Most employment-related claims don’t begin with something dramatic.
They can start with an ordinary workplace decision: choosing one candidate over another, passing someone over for a promotion, putting an employee on a performance plan or terminating someone’s employment.
A workplace complaint can also begin with something that seemed relatively minor—a comment, a pattern of behavior or an employee raising a concern.
But those situations can escalate into allegations of discrimination, harassment, retaliation or wrongful termination. And once a claim becomes a legal matter, the costs can add up quickly. Defense costs alone can reach six figures, while settlements and jury awards can be significantly higher.
The good news is that thoughtful employment practices can help reduce the likelihood and potential impact of these claims.
Here are five common areas where business owners and managers should pay attention.
1. Discrimination
Discrimination claims can arise from almost any part of the employment relationship, including hiring, compensation, work assignments, performance management, promotions and termination.
These claims typically allege that an employee or job candidate was treated unfavorably because of a protected characteristic under state or federal law, such as race, sex, age, disability, religion or national origin.
For businesses, the key is to make employment decisions based on legitimate, job-related criteria—and to apply those criteria consistently.
That means having clear policies, training managers and supervisors, documenting important employment decisions and periodically reviewing hiring, compensation and promotion practices.
It also means taking a fresh look at job descriptions, job postings and application materials to make sure the language you’re using isn’t unnecessarily excluding qualified candidates.
2. Failure to Hire or Promote
Hiring and promotion decisions can create risk when they rely heavily on subjective judgments or aren’t adequately documented.
An unsuccessful candidate may believe that the decision was based on discrimination rather than legitimate qualifications.
You don’t have to eliminate judgment from the hiring process. But you can make the process more consistent and easier to explain.
Consider:
- Establishing objective qualifications for each position
- Using consistent interview questions and evaluation criteria
- Documenting why a candidate was selected or passed over
- Involving more than one decision-maker when practical
The goal is to be able to explain why the decision was made and demonstrate that the reasoning was related to the requirements of the job.
3. Wrongful Termination
Few employment decisions are more difficult—or more likely to generate a dispute—than terminating an employee.
Wrongful termination claims may allege that a dismissal was unlawful, discriminatory, retaliatory or otherwise improper. This is where consistent performance management and documentation can become particularly important.
Businesses should establish clear expectations for performance and conduct and, where appropriate, follow a consistent disciplinary process. Document performance problems, warnings and disciplinary actions rather than relying on memory when it is time to make a difficult decision.
Before terminating an employee, consider whether the decision is consistent with how similar situations have been handled and whether there are potential discrimination or retaliation concerns that should be reviewed.
4. Harassment
Harassment claims typically involve allegations of unwelcome conduct or a hostile work environment. Sexual harassment is one commonly alleged form, but complaints can involve other protected characteristics as well.
A strong harassment prevention program should do more than sit in an employee handbook.
Employees should know what conduct isn’t acceptable, how to report concerns and what will happen when a complaint is made. Managers and supervisors should receive appropriate training and understand their responsibility to take complaints seriously.
And when a complaint is made, it should be addressed promptly, thoroughly and appropriately—with the process and findings documented.
Most importantly, employees who raise concerns should not have to worry that speaking up will put their jobs at risk.
That leads directly to another common source of employment claims.
5. Retaliation
Retaliation claims often accompany other employment-related complaints.
An employee may allege that they experienced adverse treatment after reporting discrimination or harassment, participating in a workplace investigation or engaging in another protected activity.
This can create a difficult situation for managers. An employee who has made a complaint may still have legitimate performance or conduct issues that need to be addressed.
The answer isn’t to ignore those issues.
Instead, managers should be particularly careful to document legitimate, nonretaliatory reasons for employment decisions and to understand how their actions could be perceived by someone reviewing the situation later.
Managers should also know what activities may be legally protected and when HR or legal guidance should be sought.
Four Ways to Reduce Employment Practices Risk
The five situations above are different, but several of the same risk-management principles apply across all of them.
1. Have clear policies.
Employees and managers should understand what is expected, what conduct isn’t acceptable and how workplace concerns should be reported.
2. Train your managers.
Many important employment decisions happen at the supervisor or manager level. Make sure the people making those decisions understand your company’s policies and recognize the potential risks associated with discrimination, harassment and retaliation.
3. Document important decisions.
Hiring, promotion, performance, disciplinary and termination decisions should have legitimate, job-related reasoning behind them—and that reasoning should be documented.
Good documentation isn’t about creating paperwork for the sake of paperwork. It’s about creating a clear record of what happened and why.
4. Take complaints seriously.
Establish a clear process for employees to report concerns. Investigate complaints appropriately, document the process and protect employees from retaliation.
Consistent policies, thorough documentation and regular training can help reduce both the likelihood and potential impact of employment practices claims.
Before You Make the Decision, Ask Yourself…
When you’re dealing with a difficult employment decision, it can be helpful to slow down for a moment and ask:
- Is this decision based on legitimate, job-related reasons?
- Would we make the same decision if we had to explain it to someone outside the company?
- Have we applied our policies consistently?
- Have we documented the reasoning behind the decision?
- Could this decision be perceived as discriminatory or retaliatory?
If you’re uncomfortable answering any of those questions, it may be worth slowing down and seeking appropriate HR or legal guidance before moving forward.
That doesn’t mean every workplace decision needs to become a legal exercise. It means that important decisions deserve thoughtful processes.
Good HR Practices Are Your First Line of Defense. Insurance Is Another.
Even well-managed businesses can face employment practices claims.
Employment practices liability insurance, or EPLI, is designed to help protect businesses against claims involving allegations such as discrimination, harassment, wrongful termination and retaliation.
Depending on the policy, EPLI can help cover defense expenses, settlements and judgments, subject to the policy’s terms, conditions and limits. Some policies also provide access to risk-management resources such as employment law hotlines, policy templates and training materials that can help businesses address potential issues before a claim occurs.
Insurance isn’t a substitute for good management, clear policies or thoughtful employment practices. It’s another layer of protection when something goes wrong.
At Deeley Insurance Group, we believe being properly insured is about more than checking a box. It’s about understanding where your business is exposed and being sure your insurance program is built to respond when you need it.
Good people practices help prevent problems. Good insurance helps you be prepared when prevention isn’t enough.
If you’d like to review your employment practices liability coverage or better understand where EPLI fits into your overall business insurance program, we’re happy to help.
Call or text our friendly, local risk management experts today at 410.213.5600.
