Employment practices liability claim trends

Transcription

1 Employment practices liability claim trends Prepared by the Lockton Financial Services Claims Practice May 2018 Lockton Companies EQUAL EMPLOYMENT OPPORTUNITY COMMISSION BRINGS MORE LAWSUITS AND SUBSTANTIALLY REDUCES ITS CHARGE INVENTORY IN FY2017 The EEOC in FY2017 The US Equal Employment Opportunity Commission s (EEOC) annual Performance and Accountability Report saw more than twice the number of merit lawsuits (184) filed in fiscal year 2017 than in the prior year. The number of systemic lawsuits, cases that have a broad impact on an industry, company or area, also nearly doubled, from 18 in fiscal 2016 to 30 in fiscal In fiscal 2017, the EEOC collected $38.4 in systemic remedies, a near record, and approximately $484 overall. The EEOC also reduced its backlog of pending charges by 16.2 percent to the lowest level of inventory in 10 years. 1 The increase in EEOC activity may not last once the Trump administration exerts more influence. Merit lawsuits > Systemic lawsuits > % increase % increase SEXUAL HARASSMENT AND MISCONDUCT CLAIMS REMAIN HIGH-PROFILE, BUT INCREASED SEVERITY AND FREQUENCY ARE NOT CERTAIN The past six months have seen unprecedented publicity for sexual harassment and misconduct claims with many well-known figures facing accusations in courts of law and in public opinion. Insurers have voiced concern that the increased profile of these claims will also increase frequency and severity. Pending charges > FY % decrease FY17 L O C K T O N C O M P A N I E S

2 While conclusions about severity are still premature, some early observations can be made about frequency. One large insurer is reporting a 50 percent increase in sexual harassment and misconduct claims since the Harvey Weinstein story broke in early October Notably, the EEOC tracks sexual harassment charges each fiscal year and the volume of such charges has been slowly declining during the past eight years. 2 The EEOC s fiscal 2018 began around the same time the Weinstein scandal broke, so those numbers should help prove or debunk the existence of a Weinstein effect on claims frequency. THE 2ND CIRCUIT HOLDS THAT SEXUAL ORIENTATION DISCRIMINATION VIOLATES TITLE VII AND DEEPENS CIRCUIT SPLIT The EEOC tracks sexual harassment charges each fiscal year and the volume of such charges has been slowly declining during the past eight years. Will a Weinstein effect change that trend? The 2nd US Circuit Court of Appeals became the second federal appellate court to find that discrimination based on sexual orientation violates Title VII, joining the 7th Circuit in reaching that decision. 3 The 2nd Circuit s rationale followed the EEOC s arguments: 1. Firing a woman attracted to a woman, but not a man attracted to a woman, is discrimination based on an employee s sex. 2. Firing an employee based on sexual orientation is prohibited associational discrimination, based on with whom an employee associates, and is akin to discriminating against an interracial couple. 3. Firing an employee based on sexual orientation constitutes unlawful sexual stereotyping. Other circuits have ruled differently, holding that Title VII does not expressly include sexual orientation. The US Supreme Court declined to hear this issue last year, but this recent decision may lead it to resolve the split. Many state and local laws are in line with the 2nd Circuit, so claims of this nature will continue to be brought regardless of how the US Supreme Court ultimately decides the issue. 2

3 The unprecedented focus on sexual misconduct claims has created a public dialogue about holding wrongdoers accountable and breaking through a perceived code of silence. TAX CUTS AND JOBS ACT ELIMINATES SETTLEMENT DEDUCTION FOR SEXUAL MISCONDUCT CLAIMS SUBJECT TO A NONDISCLOSURE AGREEMENT As noted, the past several months have seen an unprecedented focus on sexual misconduct claims. This has created a public dialogue about holding wrongdoers accountable and breaking through a perceived code of silence. The Tax Cuts and Jobs Act addresses this issue by eliminating the deduction for sexual harassment or sexual abuse settlements, including attorney s fees related to such payment, if subject to a nondisclosure agreement. Many details remain uncertain, and further IRS guidance is needed. The impact of the prohibition is difficult to predict, but it is possible that it could end up reducing settlement amounts for plaintiffs who insist on confidentiality. The prohibition could also lead companies to buy, or buy more, employment practices liability (EPL) insurance to cover the more expensive confidential settlements. NATIONAL LABOR RELATIONS BOARD OVERTURNS CONTROVERSIAL DECISION THAT EXPANDED JOINT- EMPLOYER RULE TO INCLUDE FRANCHISERS In 2015, the National Labor Relations Board (NLRB) overturned 30 years of precedent in the Browning-Ferris Industries decision. This decision significantly lowered the threshold for what a plaintiff needed in order to prove that a company is a joint employer. Two years later, the NLRB reversed that decision and returned to the earlier rule that required a company to exercise direct and immediate control over another entity s employees to be deemed a joint employer. The reimplemented standard adheres to the common law test and protects franchisers from being deemed joint employers with their franchisees. 4 Under the short-lived rule, a franchiser might have been liable for employment claims brought by all of its franchisees employees. 3

4 DEPARTMENT OF LABOR RELAXES RULES FOR UNPAID INTERNSHIPS AND REDUCES RISK FOR WAGE AND HOUR CLAIMS After a spate of wage and hour claims were brought by unpaid interns, the Department of Labor (DOL) followed circuit court rulings and implemented a more employer-friendly test to determine whether an intern is qualified as an employee under the Fair Labor Standards Act. The 2nd Circuit rejected the old six-part test as too rigid and established instead a primary beneficiary test which the DOL has also now adopted. Among the factors Whether paid or unpaid, any company using interns should make sure that its EPL policy captures interns, both partand full-time, as employees so that claims involving them are covered. of the new test are whether the internship provides training akin to an educational setting, is tied to formal coursework and displaces the work of paid employees. Whether paid or unpaid, any company using interns should make sure that its EPL policy captures interns, both part- and full-time, as employees so that claims involving them are covered. Most EPL policies exclude or limit coverage for wage and hour claims, however. SUPREME COURT LIMITS WHISTLEBLOWER PROTECTIONS IN DODD-FRANK TO REPORTING TO THE SECURITIES AND EXCHANGE COMMISSION The US Supreme Court resolved the circuit court split concerning the scope of whistleblower protections under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Dodd-Frank protects whistleblowers from retaliation when reporting alleged misconduct to the Securities and Exchange Commission (SEC). The Supreme Court refused to expand those same antiretaliation protections to whistleblowers who report misconduct internally. Experts contend that more expansive protection was intended by Congress. If true, then apparently poor statutory draftsmanship doomed such an interpretation before the Supreme Court. This ruling will limit exposure in jurisdictions that do not have broad antiretaliation laws. Insurance coverage should not be in doubt, however. Most EPL policies define retaliation broadly and cover employers under both scenarios Zarda v. Altitude Express, Inc., Case No (2d. Cir. 2018) 4 4

5 $1.5 $20 $32.5 $6.5 $16.6 $4.5 $11.8 $45 $17.4 $13 $35.5 $24 $13.4 $13 SELECT EMPLOYMENT SETTLEMENTS AND JUDGMENTS IN 2017 AND 2018 Discrimination claims $45 settlement in North Carolina by Family Dollar Stores for alleged gender pay discrimination (2017). $35.5 settlement in Illinois by a large financial services firm for alleged race discrimination (2017). $32.5 settlement in New York by Metropolitan Life for alleged race discrimination (2017). $24 settlement in Washington, DC, by Department of Homeland Security for alleged race discrimination (2017). $20 settlement by Bureau of Prisons for alleged gender discrimination and harassment against female prison workers (2017). $16.6 jury award in California against McWane, Inc., for alleged race discrimination and wrongful termination (2017). $13 jury award in California against UCLA for alleged gender discrimination against oncologist (2018). $11.8 jury award in New Jersey against the state of New Jersey for alleged disability discrimination and failure to accommodate (2017). $6.5 settlement in Washington, DC, by the Metropolitan Area Transit Authority for alleged race discrimination in criminal background checks (2017). $4.5 jury award in California against Asian American Drug Abuse Program for violations of California ADA law and failure to grant leave (2018). $1.5 jury award in Colorado against United Airlines for alleged age discrimination (2018). Wage and hour claims $110 settlement in California by American Commercial Security for alleged meal and break violations (2017). $21 settlement in California by U.S. Security Associates for alleged meal and break violations (2017). $19.1 settlement in New York by Carlson Restaurants for alleged wage and hour violations (2017). $16.7 settlement in New York by JPMorgan Chase for alleged overtime violations (2017). $13.5 settlement in New York by Duane Reade for alleged misclassification and overtime violations (2017). $13 settlement in California by a large financial services firm for alleged meal and break violations (2017). Other EPL claims $17.4 jury award (later reduced to $12.4 ) in California against the Los Angeles Bureau of Sanitation for alleged harassment and retaliation (2017). $13.4 jury award in New York against Domino Sugar for alleged sexual harassment (2018). $13 settlement in Washington by state of Washington for alleged Uniformed Services Employment and Reemployment Rights Act violations against state troopers (2017). $7.5 settlement in California by Uber for alleged Fair Credit Reporting Act (FCRA) violations during background checks (2017). $6.75 settlement in Michigan by Kelly Services for alleged FCRA violations during background checks (2017). $2.6 jury award in California against Beverly Fabrics for alleged sexual harassment (2018). 5

6 PRINCIPAL AUTHOR ATLANTA Mark Weintraub Vice President Contributing authors Lockton Financial Services Claims Practice members CHICAGO KANSAS CITY NEW YORK Don Glazier Claims Bill Boeck LFS Claims Practice Leader Marie-France Gelot DALLAS LOS ANGELES SAN FRANCISCO Jennifer Gaither Raymond Dion Meredith Ponce Ashley Jones Maryam Rad Senior Analyst Betsy Carpenter Claims Practice Leader DENVER Deanna Cook Claims Consultant ST. LOUIS Noël Oleksa Claims Consultant Mark Gamboa Vice President Garry Whiter Assistant Vice President Sydney Bowen Project Manager WASHINGTON, DC Tim Monahan Vice President Anna Camden Operations Assistant August Swanson Paralegal 2018 Lockton, Inc. All rights reserved. KC: