U.S.-based small- and medium-sized businesses face an almost 12 percent chance that they will be hit with an employment claim, according to a study of employee charge trends by specialty insurer Hiscox.
The study found that New Mexico, Washington, D.C., Nevada, Alabama and California are the top states for employee lawsuit risk. Employers in these markets with at least 10 employees face a substantially higher risk of being sued by their employees when compared to the national average.
“State laws can have a significant impact on the risk businesses face from employee charges and contribute to the variation in charges seen around the country,” said Bertrand Spunberg, practice leader for Executive Risks at Hiscox USA. “Many of the higher-risk states observed in the study have laws that go beyond U.S. federal guidelines, creating additional obligations and risks for employers. It is important for companies, especially those operating in these high-risk markets, to be keenly attuned to any legal developments that may affect their exposures.”
A lawsuit brought forth can cost time, money, productivity and a serious dent in company morale. Think of an employee lawsuit as a rock dropped in a stream, with the rippling effect spreading out over all departments and employees.
According to the California Chamber of Commerce Employment Law Council, these are the top 10 things employers do to get sued:
- classifying all employees as exempt to avoid paying overtime, extra meal breaks, etc.;
- not giving employees adequate meal breaks;
- making employees independent contractors so the burden of paying taxes falls to them;
- not giving managers proper training regarding discrimination and harassment;
- failing to implement a valid work week schedule;
- terminating an employee who takes a leave of absence;
- not giving a terminated employee his final check;
- providing loans to employees and then deducting from their paychecks;
- using non-compete agreements to stop employees from working for the competition; and
- implementing a “use it or lose it” vacation policy—so employees won’t have to be paid after they leave.
All are valid reasons, and all listed could easily be avoided by being conscientious to both individual state laws and a little common sense and decency. An employer will always have a bulls-eye on his back. How big that target is will be determined by how the company conducts business and its relationships with employees.
Workers who have their sights set on getting something for nothing have always been part of our history, probably starting 400,000 years ago when a Neanderthal on a hunt claimed to “hurt his back” tossing a spear at a Woolly Mammoth, when all he really wanted was to go back to his cave and spend all day looking at paintings on his wall. While not the norm, every company has one, somewhere, waiting, checking out expensive vacation plans on Expedia. The key is how to avoid dealing with a legal situation from the other 99.9 percent of employees pulling in a paycheck from a company, especially when issues like discrimination, wage and hour violations, dangerous work conditions and workers’ compensation claims rear their ugly heads. This is why proper enforcement of company rules and diligent documentation is so critical.
A company can have the best policies and training in the world, but they should make sure supervisors follow those company policies and that the HR and legal teams are providing the proper protection and training for management. But most importantly, employers need to remember they aren’t dealing with employee #686229, they are dealing with people, and most people want to know they are appreciated for the efforts they put forth. By doing so, employers may be able to shrink that bulls-eye to a pinpoint by implementing policies that lean more towards the carrot and less to the stick.
Consider implementing a behavioral reward system, one that both rewards excellent work and gives an employee a sense of appreciation and gratification. It can be something as extravagant as box seats to a baseball game, or as simple as saying “great job.” When an employee takes pride in his work, a pride often fueled by recognition up the ladder, he tends to see the company he works for as a close-knit family. And although there are certainly cases out there of disgruntled (and dysfunctional) family members tossing lawsuits at each other like legal hand grenades, chances are the closer the family is the less likely there will be litigation.
Of course, there are ways to try to prevent a lawsuit from happening, even before an employee is hired. Background checks are key components to track down information on prospective employees who might have a track record of leaving lawsuits in their wake. Credit checks can help determine if the candidate is heavily in debt to the point where he may be looking for a “way out.”
Companies sometimes feel like they are made of Teflon, where any lawsuit, no matter how seemingly frivolous, will fail to stick. But remember even legal action that doesn’t stick will leave a residue in the shape of anywhere from $50,000-$80,000 in possible legal fees, valuable time away from the job, negative publicity should the situation hit the media and damaged employee morale. Employers need to take the necessary steps to make sure they are not an easy target, now more than ever.