Advising Employers

               Mr. Primuth regularly advises businesses and nonprofit organizations on the many laws affecting the workplace, including wage and hour, discrimination and harassment, medical leave of absence, including: California Labor Code, California Industrial Wage Commission Wage Orders, the Fair Employment and Housing Act (FEHA), the California Family Rights Act, Pregnancy Disability Leave Law (PDLL), the federal Family Medical Leave Act (FMLA), and the federal Americans with Disabilities Act (ADA). He also prepares and reviews employee handbooks to ensure compliance with federal and state employment laws.

               A signficant part of Mr. Primuth's litigation practice is devoted to representing employers in court and before the labor commissioner, where he has over 10 years of experience handling wage and hour, discrimination and harassment cases through summary judgment and trial.

Article: Managing Employment Law Liability Risks in Today's Economy: 10 Tools To Reduce Exposure, by Jonathan D. Primuth, J.D.

                Given the complex web of employment laws affecting the workplace, employers must have a plan for managing their employment liability risks or, stated more simply, how to avoid getting sued.  As most employers are keenly aware, California has experienced a dramatic rise in lawsuits and administrative actions by employees in the last several years.  And as the law continues to expand with new rules, protected categories and less clear-cut liability standards, employers who are not careful will face expensive litigation, if not actual legal liability, in many areas. It doesn’t matter if you are a small entrepreneurial business with a few employees, an established nonprofit organization or a large business organization. You could be the most generous and good-hearted employer in the state.   An employer who poorly manages its liability risk is a sitting duck for plaintiff's lawyers and former employees. An employer who has never been hit with a lawsuit should ask around to find out other employers' experiences.

         A.  The Concept of Workplace Liability Risks

                While employers certainly understand what "liability" is, they may not necessarily understand the concept of liability risks.  Liability risks are the conditions that lead to actual liability.  Prime examples of conditions that create liability are sloppy record-keeping practices, management indifference to employee complaints, and management tolerance of "salty" language in the workplace.   By allowing these conditions to exist, an employer is running the risk of real liability. 

               Liability risks cost money to resolve, even if there's no actual liability.  An employer with poor risk management will face many more claims and lawsuits, and litigation burns up the employer's money, time and energy.  Every lawsuit is a distraction from the employer's main mission, and winning in court is, generally speaking, a losing proposition. 

               Liability risks can lie dormant and hidden for many years.  Statutes of limitation on wage claims go back three and sometimes four years; on discrimination and harassment claims, the limitations period is effectively 2 years.  That means a long and forgotten employee could return with a lawyer (or the labor commissioner) to capitalize on an employer's past mistakes.  

               Liability risks are unpredictably expensive.  Because most employment laws have attorney fee shifting rules and add-on penalties, there are build-in financial incentives for employees to sue.  A successful employee who wins a small amount of damages may be entitled to attorney fees worth many times the damage award.  One carelessly handled employee termination can generate a lawsuit costing thousands of dollars to win in court.  

         B.  Ten Tools For Minimizing Liability Risks

              Just because a business is financially successful does not mean it is successfully managing its liability risks. In my experience, bottom-line, results-oriented managers often ignore, and even outright distain, the mundane details of personnel and human resource administration.  Their inattention to legal requirements and workplace rules eventually catches up with them and problems that once seemed small and distant suddenly transform into a legal action, with shockingly large price tags.  Liability risks most often stem from improper or neglected administrative functions or not paying attention to legal requirements.  Some of the main sources are:  

         -  Failing to require accurate employee time records, 

         -  Not calculating or paying full over time or minimum wages,

         -  Requiring salaried managers to perform excessive hourly work,

         -  Ignoring or not implementing safety procedures and equipment,

         -  Neglecting to investigate carefully an employee complaint, and

         -  Ignoring problematic behavior in the workplace such as personal hostilities, office romances, and sexually explicit language.

Liability risks are easy to create and have long-lasting potential to inflict unpredictably high costs on finances and workplace morale, every employer should have a game plan for managing the most common, easily avoidable liability risks.   This practitioner has simplied the most important tools of liabiliy risk management into the ten strategies listed below. 

                 1. Create and maintain a customized employee handbook of policies and procedures. Distributing a well thought out, carefully prepared employee handbook underlines the employer’s commitment to good business practices. A handbook can be the authoritative, always-available resource for “how we do things around here.” By telling employees what is expected of them, and what to expect from management, an employee handbook avoids unnecessary conflict and confusion among employees and creates a more harmonious working environment. The manual need not be a comprehensive “how to” bible for every aspect of the employer’s business. But it must cover critical liability risk management areas like discrimination and harassment, at-will employment, drug and alcohol use, and legally mandated leaves of absence. Employers can create an employee handbook from a service-provider such as the California Chamber of Commerce (www.calbizcentral.com). The manual then must be customized to meet the employer’s requirements (i.e., vacation policies, work hours, etc.). It should be finalized and reviewed by an employment/labor law attorney or human resource consultant to make sure it addresses the important legal requirements for the employer’s business.

                 2. Hire or designate a human resource manager/consultant with authority to report directly to top management. Business owners and top management cannot be expected to know everything about workplace laws and regulations impacting their business. A knowledgeable human resource person is an essential part of an employer’s risk management team. This person must be “in the loop” on all sensitive personnel decisions (hiring, firing and discipline), and also should handle or supervise the handling of vacation scheduling and leave of absence administration, the processing of interviews and new hires, exit interviews for terminated employees, employee complaints and investigations, compliance with safety regulations, and payroll administration.

                 3. Buy employment practices liability insurance (EPLI). Most employers will eventually incur financial losses from an employment-related claim or lawsuit, and it makes sense to insure oneself against these common, unpredictable risks. Offered by most business insurance brokers, an EPLI policy (or rider on a CGL policy), pays for liability and defense costs for lawsuits based on employee claims of discrimination, harassment and retaliation. Oftentimes an employer’s liability cannot be known or reliably predicted in advance due to the complexity of the law, the vagaries of people’s memories, and the nuisances of evidence in the hands of a judge or jury. Even an employer who does nothing wrong can be forced to pay thousands of dollars defending a case based on “he said, she said” testimonial evidence.

                 4. Keep your workers compensation insurance in force. An employer without workers compensation insurance is defenseless against the onslaught of powerful government agencies inflicting all manner of financial pain. The workers compensation system will evaluate a worker’s injury and fix the amount of compensation the employer must pay, whether the employer agrees or not; the labor commissioner will impose huge financial penalties on the employer and its shareholders for not having insurance; and the state’s uninsured employers’ fund will chase (for years) the employer for reimbursement of compensation it pays on the employer’s behalf. All told, an uninsured employer can expect to pay roughly double what an insurance company would pay to resolve a workers compensation claim. With the average California workers compensation injury claim expenses totaling $58,000, an uninsured employer is running an average downside risk of paying out $116,000 or more for every worker injury.

                 5. Mandate employee training in wage and hour compliance and discrimination/harassment prevention. The wage and hour regulations harbor many surprises in the form of financial penalties for the unsuspecting employer. It is crucial to remember that California’s wage and hour rules were crafted in an earlier age of widespread labor abuse by management and poor labor-management relations. Being a fair and generous employer in our more “enlightened” age is simply no defense. Every year thousands of fair and generous employers get burned because they have not followed these technical and inconvenient rules. Emphasize to your managers that wage and hour compliance is an essential part of their jobs. Have them go through a training session together.

                Manager-level training in discrimination and harassment prevention is just as crucial a risk management tool. Employers must realize California law essentially requires them to police their workplaces to eliminate particular forms of discrimination and harassment, and that failing to exercise control in this area could have extremely severe financial consequences. Under California’s Fair Employment and Housing Act applicable to employers of 5 or more employees, an employer must take all “reasonable” steps to eliminate and prevent discrimination and harassment of employees who fall into twelve protected categories. (The harassment prevention rule applies to employers of 1 or more employees.) Other laws require employers to observe and respect a host of employee rights regarding protected activity, leaves of absence, and civic engagement. Employers who understand that the liability rules are stacked against them and that there are strong financial incentives that invite litigation should provide their managers with the knowledge and training they need to recognize and report problems quickly to upper management for follow up. California law already mandates that employers with 50 or more employees provide supervisor training in sexual harassment prevention. But sexual harassment training by itself is not enough; managers must be made aware of the full range of litigation-hot button issues relating to employee rights and protections. Once your managers are trained-up, you have a much more effective system for preventing liability risks.

                6. Require accurate, unbiased written employee performance reviews, job descriptions and disciplinary actions. Documenting key personnel actions will avoid misunderstandings and will give no opportunity for someone to present “revisionist history” in court or before a hearing officer. Nothing is more frustrating to an employer defending itself in a legal action than to discover that there is no documentary evidence in support of its defense and the case must be tried before a judge or jury on wishy-washy testimonial “he said, she said” evidence. Many jurors and judges are skeptical about testimony from the manager of a professionally run business when there are no documents to back up their story. With a good document trail, an employer can stop a meritless or weak legal claim dead in its tracks, often before the lawsuit is filed. A standard forms-provider can supply the forms needed for documenting personnel actions, and a good human resources consultant can train your managers on how and when to fill them out. In implementing your documentation policies, honesty and accuracy are critically important. Documentation that smells like a cover-up is worse for an employer in litigation than no documents at all. Employers should strongly penalize managers who make falsified or biased evaluations, impose disciplinary action on subordinates for pretextual reasons, or omit key facts in their write-ups of their subordinates.  

               7.  Run independent audits and investigations of workplace liability issues. When unlawful employment practices go undetected or unaddressed – be they discriminatory or harassing treatment or unpaid over time compensation – they create hidden liabilities waiting for a legal action to spring to life and hit the company’s balance sheet. Just as companies hire auditors to look for hidden or undisclosed financial liabilities, so employers should conduct their own audits (using their own personnel or outside attorneys) for unlawful employment practices. A simple audit check list can be found online (search for "HR self-audit California") or from your human resource consultant.  More sensitive investigations such as those involving serious employee misconduct should be handled by an experienced outside investigator, preferably an attorney who specializes in such investigations.

                8.  Seek legal counsel at an early stage.  Far too many employers wait until a claim has reached the litigation stage to call in legal counsel. They don't realize that an attorney who provides risk management advice can offer invaluable assistance in the pre-litigation stage, by trouble-shooting and recommending liability prevention techniques. When employers are aware of a problem employee or situation, they need a knowledgeable expert to make a "judgment call" and propose a plan of action for managing the issue.  Of course, the attorney's usefulness depends in large part on the attorney's understanding of the employer's business and operations, which allows him or her to render more confident opinion and recommendation.  An employer who regularly uses an employment attorney for trouble-shooting and general risk management advice will be able to prevent liability risks from spiralling out of control.    

                9.  Find litigation counsel who understands the employer's need for actionable advice.  When an employer is sued, it is critical to retain an attorney who is an aggressive advocate in court but also can meet the employer's need for bottom-line cost-benefit analysis.  The litigator must be able to make an initial assessment of the legal and factual issues, look at the available testimonial and documentary evidence, and provide a ballpark range of estimated liability (if any) and costs. The attorney’s analysis should cover all five phases of litigation: pleading, discovery, summary judgment, mediation (ADR) and trial. Of course, there is often great uncertainty about the future cost of litigation and possible liability because of the many variables in play, such as how a court will apply the often complex rules of law, what facts will emerge in discovery, and the particular legal theories, arguments and motives of the opposing party.   Even if the attorney cannot make precise estimates of risks and costs, he or she should be able to state a general range, and to explain the litigation process so that the employer can sort out where its best interests are served and how to best proceed, such as by seeking an early settlement or getting the case "thrown out of court" on summary judgment or putting up a vigorous defense at trial.  As the litigation moves forward, the attorney's analysis should focus on providing the client with a continuously modified road map that allows the employer to know how its interests are being protected and served throughout the lawsuit.

                 10. Require pre-litigation conflict mediation. Early mediation of a dispute, in which all sides come together with an expert mediator, usually an experienced employment attorney providing mediation services, is an invaluable tool for employers who wish to know more about the risks they run. Our justice system is not set up to resolve disputes swiftly or in an economical manner. Holding an early confidential mediation allows employers to gather more factual infromation, take an in-depth advance look down the litigation path and decide if they want to settle and on what conditions.  Requiring employees to submit to pre-litigation confidential mediation should be a part of the employer's employee handbook and every employment agreement. Although such a provision is not a legally binding obligation, courts will often mandate mediation during litigation and many cases need multiple attempts at mediation in order to settle. 

         C.    Summary

                The challenge of managing workplace liability risks has never been greater.  High employee turn-over leads to aggressive litigation of wage and hour claims, requiring employers to "step it up" in their oversight of payroll and time-keeping practices.  In addition, anti-discrimination and other laws have open-ended "case by case" liability standards, leading to uncertainty about actual liability and litigation defense costs. By using the risk management tools described above -- such as employee handbooks, human resource specialists, employee training, work place documentation, insurance and attorney consultation, etc.  -- an employer should be able to minimize its employment liability risks and avoid the resource-draining claims, penalties, investigations and lawsuits.   

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