Study: Employers face 12 percent chance of employee lawsuit; Figures even higher in New Mexico, D.C., Nevada

By Anna Aguillard | Nov 4, 2015


NEW YORK (Legal Newsline) – Global specialist insurer Hiscox released a study revealing the average risk of employee litigation on Oct. 27.

According to data collected by the Equal Employment Opportunity Commission (EEOC), the average national risk is roughly 12 percent.

The study, titled “2015 Hiscox Guide to Employee Lawsuits,” shows New Mexico, Washington, D.C., Nevada, Alabama and California have even higher risks of employee lawsuits. Employers in New Mexico face an alarming 66 percent chance of employee lawsuit, the study says.

The study also lists Missouri, Arkansas, Mississippi, Illinois, Tennessee and Georgia as having significantly higher chances of employee litigation.

“The overall theme is that the employment law landscape is very tricky to navigate. That’s particularly true for small- and medium-sized organizations that have to keep up with a patchwork of federal and state laws that change all the time,” said Bertrand Spunberg, practice leader of executive risks for Hiscox.

The report was created to help companies understand their legal exposure, and implement effective risk prevention against the impact of employee charges.

“We wanted to give companies a way to frame the concept of employee litigation risk,” Spunberg said. The average risk, which fell from 12.5 percent to 11.7 percent, is still “very material,” he added.

“It’s not really a question of whether a business will have to deal with an allegation of discrimination, but more a question of when,” Spunberg said. “They have a very real chance of being sued by employees alleging discrimination, and the cost–both in hard dollars and distraction–to resolve those matters is very high.”

Because some states have stricter state laws beyond U.S. federal guidelines, employers in such states face additional legislative obligations. According to Spunberg, California is best known for being a risky jurisdiction for employers. However, the study revealed New Mexico, Nevada, Alabama and Mississippi have equal or riskier environments.

“In those jurisdictions, state fairness laws often go beyond the federal mandate, and some of those states are also testing grounds for emerging issues such as immigration, criminal background checks, or pregnancy accommodation,” Spunberg said.

Key laws driving statewide increased risk include anti-discrimination, e-verify requirement, pregnancy accommodation, credit checks and criminal background checks.

According to the study, the median judgment of these claims is $200,000, and one in five employers will face an employment charge. About 85 percent of charges are not covered by insurance.

Suggested risk control measures include providing employee orientation, distributing employee handbooks, taking caution when hiring independent contractors, conducting harassment training, taking caution when terminating and promoting and investing in an employment liability insurance policy.

“I would suggest this report makes a compelling case that [small-to-medium sized enterprises] should consider working with insurance and legal partners who can help them navigate that landscape, so they can concentrate on doing what they do best, which is grow their business,” Spunberg said.

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