In today’s complex corporate environment, any company with employees – from a single worker to thousands– is at risk for an employment practices liability(EPL) claim. Originating at every level of employee rank and tenure, these claims can become a huge burden for any business. The majority of EPL cases are settled out of court, yet even meritless claims that are eventually dismissed cost thousands and can take as long as two years to resolve.
Some of the most common emerging EPL claims include: fair pay, wage theft, worker classification, gender identity and restroom access and effective compensation. Protecting your business from risks begins with understanding how to spot a potential claim, avoiding common pitfalls and creating formal policies and procedures as a first line of defense.
“A claim can be monetary or non-monetary related, and come in the form of an email, voice mail or written letter. It doesn’t have to be a lawsuit for it to be a claim. An employee could be upset they didn’t get the corner office,” said Adrian Atilano, EVP, HUB executive liability practice. “Don’t put yourself in the situation where you’re denied coverage for late reporting. Know the potential issues. Understand what you need to do. Create an affirmative defense.”
The Top 5 EPL Trends
#1: Fair Pay
The federal Equal Pay Act has tried to abolish wage disparity based on sex since 1963. Because there’s still a wage differential for “identical” work, states like California have passed legislation to eliminate a company’s ability to classify like jobs differently and therefore escape liability.
The California Fair Pay Act – the most rigid and considered the industry standard – prohibits an employer from paying workers of one gender less than those of another for “substantially similar” work, with a violation resulting in a penalty of the wage differential plus interest and liquidated damages. At the federal level, a proposal that echoes the California Fair Pay Act is on the horizon.
Employers looking to avoid liability related to fair pay must be proactive and self audit. Questions to ask to ensure you’re compliant with the Fair Pay Act include:
- Do you have up-to-date job descriptions on the books, including established criteria for assigning values such as skill, education, seniority and responsibility?
- Do you assign consistent compensation to similar jobs performed by individuals with similar skill, education, seniority and responsibility?
- Are men and women assigned projects or clients with commission/bonus potential on a consistent basis?
#2: Wage Theft
Guard Against Wage and Hour Lawsuits – or the denial of wages or employee benefits that are rightfully owed to an employee - costs U.S. workers as much as $50 billion annually and $2,634 on average annually per worker. Some common wage theft violations include: forcing employees to work “off the books,” not providing constant meal and rest breaks, failure to pay overtime and stolen tips. In any given week, two-thirds of low-wage workers experience at least one pay-related violation. The most effective way to avoid wage theft is to write clear and consistent policies and train managers and supervisors on compliance with them.
#3: Worker Classification
Uber and other technology companies have made recent headlines for EPL claims made by the misclassification of contract workers. When determining independent contractor status, the question lies in the control of the individual by the company. Even where the control isn’t exercised, workers can be deemed employees.
The best way to avoid worker’s classification (WC) contests is to be proactive. Review federal economic reality and state labor tests as well as IRS, California’s Employment Development Department (EDD) and WC tests for classifying workers. Then ask: Are we classifying workers performing similar tasks consistently? Performing misclassification audits on a monthly or quarterly basis is another way to ensure consistency. For more information on worker misclassification, read the article Employee or Independent Contractor.
#4: Gender Identity and Restroom Access
In order to avoid restricting employees from the use of restrooms that are not consistent with their gender identity, or segregating them from other workers when it comes to workplace restroom access, OSHA suggests the following:
- Employees should be permitted to use the restroom associated with their gender identity.
- Transgender employees should not be segregated from other workers by requiring them to use a gender neutral restroom.
- Don’t ask employees to provide medical or legal documentation of their gender identity in order to access gender appropriate facilities.
As a best practice, OSHA suggests businesses provide additional options, including single and multiple occupancy, gender neutral facilities with lockable stalls.
#5: Effective compensation
As the number of millennials in the workforce continues to rise – they currently make up 50% of the U.S. workforce and will rise to 75% by 2025 – a dynamic shift in pay practices from a merit-driven system to value-based system is taking shape. Employers who create a performance management program built on a results-driven culture that integrates compensation, rewards and performance will be well positioned to avoid potential EPL claims.
The following practices will help employers maintain transparency with regard to compensation and performance:
- Utilize performance optimization tools to engage employees and drive results
- Build a career track of job structures with clear descriptions that include progressive responsibilities, training and education.
- Set goals and metrics for individual employees
- Consider incentive plans instead of commission plans
Translating trends into action
Navigating EPL risks to avoid potential claims is more critical than ever in today’s volatile workplace environment. Staying on top of current EPL trends will help your business maintain compliance and protect your company’s reputation and revenue. Contact a HUB International executive liability agent for more information.