Ever wonder about your organization’s odds of facing an employment-law related charge? Just how common are such suits? Well the numbers are in. See Insurance Journal: What Are Chances a U.S Business Will Face an Employee Lawsuit? US-based small and medium sized businesses (under 500 employees) have an an average 11.7% chance of facing an employment lawsuit claim. And employers with locations in states that have their own employment-related laws that go beyond the federal laws face an even higher risk.
The numbers are from a recent study, which can be accessed in full: The 2015 Hiscox Guide to Employee Lawsuits (PDF).
In addition to calculating the odds of a suit, Hiscox also tabulated costs. About 1 in 5 suits result in a defense and settlement payment at an average cost of $125,000 (see chart from the Hiscox report, below). The report notes that, “The average self-insured retention (deductible) for these charges was $35,000. Without employment practices liability insurance, these companies would have been out of pocket by an extra $90,000.”
The report also notes that the dollar amount is only one aspect of costs – there is also the high cost of distraction, which might include time lost from work by the plaintiff and company representatives for meetings with attorneys, depositions and other matters related to the lawsuit. Plus, the news of a lawsuit could be exposed to the public, resulting in a potentially negative impact on the organizational reputation and loss of goodwill.
Top states with a higher-than average risk
In some states, employers face a significantly higher risk of an employee lawsuit than others. This is primarily because some states “have laws that go beyond U.S. federal guidelines, creating additional obligations and risks for employers.”
- New Mexico +66%
- Washington, DC +65%
- Nevada +47%
- Alabama +41%
- California +40
- Mississippi +39%
- Delaware +35%
- Illinois +34%
- Arkansas +22%
- Tennessee +20%
What can an employer do to minimize the risk? The Hiscox report offers several suggestions. Insurance Journal offers this brief summary:
“Prevention is the best defense against lawsuits,” said Spunberg. “Simple preventative and mitigation measures such as having written hiring procedures, an up-to-date employee handbook and proper training for employees on workplace discrimination and harassment are essential to minimizing risk and protecting your business.”
One important way to minimize your risk is through compliance training for managers and supervisors. Employer clients of ESI EAP have free access to our comprehensive online ESI Management Academy. If you aren’t using this service, you should be!
The following are the top 10 categories of charges filed with the EEOC:
1. Retaliation under all statutes: 37,955 (42.8 percent of all charges filed)
2. Race (including racial harassment): 31,073 (35 percent)
3. Sex (including pregnancy and sexual harassment): 26,027 (29.3 percent)
4. Disability: 25,369 (28.6 percent)
5. Age: 20,588 (23.2 percent)
6. National Origin: 9,579 (10.8 percent)
7. Religion: 3,549 (4.0 percent)
8. Color: 2,756 (3.1 percent)
9. Equal Pay Act: 938 (1.1 percent) but note that sex-based wage discrimination can also be charged under Title VII’s sex discrimination provision
10. Genetic Information Non-Discrimination Act: 333 (0.4 percent)