Company Procedures, Policy Reduce Risk of Discrimination Claims

If you carry employment practices liability insurance to protect your company against discrimination claims, you’ve got about half the job done.

The rest of the job involves making sure your company gives its employees no reason to feel wronged, and setting up proper means of addressing their complaints if they do.

What’s involved?

In general, employment practices law makes it painful if you discriminate on the basis of sex, age, race, religion or physical disability in hiring, promoting or firing your employees.

Federal law covers businesses with 15 or more employees, according to Jody Katz Pritikin, an attorney whose Los Angeles firm, Katz Consulting & Associates, works with employers on avoiding the risk of employment practices discrimination complaints.

California law reaches businesses with even one employee, and at both the federal and state levels the law carries penalties that can ruin a thriving business, Katz says.

In 1997, juries returned verdicts averaging $675,000 in cases alleging employment discrimination, she says.

“The numbers on jury verdicts don’t include claims settled out of court,” Katz says, “and even if you don’t end up in court, the costs of ineffective employment practices--in employee absenteeism and turnover--can cost you hundreds of thousands of dollars.

“In fact, small businesses may face even more risk than big businesses because they often don’t buy employment practices liability insurance and their exposure is very great relative to their size.”

To manage the risk, Katz says, employers should:

* Establish company policy in clear and simple language that the employer does not tolerate discrimination on the basis of sex, age, race, religion or physical disability in hiring, promoting or firing employees;

* Train employees to recognize the signs of discrimination, and refresh the training annually;

* Designate and train at least one supervisor to handle complaints, and

* Investigate all complaints promptly and fairly.

“If you conduct an unbiased investigation immediately even of claims that appear to have little merit,” she says, “you may protect yourself in court--because the courts focus on the details to determine whether employers do what they’re supposed to do.

“If you can’t afford to have someone on staff who’s qualified to conduct the investigation--a human resources professional who’s been trained to do it--you probably need to bring in someone from the outside.”

This can be a consultant or an attorney with expertise in employment law, Katz says. However, if the complaint looks as if it’s going to end up in court, you will need to hire another attorney to represent you to avoid undermining your attorney-client privilege.

The alternative, she adds, is to risk a devastating blow to your company, perhaps from unexpected sources--even from employees whom you discipline or fire for harassing other workers.

Indeed, she adds, the California Supreme Court recently ruled that employers may fire employees suspected of harassing others on the job only if they conduct appropriate investigations and justify the termination for reasons that are not arbitrary.

In plain English, Katz says, this means that employers must take great care in handling harassment claims because they bring the threat of litigation not only from victims of harassment but also from perpetrators.

Small companies often lack the resources to hire human resources professionals trained in the intricacies of employment practices law, and they err in believing that they cover the risk with liability insurance alone, Katz says.

In general, employment practices liability insurance covers the employer against claims of sexual harassment in the workplace, wrongful termination, discrimination under the Americans With Disabilities Act, and failure to hire or promote on the basis of age, sex, race or religion.

The insurance costs $1,500 and up for protection starting at $500,000. Under California law, employment practices liability insurance cannot cover punitive damages, although many insurers offer the coverage anyway, arguing that the law does not apply to insurers not headquartered in California.

The California courts have not ruled definitively on the question of punitive damages, Katz says, and until they do, no employer should risk facing the threat of punitive damages alone.

“In setting punitive damages, the courts look at how much money a company makes--and the bigger the earnings, the bigger the punitive damages,” she says.

“You have to make sure that your employees know that you will not tolerate discrimination, and you have to train your employees to avoid discrimination and handle any complaints promptly and fairly. You want to avoid claims in the first place, and the only way to do that is through training.”

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Columnist Juan Hovey can be reached at (805) 492-7909 or via e-mail at jhovey@gte.net.