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HR managers must protect themselves from lawsuits

Rochester Business Journal
December 19, 2003
A human resources manager recently called with a concern about how best to protect herself if she is individually sued by a disgruntled employee. Unfortunately, her concern is real: In employment litigation, more plaintiffs' attorneys are suing not only the company but also individual managers and officials personally.

According to the Chubb Group of Insurance Companies, the Equal Employment Opportunity Commission now handles more than 80,000 employment practices grievances a year. Allegations may include sexual harassment, wrongful termination, wrongful discipline, wrongful failure to employ or promote, retaliation or discrimination. Total monetary awards to plaintiffs have reached a quarter of a billion dollars annually, Chubb notes.

And that's only the federal EEOC. State and local human rights agencies and courts also report a steady increase in employment-related grievances.

Facing the occupational hazard

For HR professionals, the ramifications of this burgeoning legal activity are alarming. More and more, employees seeking to solve workplace disputes through litigation are drawing supervisory employees, including HR managers, into the web of liability.

Some suits will allege that the supervisor or official did in fact discriminate against the employee, or allowed the discrimination to occur by ignoring it, according to attorney Scott Fredericksen, writing for the Society for Human Resource Management. But the suit also may seek to hold other individuals liable

simply because their positions in the company required their participation in the activity in question. Such individuals might include:

-- The HR manager whose job it is to evaluate or terminate the employee.

-- The HR manager or supervisory employee whose job it is to deliver the decision.

-- The company official whose job it is to make the final decision on an employee in a disputed situation or who makes a decision that affects a number of employees.

The heart of the issue, Fredericksen notes, is the definition of "employer," which, under the Fair Labor Standards Act and the Family and Medical Leave Act, provides for personal liability of company managers and officials. Of the federal courts that have addressed this issue, he writes, the majority have held that an individual manager may indeed be sued and held individually responsible for acts taken based upon FMLA.

Adding to this treacherous climate is New York State's human rights law, which provides for the possibility of personal liability of individual managers and employees, Fredericksen says.

Of course, not every HR manager named in a legal action will be forced to pay for his or her own defense. Generally, the employer will retain counsel for an employee defendant who took appropriate action in the course of performing his or her job. The company also generally will pay for the employee's defense even if the allegations warrant separate counsel for the employer and employee when such a defense strategy is necessary to avoid potential conflicts of interest.

In some cases, however, an employer may choose to distance itself from the employee, particularly if the company plans to argue that the employee acted outside the scope of his or her employment, as in the case of sexual harassment claims.

Also at risk are HR and supervisory employees who have concerns about the legality of actions that employers are requiring of them and those whose employers are in such dire financial straits that they cannot afford counsel.

Insuring against liability

In recent years, larger organizations and their key managers have found some peace of mind and financial security by obtaining employment practices liability insurance. This insurance provides defense and indemnification coverage in the event that an employer is sued based on the employment relationship.

Depending on the policy, a company's coverage may extend to all HR managers and supervisory employees. While it seems reasonable to expect a company to defend any employees also named individually in such an action, such protection should never be assumed by the employee unless expressly stated. An HR professional considering accepting a position may want to negotiate for such protection.

Suzanne Nasipak, senior vice president at Hatch Leonard Naples Inc., advises those considering the purchase of EPL insurance to pay particular attention to exactly what circumstances are covered, what people are covered and how quickly notification of an administrative hearing or lawsuit must occur.

Left in the cold

While EPL insurance provides security for some organizations, it is not a panacea. Most small businesses opt not to carry it.

"Especially in Upstate New York, which is legally conservative," Nasipak says, "small employers consider themselves unlikely to be sued by an employee because they're a 'family,' and they're keeping in touch with employee issues." They may believe that the risk doesn't warrant the expense.

Sadly, defending against employment lawsuits-even if they are unfounded-can and will continue to devastate the finances and reputation of small businesses.

It is also important to note that few, if any, insurers will cover solo HR consultants who are independent contractors. Such contractors face a double risk. When legal trouble arises from a consultant's advice, it's possible that several parties-the complaining employee as well as the business owner or board-will hold the consultant liable.

HR consultants may want to consider professional liability or errors and omissions coverage, though Nasipak cautions that few such policies expect to cover employment practices suits.

What won't work, Nasipak says, is expanding homeowners' coverage. "I've never seen an endorsement that would provide coverage in case of professional liability."

Best defense a good offense

For many HR professionals, it seems clear that the risk of legal liability will remain an occupational hazard. But doing their jobs impeccably and knowing the law can help decrease their exposure. That involves:

-- Diligently adhering to federal and state laws and regulations governing employment.

-- Updating employee handbooks and supervisor manuals regularly to ensure that policies and procedures accurately reflect company practices and legislative changes.

-- Training managers and employees on avoiding harassment.

-- Providing supervisory training on interviewing, documentation, conducting performance reviews and handling terminations.

-- Being as consistent as possible when dealing with employees.

-- Maintaining the confidentiality of employee discipline.

-- Treating terminated employees with dignity and allowing them to respond. While guarding company property is important, it should be done in a way that spares the employee undue humiliation.

Though legal action can strike even the most diligent of HR professionals, performing the job to the highest standard is perhaps the best defense.

(Candace Walters is president of HR Works Inc., a regional human resource management outsourcing and consulting firm serving more than 600 clients in the Rochester, Buffalo, Syracuse, Philadelphia and Baltimore/Washington areas. To offer comments on this column or ideas for future columns, write

12/19/03 (C) Rochester Business Journal

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