” in the past 15 to 20 years regarding the purchase of employment practices liability insurance to cover the risks of employment litigation. It was a rare product for many years, he said, but now it’s a common part of any business insurance portfolio.
“The result is that the insurance companies have created a significant amount of market pressure on the employment litigation defense bar and, frankly, insurers have been able to use that market power to decrease rates charged by defense practitioners,” he said.
“That has affected the market for those legal services even for matters that are not covered by insurance.”
Tom Hams, managing director with Aon’s financial services group in Chicago, said his firm continues to see a real focus on disability claims, “which is the hardest charging area right now and the focus of the EEOC.”
“Employers have to be very sensitive around the issue of accommodations and when taking employment actions involving employees who are perceived to have disabilities.” — Tom Hams, managing director, Aon financial services group
“Employers have to be very sensitive around the issue of accommodations and when taking employment actions involving employees who are perceived to have disabilities,” Hams said.
There is also a “huge trend” of lawsuits alleging violations of the Fair Credit Reporting Act, and “if an attorney can find one job application with any kind of flaw, they can turn it into a mass or class-action suit,” he said.
Moreover, “ban the box” — eliminating questions about criminal background in job applications — has become a hot topic because of changes in federal, state and local laws challenging the practice.
“As a result of the ‘ban the box’ and FCRA activity, employers should make sure they have their job applications reviewed by their counsel to make sure they are doing the right thing,” Hams said.
Training is a Necessity
Brian Weiss, vice president, regional leader, FINEX claims at Willis in New York City, said there has been an overall slight downward moment in employment practice claims – it’s “certainly not as high as right around the financial crash, but still elevated.”
“It’s going to take some time before we get to pre-crash numbers, but slowly and steadily we may get there,” Weiss said. “I’ll be curious after this study if we’ll see carriers seek sublimits and sub-retentions in those jurisdictions.”
For Wiess’ clients that have high concentrations in high-risk areas, he recommended they make a special point to train both managers and employees. Many law firms, he said, offer conduct training at employer sites.
He noted that some state laws may lead to higher claims or particular claim trends. For example, in Alabama, there has been from a 1 percent to 5 percent spike of total EEOC color discrimination claims over the past 5 years, as well as a spike in religion discrimination claims, from 2 percent to 5 percent of total national claims over the same time period.
“So if you have a high number of employers in one of these states, you need to train to the laws and standards of that state,” Weiss said. “At the very least, managers need to have a thorough understanding of the applicable laws in these jurisdictions.”
“Bottom line,” said Karl Lindegren, a partner of Fisher & Phillips LLP in California, “the reality is that we’re living in a time of transition in employment law, and if you are not paying attention, you’re going to get into trouble.
“If you continue to do what you thought you were always able to do regarding the Fair Credit Reporting Act and background checks, then you will get into trouble. What I tell my clients is that if they do the right thing and treat people the right way, it will go a long way to winning a lawsuit, and even avoiding a lawsuit.”
Contractors Grapple With Employee Suicide Risk
Though it may come as a surprise to some, the construction industry is among the top nine occupations with the highest risk for suicide, according to the Bureau of Labor Statistics.
“The construction industry tends employ a lot of what we call “double jeopardy men” — men with a number of suicide risk factors who are also the least likely to see help on their own,” said Sally Spencer-Thomas, co-founder and chief executive of the Carson J Spencer Foundation in Denver.
The foundation, in partnership with Denver construction firm RK Mechanical Inc. and the National Action Alliance for Suicide Prevention, in September jointly released a suicide prevention guide, “A Construction Industry Blueprint: Suicide Prevention in the Workplace.”
“Employers are learning to make suicide prevention a priority within their health and safety initiatives,” Spencer-Thomas said. “In shifting from reaction to prevention, company leaders become far more proactive in providing skill-based training, linking distressed employees to helpful resources, are creating a culture of care.”
“It’s the quiet ones you have to worry about slipping through the cracks.” — Cal Beyer, director of risk management, Lakeside Industries Inc.
According to the guide, construction workers are also at higher risk for suicide because they have access to and familiarity with lethal means like firearms, pills and high places, and are often less afraid and more capable of self-inflicted harm by these means.
The construction workplace also tends to have a culture of recklessness, bravery and/or stoicism, in which people are rewarded for being tough and thus, are often less likely to reach out and ask for help.
Construction workers also have increased exposure to physical strain or psychological trauma; a culture of substance abuse; exposure to isolation if they work on temporary out-of-town projects; and increased exposure to humiliation if they fail on their job, among other risks.
The guide recommends that construction firms should instill a culture that promotes the importance of safety; emphasizes teamwork; increases employee engagement and connectedness; values mental health; provides access to insurance and mental health care, such as those through employee assistance programs; provides informational support systems, such as buddy systems; and provides leadership and supervisor training.
“It’s the quiet ones you have to worry about slipping through the cracks,” said Cal Beyer, director of risk management at Lakeside Industries Inc. in Issaquah, Wash. “At our firm, we’ve adopted a safety 24/7 culture, teaching safety at home, work and play. Safety is a core value for us, and mental health and suicide prevention 24/7 is just as important.”
The topic of suicide used to be taboo in the industry, Beyer said.
“We used to talk about mental health awareness, but construction managers and field supervisors said that was too amorphous of a term,” he said. “They feel they can’t do anything about mental health awareness, but if we call it suicide prevention, then they ask what can they do to help.”
With the aid of the Denver foundation in conjunction with the National Action Alliance for Suicide Prevention, Beyer has been leading a grassroots campaign among “enlightened” contractors to create awareness, advocacy and action for mental health and suicide prevention.
He has started a LinkedIn group along with colleagues in the Construction Financial Management Association, and they are now starting to schedule construction industry outreach presentations for 2016 via seminars, workshops and webinars.
For example, the Associated General Contractors of Washington will sponsor a presentation in February, and the AGC of Oregon has scheduled a presentation for June.
Understanding Red Flags
A number of construction executives explained how they are incorporating suicide prevention measures within their health and safety programs.
“First, acknowledge and embrace the fact that your work culture has the power to make a difference in the lives of your employees,” said Heather Gallien, RK’s director of marketing and communications.
“Accept that it’s an honor to take on the responsibility of looking out for the mental health and well-being of your workers. Decide to be a leader in affecting change in an industry that’s at high risk for suicide.”
Second, contractors should adopt guidelines, such as those from the foundation, and then take time with management to gain an understanding of work culture “red flags” and create an action plan to mitigate them, Gallien said.
“Furthermore, ask your management teams to start talking about mental health issues openly and transparently,” she said. “Ask them to make it okay for employees to do the same.”
There are tactical conversations and tools a company can adopt, but the most important factor is that those at the top talk about their own issues — when appropriate, added RK’s chief operations officer Jon Kinning. Managers should also model for their employees, especially men, that work is a safe environment to bring up personal concerns and to ask for help.
David James, chief financial officer at FNF Construction Inc. in Tempe, Az., said that, while the firm has an employee assistance program, the key is to make employees aware of services available and eliminate the stigma so often associated with mental health issues.
The EAP is a good starting point, but additional direction from management is critical to provide employee education and hands on support to at-risk employees.
“We used to talk about mental health awareness, but construction managers and field supervisors said that was too amorphous of a term. … but if we call it suicide prevention, then they ask what can they do to help.” — Cal Beyer, director of risk management, Lakeside Industries Inc.
“One such group ‘at risk’ are those employees suffering through recovery from workers’ compensation injuries,” James said.
“FNF has had a long-standing philosophy to manage workers’ compensation cases with hands-on management, including regular communication, activities to support recovery and return-to-work programs. The caring attitude for such cases, and efforts to keep employees within the FNF family helps reduce the vulnerability of our workforce.”
Patrick Monea, vice president and chief financial officer at Granger Construction Co. in Lansing, Mich. said that suicide prevention is not an issue that his firm is currently focused on, but given the industry statistics, management now feels it is an issue “we have to strongly address.”
“Given the inherent stress of our industry and the associated culture, we feel the need to move toward education and prevention,” Monea said.
Granger’s human resources manager Matt Bozung added: “We must talk about mental health and suicide prevention openly and not ignore them as real issues. Further, recognition that specified training beyond basics, like stress management, is needed.”
Checking Out Solutions
Tamara Ulufanua-Ciraulo likes to think of the workers at her grocery store chain as “industrial athletes” — and all of the company’s safety, loss prevention, workers’ compensation and return-to-work programs are geared toward having them perform at their competitive best.
“The grocery industry is a physically demanding job, and you have to be fit, like an athlete — they are lifting, running, pushing, stretching, straining every day,” said Ulufanua-Ciraulo, director of insurance at Stater Bros. Supermarkets in San Bernardino, Calif.
The grocer supports its industrial athletes not only with measures to expedite their recovery after injuries, but also with a myriad of incentive programs to avoid injuries altogether, Ulufanua-Ciraulo said — “We’re pushing safety in all avenues of the store.”
Indeed, the team has developed a wide swath of innovative programs, from safety awareness training using dedicated onsite loss prevention consultants, to incentivizing employees for loss prevention, to expanding modified duty to accelerate workers’ return-to-work, to clamping down on workers’ comp fraud, prescription abuse and drug selling.
The results have been impressive, with a reduction in injuries and a drop in workers’ comp costs.
Unlike most grocers, Stater Bros. has four dedicated loss control professionals from The Hartford, its workers’ comp insurance provider. The consultants work onsite to aid the grocer’s team in controlling exposure, reducing losses, improving operations and resolving compliance issues. The Hartford group reports directly to Steve Toscano, Stater Bros.’ supervisor of support services.
“We all look at the claims we have, which gives us the ability to identify and systematically eliminate risks that come on our plate as soon as they are trending,” Toscano said. “That approach is what gives us the edge.”
For example, after analyzing knife cuts within the meat department, The Hartford group suggested that meat cutters wear wire mesh gloves, resulting in an immediate reduction in lacerations.
“We are the only grocer in California to have all of our meat cutters state-certified,” Ulufanua-Ciraulo said.
“We care about our brothers and sisters. We care about our team. Our great leader Jack H. Brown always tells us, ‘Do the right thing for the right reasons.’ And we do.” — Tamara Ulufanua-Ciraulo, director of insurance, Stater Bros. Markets
The grocer is particularly focused on teaching workers how to be more aware of safety, said Mark Ramer, safety supervisor for Stater Bros.’ distribution center. For example, the company developed a concise directive on how to best handle hazardous materials: “Double bag it. Label it. Tag it.”
Playing on the “industrial athlete” theme, Stater Bros. offers the ICE PACK Program. ICE PACK is a lengthy but fitting acronym for “Industrial athlete Care and Evaluation working towards Prevention, Aid, Consultation and Knowledge.” The grocer offers free first aid, advice, taping, wrapping, and icing for aches, pains and injuries to distribution and transportation employees four days a week, in excess of two hours per day, provided by physical therapists. It’s “like an athletic training room with preventive care,” Ulufanua-Ciraulo said.
Because of this program, along with other safety initiatives, injuries at the distribution center fell from 118 in 2012, to 68 in 2014. The ICE PACK program was added to the transportation department this April, and since that time, there have been zero recordable driver injuries.
Incentive programs for safe practices are a big deal at Stater Bros. Its “Safety Recognition Program” offers an increasing number of incentives for every year a store has had zero recordable industrial injuries, with rewards such as catered employee appreciation parties, Stater Bros. gift cards, in-store drawings, and Stater Bros. apparel gift certificates. In 2015, 25 stores exceeded the two-year mark of zero recordable industrial injuries, and the number of stores that logged one year without any reportable workers’ compensation claims rose from 33 in 2014, to 53 in 2015.
Stater Bros.’ employees share their appreciation for the store’s safety leadership during a party celebrating two accident-free years at Store #139 in Murrieta, Calif.
Stater Bros.’ “Jump Start Program” targets stores that have difficulty controlling workers’ comp injuries. The company recognizes store employees with incremental rewards on a fast-paced scale to keep employees engaged and thinking about safety, and as a result, the number of injuries have declined.
There is also an incentive program for safe practices for distribution center workers. Employees who work without a reportable injury during each quarter are eligible for a drawing of Stater Bros. gift cards, and 10 percent of all eligible employees receive a gift card. In addition, every employee who completes one year without a workers’ comp injury receives a gift card.
The grocer has also expanded its comprehensive modified work program for the transportation and distribution centers, from five days to seven days, to better accommodate injured employees’ current work week schedules.
Employees are temporarily accommodated at retail locations based on their restrictions, and receive various types of scheduled training for the modified duty period, including training videos with testing and discussions that focus on body parts susceptable to injuries. In addition, third-party occupational therapists train and monitor the recovery progress of workers.
The expanded program complies with Stater Bros.’ collective bargaining agreement with the Teamsters Union, as workers have been able to maintain their regular rate of pay without moving to long-term status, Ulufanua-Ciraulo said.
“I’m sure our workers recognize how much the company is concerned about them personally and that we’re trying to ensure a smooth transition in their return-to-work, by allowing them to have a modified schedule for a period of time,” she said.
The grocer is also particularly aggressive in its prescription monitoring, going above and beyond checking the state’s database system to make sure physicians are not over-prescribing medications to its workers. The company also conducts drug tests to determine whether workers are actually taking their drugs and not selling them, Ulufanua-Ciraulo said.
For example, if the grocer spends $4,000 a month in prescriptions for an individual worker who then tests “zero” because they are not taking their medications, Stater Bros. asks the treating physician to review the scripts.
The grocer has been able to overturn a “complex regional pain syndrome” claim because the doctor stated the employee could not do without the medications based on the diagnosis — even though the worker was actually not taking them.
Stater Bros. has implemented reviews for complex pharmacy claims to identify employees who may need an prescription drug intervention. It also uses “narcotics contracts” with employees to set expections for use of prescription medications.
Under the program, the grocer saw a reduction in prescription medication for “high utilizers” over a four-month period, resulting in savings of $100,000.
The company also closely monitors for workers’ comp fraud. The grocer learned about several Facebook and YouTube posts showing Shawna Palmer, a Stater Bros. employee who was off duty on a workers’ comp claim for an fractured toe, subsequently competing in local beauty pageants in high heels without any apparent discomfort.
The grocer worked with its third-party administrator, Sedgwick Claims Management Services Inc., and the California Department of Insurance to collect more evidence of Palmer’s fraud, leading to her arrest last year.
In September, Palmer pleaded guilty to one misdemeanor count of workers’ comp fraud and was sentenced to 36 months’ probation, 50 hours of community service and ordered to pay a $1,000 fine and more than $5,000 restitution. The unusual story was picked up by news outlets nationally.
Because of its multi-faceted efforts, Stater Bros. has experienced a decline in workers’ comp claims frequency, Ulufanua-Ciraulo said. Workers’ comp claims decreased 12.5 percent from 2013 to 2014, on top of falling 7 percent from 2012 to 2013.
The grocer also has an extensive wellness program that includes an annual health and education fair to promote healthy and safe lifestyles, with onsite biometric screenings and ergonomic assessments of work stations. Stater Bros. was recognized as a 2015 Platinum Level recipient of the American Heart Association’s Fit-Friendly Worksite Award, for its commitment to providing physical activity and wellness opportunities to employees.
Toscano said that the grocer is successful because everyone works very closely to collaborate on risk management, safety and workers’ comp issues.
“I also credit the success of our programs to the leadership of our company and those individuals who have set such high standards in my current role,” he said.
“These individuals have encouraged our team to continue to improve programs to meet the needs of our employees.”
Ulufanua-Ciraulo said her team’s approach fits with the company’s culture, summed up nicely in a Stater Bros. TV commercial jingle used years ago:
“Up in the morning, stay late at night. … Hard work and value, that is the key.”
“That is who we are,” she said. “We care about our brothers and sisters. We care about our team. Our great leader Jack H. Brown always tells us, ‘Do the right thing for the right reasons.’ And we do.”
Read more about all of the 2015 Teddy Award winners:
Revamped Program Takes Flight: The American Airlines and U.S. Airways merger meant integrating workers’ compensation programs for a massive workforce. The results are stellar.
Checking Out Solutions: From celebrating safety success to aggressively rooting out fraud and abuse, Stater Bros. Markets is making workers’ comp risk management gains on multiple fronts.
Revitalizing the Program: In three years, the Columbus Consolidated Government was able to substantially reduce workers’ compensation claims costs, revamp return-to-work and enhance safety training.
Spreading Success: Barnabas Health wins a Teddy Award for pushing one hospital’s success in workers’ comp systemwide.