The next area is age discrimination, where there were more than 17,800 charges filed and $69 million recovered in damages. The first baby boomers turned 60 last year. As our workforce gets older, you're going to have more age discrimination claims. These claims also are producing the largest settlements and jury awards. The average plaintiff is a 55-year-old male who has been downsized or let go. He is usually a member of management and makes more money than younger associates. These plaintiffs are very sympathetic figures with juries. They often conclude that employers let them go primarily to reduce expenses. Whether the plaintiffs are male or female, jurists think, “That person could be my mother or father. That person could be me someday.”

Next, let's consider those who allege discrimination on the basis of disability. In 2004, there were 15,000 EEOC filings, resulting in $47 million in recoveries. Groups that represent the disabled are becoming very aggressive. Especially in California, where we have seen an increase in the number of third-party disability discrimination charges filed–usually against hotels. The allegation is not that they do not provide access to the disabled, but rather that they are not in total compliance with all city, state and federal ordinances and laws.

Let's look at sexual harassment. In 2004, the EEOC recovered $37 million on 13,000 sexual harassment charges–15% of which were male-on-male sexual harassment. That's a trend we've been seeing. These cases generally are not based on managers pressuring employees to have sex, but rather on teasing and ostracizing male employees who may look effeminate or not otherwise fit into the macho stereotype. Another trend is an increase in sexual harassment charges filed by teenage employees. I see this as something of a cause du jour with the EEOC. Under their “Youth at Work” initiative, the EEOC has been going around the country, informing teenagers (and their parents) who work in the fast-food industry, that if a manger or employee hits on them, that behavior is illegal. “Come to us, and we will file on your behalf.”

After 9/11, we saw an uptick in the number of charges alleging discrimination in regard to national origin. In 2004, there were 8,000 charges filed with the EEOC, and $22 million recovered in damages. We also saw more charges alleging religious discrimination (2,500 charges resulting in $6 million in damages).

Finally, there's pregnancy discrimination. There were 4,500 charges filed in 2004, and $11 million in recoveries. I hope your insureds know they must not fire anyone who is on pregnancy leave or ask women, as they are interviewing them for a position, “Gee, do you think you're going to have a family?” If they do such things, they are going to face discrimination charges.

Nor should employers retaliate against employees who have filed an employment action against them. Of retaliation claims brought in federal court, 57% are won by the plaintiffs. This should be no surprise. While a jury might not understand the underlying allegations of discrimination, the jurors understand that after the employee filed a complaint internally with the company–or externally with the EEOC or a state administrative agency–the employer fired that person or took some other negative employment action. That's a smoking gun, and that's why the plaintiffs have been so successful in these cases.

Since 2002, the EEOC has been very aggressive in pursuing small companies–those with up to 200 employees. They've been going after these companies with the same fervor they formerly reserved for large corporations. Many of these defendants have faced awards or settlements in excess of $1 million. That's catastrophic for a small company.

Today, one-fifth of the employment practices cases that go to trial result in a plaintiff's award of $1 million or more–and this does not include defense costs. These could amount to $150,000 for a single-plaintiff matter that does not take a long time to resolve– and that figure does not include a reasonable amount for plaintiff's fees. If you're in New Jersey, the court might add a multiplier to that plaintiff-fee award. These are the hidden costs. Even if you win an employment practices case, you lose.

Here is what I find to be the most amazing statistic. According to USA Today, 550 employment lawsuits are filed in this country every day. That tells you that EPL is no longer a new insurance product or a new area of the law. Filing employment practices claims used to be a cottage industry for slip-and-fall lawyers, who would take these cases just to make their fees. Now these cases are litigated by the best and brightest of employment plaintiffs attorneys, who sometimes band together to bring class actions.

In 2001, the median jury award in an employment practices case was $168,000. By 2003, it had risen to $250,000. The number of cases apparently has been rising too. According to the 2004 Jackson Lewis Workplace Survey, 58% of the respondents defended gender discrimination complaints, up from 48% in 2003; and 63% defended sexual harassment claims, an increase from 57% the year before.

Jack McCalmon: As an underwriter, what is your biggest concern?

Galioto: That we are asking the wrong questions. In every application, I see the question, “Do you have an employee handbook?” An affirmative answer to that question is hardly enough. Underwriters also should ask, Do you have policies and procedures for implementing that handbook? Another issue is incident management. Do you have a swift, res- ponsive, equitable way of handling internal complaints? If you don't, those complaints are going to escalate into charges. Is there someone in your organization monitoring complaint trends?

Also, underwriters should be interested in restructuring and downsizing. If an employer doesn't carry out such projects correctly, they may adversely affect a protected group of employees. That could lead to age, race or gender discrimination claims. If a company wants third-party EPL coverage, we look at how disability complaints are handled too.

Philip Voluck: In discussing steps companies can take to prevent employment-practices claims, I want to start by picking up on something Lucy Ann mentioned. In the trenches, where I've been working for 25 years, many insureds just don't get it. When it comes to handbooks, for instance, I can't tell you how many insureds we run across are assigned to represent who not only don't have handbooks but who think they don't need them.

Handbooks set forth rules, regulations and expectations. In those states where a handbook constitutes a binding contract, it must have the appropriate disclaimer language, so employees know that upfront.
The handbook and the policies therein–your complaint policy, your policy on harassment, etc.–is the first thing an agency like the EEOC asks for. It's the first thing you see addressed in interrogatories and other types of discovery. It can be quite frustrating when you don't have a handbook or policy to turn over in an employment discrimination case at any level.

Employers can take a variety of affirmative steps to prevent EPL claims, including the following:

• Implement training. One thing we have been doing is broadening our clients' training programs. In a certain sense, focusing only on sexual harassment training is pass?. While only a handful of states have passed laws requiring it, I think we all can agree that it has become an integral component of any loss-prevention program. But when I say sexual harassment training is pass?, I mean training needs to be broadened to include other employer EEOC obligations, so employers' managers and supervisors are aware of some of the other “landmines” out there. For instance, in our opinion, harassment on the basis of national origin is going to increase. Such “EEOC training,” as we call it, is going to serve your insureds' managers and supervisors a lot better than focusing solely on sexual harassment.

  In regard to sexual harassment training, I see too much concentration on the “quid pro quo” element–i.e., claims involving a supervisor's abuse of power over a subordinate to extract sexual favors as a condition of employment. But Most claims we are seeing today are coming directly from lower-level employees the workplace–co-worker against co-worker, with the supervisor or manager not knowing what do to when a complaint arises. Certainly, it makes sense to train your supervisors and managers what not to do; but since most claims are coming from the actions of subordinates, they need to be trained about what constitutes acceptable behavior as well. This failure to act on the supervisor's part exposes the insured to liability, even if “upper management” was unaware of the problem.

• Use arbitration agreements. While the law is still in flux in some areas regarding the enforceability and breadth of these agreements, I recommend including them in employee handbooks and having the employees acknowledge them. The arbitration procedure should include a mediation component to keep the complaint and its resolution internal. That's the goal.
• Pay attention to wage and hour issues. While many EPL insurers don't cover wage and hour claims, we're hearing whispers that carriers are taking another look at certain aspects of the wage and hour process. Certainly, a retaliation action is going to be covered under most EPLI policies, like when someone complains about the way they are classified and is fired. Insureds should audit their pay classifications, and their payroll products and policies. Wage and hour issues have a strong emotional component to them. If employers don't handle them properly, they can really tick off employees.
• Promote diversity. What else can employers do in regard to loss control? They can recruit and maintain a diverse workforce. Training also should address this issue. We all know that the workplace is becoming ever more diverse, yet many of our insureds aren't recognizing that.
• Hold mangers accountable. I can't tell you how many employers just absolutely refuse to do this out of what I call the “warm-body syndrome.” “He's my guy,” they say. “He gets the product out.” Or “If I fire him, what am I going to do?” Or “She's the head of the department; I can't get rid of her.”
  Employers must hold managers accountable, however, because otherwise their risk of liability is too great. Managers can be held accountable in a number of ways. Their performance, or lack thereof, can be tied to their bonus plans. Perhaps funding for their departments can be cut back, if a number of claims are coming out of them.
• Consult employment counsel before making major employment decisions. This sounds simple–and it is. Many insurers offer insureds a break on their self-insured retention or deductible if they consult ahead of time with panel counsel. If you pick up the phone and spend five to 10 minutes with an employment attorney, you're going to help reduce your risk.

  What does the future hold? One thing to be concerned about is the partnering of agencies. We're seeing the EEOC partner with the Department of Labor and with the Occupational Safety and Health Administration to really reach out. As Lucy Anne mentioned, the EEOC is becoming increasingly active.

McCalmon: Here are a few things to consider as we look ahead. First is what I call the “smoke bomb.” If you haven't heard, a company in Michigan terminated four employees because they smoked on their own time. They gave them nicotine tests to determine that they smoked away from work. The employees sued, but the company's action was upheld in court. Twenty-one states, including Michigan, do not recognize an employee's right to smoke. So employers are saying to employees, “If you smoke, you cost me more money (health expenses),” and in some cases are finding they have the right to let them go–even if the employees only smoke at home. This issue is likely to lead to more employment-practices litigation.

Next is the “obesity bomb.” A recent Stanford University study showed that obese employees earn less than non-obese employees. The reason for this, many assume, is because employers believe obese employees, like smokers, will cost them more in health expenses–and there is a lot of data backing them up. Friction between employers and employees over this issue seems likely to increase. The claims potential certainly is high: Ninety percent of American men and 70% of American women will become overweight at some point. Thirty-one percent of U.S. adults are obese.