Employment Law Outlook
Employers in the United States faced a record number of class-action lawsuits in 2015, with more than 1,300 rulings across the nation.
The financial risks of such cases are enormous, with the monetary value of employment-related class-action settlements reaching an all-time high in 2015. The top 10 settlements alone totaled nearly $2.5 billion, according to the “12th Annual 2015 Workplace Class-Action Litigation Report,” by Chicago-based law firm Seyfarth Shaw.
The last several years have been transformative in class-action litigation involving workplace issues, said Gerald Maatman Jr., partner and co-chair of the complex discrimination litigation practice group at Seyfarth Shaw.
There’s been a sharp turnaround from the “sigh of relief” that resulted from the Supreme Court’s landmark 2011 “Dukes v. Walmart” case that changed the standards by which lawyers could certify class-action lawsuits.
“For the first couple of years, as “Dukes” began to take hold … a lot of people thought class-action law had become pro-defense and anti-plaintiff,” said Maatman.
“The smartest thing an … executive can do is take a look at the EEOC’s strategic enforcement plan … .” —J. Randall Coffey, partner, Fisher & Phillips LLP
“It came home to roost in 2015 that is no longer true and the manner in which cases are brought has changed such that the plaintiff’s bar is now enjoying success in bringing, prosecuting and settling cases.”
While the Supreme Court has fashioned a “complex tapestry of both pro-worker and pro-business rulings,” according to Seyfarth Shaw, federal agencies, such as the Equal Employment Opportunity Commission, Department of Labor and National Labor Relations Board have been pushing the envelope. Several themes have emerged that may help executives mitigate their organization’s risk:
Continued Scrutiny of Hiring Policies and Practices: Recent litigation has focused on criminal history, but the EEOC has been closely scrutinizing other pre-employment hiring practices, such as testing and assessments.
Expansion of Pregnancy Discrimination Claims: EEOC guidance issued in the aftermath of the “Young v. UPS” ruling makes it clear that failing to accommodate pregnant employees may expose employers to ADA claims, based on temporary disability caused by pregnancy.
Evolution of Religious Discrimination Claims: The scope of reasonable accommodation for religious practices has the potential to impact grooming and appearance policies, as well as requested time-off policies.
Broad Interpretation of LGBT Rights in the Workplace: The EEOC has announced its intention to protect workers from discrimination on the basis of sexual orientation and/or gender identity by defining such discrimination as an allegation of sex discrimination under Title VII.
The EEOC has been “actively looking for cases to push their arguments about the scope of Title VII,” said J. Randall Coffey, a partner at Fisher & Phillips LLP.
And they’ve made a start. Two cases filed in Pennsylvania and Maryland on March 1 are the first to allege sex discrimination under Title VII.
Increased Scrutiny of Independent Contractor Classification: Pointing to the 2015 “Alexander v. FedEx Ground Package System” independent contractor misclassification case that resulted in a $228 million settlement, Maatman predicts a significant increase in “copycat cases” in 2016.
“If you are labeling people as independent contractors and not paying them benefits or overtime, but otherwise treating them as employees, you may owe them back pay or benefits,” he said.
The average cost of defending against an employee lawsuit tops $150,000, said Maatman. Employers can reduce the risk of becoming a target by keeping tabs on what kinds of claims are being levied, said Coffey. Focus on the “hot spots” to stay ahead of the curve, reducing the risk of costly litigation.
“The smartest thing an … executive can do is take a look at the EEOC’s strategic enforcement plan because it’s a roadmap to which specific areas the agency is going to focus its enforcement activities on,” said Coffey.
“If you have concerns about whether you are in compliance with the law, you can scrutinize the list to make sure your policies and practices are up to snuff.” &
Workplace Retaliation Revisited
Since the Equal Employment Opportunity Commission updated enforcement guidance addressing retaliation in 1998, the percentage of retaliation charges has roughly doubled. Retaliation claims were involved in nearly 43 percent of all private sector charges filed in 2014.
In response, the federal agency recently updated its guidance on workplace retaliation, but the effort is not universally supported. Some say the new guidelines simply reflect a codification of prior court decisions while others believe the EEOC is broadening the definition of protected activity.
“By providing this guidance on a much broader basis, which isn’t actually covered by the law, [the EEOC] is setting itself up to waste its own resources as well as those of employers,” said Ben Huggett, shareholder at Littler Mendelson law firm in Philadelphia.
Among his chief concerns is that the update ignores the “but for” causation standard established by the U.S. Supreme Court in June 2013’s “University of Texas Southwestern Medical Center v. Nassar” case.
Consider an employee who complains about his supervisor making a racial comment. His supervisor becomes angry and later terminates him for clearly violating an important safely rule.
Based on the “but for” causation, this employee must prove that his supervisor would not have fired him if he didn’t file that complaint (i.e., but for the employee complaining about racial discrimination, he would not have been terminated.)
However, under the EEOC’s new guidance, it will be employers that must defend the dismissal even though it was directly related to a safety violation.
“Suddenly, you’ve got to do more interviews, perhaps submit more information to EEOC investigators because they’re following this broad guidance to investigate everything,” said Huggett.
Strategies for Mitigation
According to Littler’s Workplace Policy Institute, there needs to be a “safe harbor” for employers that support an anti-retaliation culture: “The [EEOC] should likewise adopt best practices for its investigators, which include not penalizing employers who have a ‘speak up’ organizational culture and a procedure in place to ensure that any employment-status changes are undertaken for legitimate, non-retaliatory, non-discriminatory business reasons.”
“Suddenly, you’ve got to do more interviews, perhaps submit more information to EEOC investigators … .” — Ben Huggett, shareholder, Littler Mendelson
To prevent employee complaints from escalating into retaliation claims, companies can form an employee committee to resolve worker complaints on a confidential and neutral basis, said Mellissa Schafer, partner at Hinshaw & Culbertson in Los Angeles.
She suggesed that employers avoid making changes to an employee’s schedule or employment status immediately after a claim is filed. She also noted that sometimes, strict company policies may prompt claims.
Schafer pointed to a current retaliation case involving an employee at U.S. Steel Corp. In Feb. 2014, the employee, who was wearing a hard hat, bumped his head on a low hanging beam.
Four days later, his shoulder was stiff and his union representative reported the incident.
Since the company’s policy required employees to immediately report injuries, the employee was suspended for five days without pay for failing to comply with the policy and another five days without pay for failing to report his injury.
He filed an OSHA complaint, alleging retaliation for reporting a workplace injury.
“The EEOC is all over this issue because there are employers who are doing this,” Schafer said.
Rick Ross, partner at Fredrikson & Byron law firm in Minneapolis, said all companies, including U.S. Steel, need to apply rules consistently. However, he said, the new retaliation guidelines aren’t “a big deal,” and that they simply categorize existing case law. &
Searching for Stability in Cyber Space
As headline-grabbing breaches crack systems and tarnish reputations of major retail, healthcare and financial companies, the need for cyber insurance has become increasingly apparent.
Given the constantly changing nature of cyber risk and the market landscape, creating a stable, sustainable cyber insurance business demands a prudent approach, with an eye on the long road.
“We’ve seen carriers jump in and out, wanting to take advantage of a new opportunity, but perhaps underestimating the risk,” said Danielle Librizzi, Senior Vice President, Head of Professional Liability, Berkshire Hathaway Specialty Insurance (BHSI).
“As cyber exposure became more tangible to carriers, in-force coverage was tested and many made radical changes to pricing and availability of coverage. BHSI is committed to entering the cyber market in a thoughtful and sustainable way. We want to be there for our customers as the risks continue to evolve.”
Diverse, Evolving Risks
Cyber exposure – and coverage — have been evolving, posing different risks and underwriting challenges for different industries. The technology, financial services and healthcare industries illustrate the diverse issues that must be considered in order to provide effective, financially sustainable cyber solutions.
The technology sector was the first cyber battleground, and technology E&O forms included some cyber coverage by virtue of the nature of the risk. “There’s inherent cyber coverage for third party liabilities in E&O,” Librizzi said.
While coverage is widely available, tech companies pose challenges to underwriters because of their unique position in the cyber “supply chain.” These companies provide software, hardware and cloud services; virtually every organization in the world is dependent on a tech provider of some stripe. If an insurer is covering both the provider and its clients, the aggregate risk should be monitored closely.
Think of a DOS attack on a cloud provider that prevents all of its clients – which could include anyone from a bank to a retailer or transportation company — from accessing stored customer or corporate data or running cloud-based service apps. That single attack could bring business in multiple industries to a grinding halt, potentially causing business interruption and E&O losses.
The tech industry hasn’t seen a large scale event like this yet, but it isn’t waiting around for one to strike before addressing the underlying risk. Controlling and accounting for the aggregate exposure will mold the direction that coverage development takes.
“Our combined form, introduced in October, 2015, is a comprehensive solution that includes first and third party cyber coverage as well as traditional E&O coverage,” Librizzi said.
However, that approach may not be appropriate for other industries. Financial Institutions, for example, may seek a dedicated cyber only policy which does not include traditional E&O coverage.
While banks typically have strong protocols for network security and privacy, they also have a much greater exposure in massive stores of customer data. Financial Institutions are looking to address liability in the form of class action lawsuits or heavy regulatory investigations and fines emanating from cyber, and may not want to compromise their traditional E&O limits.
“Additionally, given the increased reliance on outsourced providers for technology solutions, we have started to see the introduction of sub-limited coverage for dependent business interruption and payment card industry (PCI) fines and assessments as enhancements to coverage,” Librizzi said. “We might see those sub-limits go to full coverage as competition gets heavier.”
Other industries, which may not be as advanced as financial institutions in addressing cyber threats, have suffered more from a lack of robust cyber coverage that can keep up with increasing exposure.
Healthcare, for example, has seen a surge of cyber attacks since hospitals and other health systems went electronic. To a hacker, healthcare providers represent a warehouse of valuable personal identifiable and protected health information.
Email addresses from healthcare systems typically are white-listed and less likely to get caught in a spam filter, giving hackers incentive to obtain access and gain control of a healthcare provider’s network in order to launch phishing attacks.
After some high-profile breaches in 2015, Human Health Services and the Office for Civil Rights came under scrutiny for not doing enough enforcement of HIPPA. Fines imposed by regulators increased dramatically over the past decade, and seem poised to only get higher.
“They’ll be ramping up enforcement of regulations in 2016, and that’s only a peek of what’s on the horizon,” Librizzi said.
The burgeoning of healthcare’s cyber exposure has challenged the insurance industry to better understand the nature of the risk and how best to secure hospital systems. Coverage for this sector remains the most difficult to write effectively.
BHSI understands the need for different customers to have different solutions. Some customers desire a dedicated cyber policy that does not include traditional E&O coverage. BHSI’s Network Security and Privacy stand-alone policy is designed to address the needs to those customers.
“The cyber exposures and coverages needs of healthcare, financial services and technology are on different timelines and will look very different in the future,” Librizzi said.
Even in more mature markets, the conflation of commercial and personal cyber risk will challenge insurers going forward. Most existing cyber products don’t cover property damage and personal injury; as the risks emerge and the Internet of Things becomes more pervasive, the coverage will have to evolve as well.
“We must always be thinking about what is on the horizon from a risk and coverage perspective – our technology driven society demands it,” Librizzi said.
Anticipating challenges and adapting to each industry’s needs has been a cornerstone of BHSI’s approach to cyber. It’s careful and measured approach has also helped the specialty insurer build an arsenal of experts and ancillary services to help clients better grasp and mitigate their exposure.
“We know the importance of really understanding the risk and communicating it clearly to our customers,” Librizzi said. “We don’t bury our coverage in a pile of definitions, and we provide the expertise to help insureds stay ahead of the next big breach.”
To learn more about BHSI’s professional liability products, visit http://www.bhspecialty.com/.
Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, medical stop loss and homeowners insurance. The actual and final terms of coverage for all product lines may vary. It underwrites on the paper of Berkshire Hathaway’s National Indemnity group of insurance companies, which hold financial strength ratings of A++ from AM Best and AA+ from Standard & Poor’s. Based in Boston, Berkshire Hathaway Specialty Insurance has offices in Atlanta, Boston, Chicago, Fort Lauderdale, Houston, Los Angeles, New York, San Francisco, San Ramon, Stevens Point, Auckland, Brisbane, Hong Kong, Melbourne, Singapore, Sydney and Toronto. For more information, contact [email protected].
The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.