RISKVUE ARCHIVE | INDUSTRY WATCH > EMPLOYMENT PRACTICES LIABILITY (EPL)

Smart Hiring Practices Can Help Employers Avoid Employment-Related Claims

By Marcus Covas

Today, every business faces not only the traditional challenges of competition and rapidly changing technology, but also a relatively new category of potential adversary — its own workforce. Not-for-profit corporations and public entities, in addition to public and private businesses, are experiencing an explosion of employment-related claims based on:

• Discrimination
• Sexual Harassment
• Wrongful discharge litigation
• Wage and hour disputes
• Allegations of negligent hiring, retention and supervision
• Failure to provide benefits
• Alleged violations of federal and state leave-of-absence laws

Take for example a lawsuit in Southern California that involves at least three of the above allegations. In the complaint, an openly gay night manager of a grocery store alleges that he was wrongfully terminated based on upper management’s discriminatory practices. His main claim is that the company is “anti-gay,” and that his termination was based solely on this reason.

The grocery store claims that the night manager’s termination was based on a zero-tolerance policy, which mandates instant termination of employees engaged in activities that can be construed as sexual harassment. The night manager was first suspended because of a box boy’s claim that the manager had attempted to fondle him. During the investigation of the claim, the company received seven signed statements from employees with varying levels of complaints regarding the manager’s conduct. The conduct ranged from mild sexual innuendo to actual fondling and propositioning of the employees. Acting on company policy of zero tolerance for sexual harassment, the general manager fired the night manager.

The night manager then sued the employer, claiming he was discriminated against and terminated because he was gay. A win for the grocery store will only mean hundreds of thousands spent on lawyers’ fees and the potential for negative publicity. A loss will mean the same, plus a verdict that could be in the millions.

Beth Schroeder, an employment law attorney and co-author of The EPL Book: The Practical Guide to Employment Practices Liability and Insurance, says, “This is happening all across the nation. Companies are experiencing an explosion of employment-related claims based on sexual harassment and discrimination, wrongful termination and a host of other human resources issues.”

Sound employment procedures alone no longer guarantee protection against employment practices liability. Schroeder says, “Companies need to stay current on the ever-changing laws that affect the employment relationship. There are lots of easy-to-implement strategies that can be used to avoid hiring litigation-prone people.”

Tony Burnham, Executive VP of Employment Council for Abbott Resource Group, Inc., has represented management as an attorney and senior human resources executive for more than 30 years. He agrees with Schroeder’s observation that some companies are asking for litigation problems when they hire certain people. Burnham says, “From our observations, 95 percent of all employment-related litigation can be attributable to as little as five percent of an employer’s workforce. Of that five percent, the majority of claimants are individuals who exhibit victim mentalities.” He says these are people who believe they are entitled to a job and pay regardless of their performance, who blame others for their shortcomings or who refuse to accept responsibility for their actions or in-actions.

So how can employers avoid hiring “victims,” and minimize the probabilities of employment-related litigation? Burnham says that thousands of successful public and private corporations of all types and sizes have adopted and benefited from the following employment “best practices” when hiring employees.

Smart Hiring Procedures

The chance of hiring a problem employee can be reduced or eliminated by following smart hiring procedures, which include:

• Alternative Applicant Pools. Hiring good employees starts with finding ideal candidates. With today’s low unemployment, newspaper ads generally do not attract the best of applicants. To find qualified people, employers must consider alternative recruiting sources, such as:
  • Trade and vocational schools, community colleges, and local universities for recent graduates that are highly motivated and willing to learn
  • Existing employees who have an excellent performance record often will have friends and relatives with the same traits
  • Laid-off workers from competing or related industries are frequently experienced, hard workers who are grateful for a new opportunity
  • Experienced staffing firms that routinely screen in well-qualified candidates can be valuable sources for temporary or permanent workers
  • Cities and local communities may be potential recruiting sources through workforce and economic development efforts
  • The Internet has become an increasingly valuable resource for recruiting skilled workers
• Detailed Employment Applications. One of the most important tools in effective hiring is the careful review of answers applicants give about their prior employment history and background. Using an application that asks detailed questions is important, but employers also must be sure to:
  • Make certain candidates completely answer all questions. An application with blanks usually indicates that the applicant has negative information that he or she does not wish to disclose.
  • Question applicants who write “see resume” on the employment background section of the application. Determine whether the applicant intended to avoid answering any of the questions asked or was only offering supplemental information.
  • Pay close attention to the applicant’s description of reasons for leaving past employment. Applicants who claim they left because of “poor management” or that they “disagreed with company policy” should be particularly suspect. Such explanations indicate a victim mentality, which should exclude them from consideration for employment. Employees with unexplained gaps in their employment history, suspicious criminal records, and other questionable items on their application also should be carefully scrutinized.
  • Include clear at-will language in the applications. Such language can be adequate defense against employee contract claims.
  • Include an agreement that any disputes concerning the employee’s hiring, termination or wage claims will be resolved through binding arbitration before a retired Superior Court Judge.
• Revealing Interview. The purpose of interviewing is to decide whether the applicant has the specific qualifications and performance record required for the position. By asking probing questions, the employer is able to obtain crucial information that will be useful in making an informed decision regarding whether the applicant meets the employer’s desired criteria. Other ways of checking the veracity of the applicant include:
  • Drug Tests. Many problem employees have drug- or alcohol-abuse problems. Accordingly, drug tests help identify and screen out problem employees.
  • Credit Check. A credit report also can reveal if the applicant has disclosed all past employers. Be aware that new Fair Credit Reporting Act (FCRA) amendments require employers to give applicants notice and obtain their authorization prior to obtaining a “Consumer Report.” The notice and authorization must be on a separate document, consisting solely of the FCRA language.
  • Background Checks. Many applicants lie on their application by failing to disclose past employment or by misrepresenting the reason for their termination. Background checks should be made to verify that the applicant is properly representing his or her past. However, if the background check involves utilizing an outside agency to collect information (e.g., a criminal report), the previously stated amendments to the FCRA will apply.

Even with the above smart hiring practices in place, employers can still find themselves involved in employment disputes and litigation. Therefore, once a claim or dispute arises, it is crucial that management takes the appropriate steps to resolve the dispute as quickly as possible. If there is no feasible alternative to litigation, the retention of counsel experienced in the specific employment dispute is a must.

Employers also should evaluate employment practices liability (EPL) insurance now widely available from numerous insurers. In addition to providing indemnity protection, most EPL insurance policies provide a duty of the insurer to defend the insured. This is often a very valuable feature, as most insurers use high-quality law firms with expertise in employment litigation matters. Employers following the best practices outlined above also may benefit from very competitive pricing, as EPL insurers are likely to offer clients who implement such practices their most favorable pricing.

Conclusion

Avoiding or successfully defending employee claims is an economic necessity. Using the suggested best practices in this article can help most employers effectively manage their employment-related risks and maintain a workforce with a lower turnover rate, higher morale and less litigation.

riskVue | The webzine for risk management profesionals
October 1999

Need help with employment practices liability and insurance? The EPL Book is an unbiased, comprehensive resource for agents, brokers, underwriters, and employers. Its concise discussions on employment laws, risk management, and insurance will help you define and quantify your EPL exposure, understand and compare differences between EPL insurance policy forms, identify improvements that may ensure superior coverage, identify weaknesses in your EPL risk management program, and more.