COVID-19 and Employment Practices Litigation

As soon as the first community was shut down to slow the spread of the coronavirus or the first announcement of a safer at home order by a governor, some of us saw the storm of suits coming related to the loss of business income from the COVID-19 shut down. What I didn’t see coming was the storm of employment practices suits related to the coronavirus.

According to one website that is tracking these cases, wrongful termination or constructive termination suits have been filed related to actions taken by employers that are in some way related to the business’s response to the coronavirus are rising, including these examples:

• Employee with pre-existing health conditions raises health concerns related to being required to return to working in the office.
• Employee reports flu-like symptoms while being checked in for work and is told to return home and schedule a COVID-19 test.
• Employee requests time off under the terms of the Families First Coronavirus Response Act (FFCRA) to take care of his children.

These are examples why businesses need employment practices liability insurance. These policies are designed to protect the business against the kind of claims that arise out of the hiring, firing, training, and leading of employees. What kind of claims specifically? Let me quote from ISO Form BP 05 89 01 10 Employment-Related Practices Liability Endorsement. This endorsement adds employment practices liability coverage to the Business-Owners Policy (BOP).

Insuring Agreement

We will pay those sums the insured becomes legally obligated to pay as damages resulting from a “wrongful act” to which this insurance applies…

“Wrongful act”

“Wrongful act” means one or more of the following offenses, but only when they are employment-related: (truncated for the sake of space)

a. Wrongful demotion or failure to promote, negative evaluation, reassignment, or discipline of your current “employee” or wrongful refusal to employ;

b. Wrongful termination, meaning the actual or constructive termination of an “employee”:…

c. Wrongful denial of training, wrongful deprivation of career opportunity, or breach of employment contract;

d. Negligent hiring or supervision which results in any of the other offenses listed in this definition;

e. Retaliatory action against an “employee”…

f. Coercing an “employee” to commit an unlawful act or omission within the scope of that person’s employment;

g. Harassment;

h. Libel, slander, invasion of privacy, defamation or humiliation; or

i. Verbal, physical, mental or emotional abuse arising from “discrimination”.

So rather than an “occurrence” we are dealing with a “wrongful act” and rather than “bodily injury” or “property damage” we are dealing with a list of activities that we would all agree would be bad things to do.

This coverage provides for the investigation and defense of claims related to how an employer deals with an employee and if the insured is found responsible for damages, it provides payment for those damages. That’s what we expect.

What’s so important about this coverage?

Go back to what we’re insuring here. An employee is let go, a prospect is not hired, or an employee believes that they have been mistreated during the course of their employment and they file suit. Once the employee files suit, that means that at least one other person agrees that there may be some merit to their assertion that they were treated wrongfully; that a “wrongful act” has occurred.

At that point, when there’s coverage in place, the insurance company begins to investigate and assigns defense counsel. The company may ask the insured for certain documentation and have conversations with people within the company and begin to determine the merits of the claim and determine what defense strategies are available. You already know that. The bottom line is that without the coverage, the insured has to hire an attorney to do this for them and that means money out of their pocket. Investigations take time and are expensive if they come out of your pocket.

In the end, these cases might settle for relatively little money, or they might cost the insured a great sum of money. With the coverage, that’s handled. Without, that might be called bankruptcy.

What businesses need this coverage?

A better question might be what businesses don’t need this coverage? Any business that hires someone other than their spouse and minor children should probably consider buying coverage for this exposure. Once the business begins to hire people that don’t live in their house, they run the risk of interviewing or hiring someone that might be willing to bring an employment practices suit against them.

‘In the end, these cases might settle for relatively little money, or they might cost the insured a great sum of money. With the coverage, that’s handled. Without, that might be called bankruptcy.’

What else can a business do?

Businesses ought to have written processes and procedures for all aspects of the employment cycle for any individual, including those that do not get hired when going through the hiring process.

The first step in avoiding an employment practices suit is to hire well. That requires several steps.

• Write a detailed job description. This should include, at a minimum, the minimum requirements of the job, the preferred qualification for the job, and the most common tasks involved in executing the job properly.
• Have a written process for reducing the candidate pool. This should include, at a minimum, how they will determine that a candidate is ineligible, how they will choose who to interview, how many interviews will be required, how they will score candidates during the interview process, and how they will inform candidates that they didn’t make the cut.
• Have a written onboarding process. This ensures that every employee gets the appropriate orientation to the company culture, gets the training that they need for their position, and has an understanding of how to be successful in their position.

It cannot be understated how important leadership and leadership training is in these circumstances. Just because an individual is a great salesperson doesn’t make them a great sales manager. However, people aren’t just natural born leaders. Leaders are trained and if a company fails to train leaders, they open themselves up to those employment practice “wrongful acts” that we discussed earlier.

If a company hires well, trains well, and leads well, there should be fewer times when they have to let someone go, but if they are already doing so many other things well, they should also learn to end employment well. Whether an individual leaves a company of their own accord, or they are asked to leave, it should be handled in a professional manner. It should never be about the person, but about their actions and how they conflict with the culture or mission of the company.

In the end, a company can do everything right and plan for contingencies. They can train their people well to deal with employee issues. They can hire well and treat their people well. But none of that ensures that they will never have to deal with an employment practices suit.