This ruling overturns prior case law, which held that a collective bargaining agreement did not act as a waiver of the covered employees' right to pursue employment discrimination claims in state court, or with the various federal, state and local agencies that receive and investigate claims of discrimination.

Employers and unions now have to decide if they want to include individual employment claims in their collective bargaining agreements, including employment discrimination, sexual harassment, wrongful discharge, negligent infliction of emotional distress and the like. Should such claims be negotiated into a union contract, unions may become more vigilant in protecting their members' rights (at the risk of being sued by their members for unfair representation).

Bottom line: expect employment claims to rise and employers to carefully evaluate whether they have adequate coverage under an employment practices liability insurance policy.

Prudent employers ordinarily depend upon an EPLI policy to protect them from damages arising out of charges of discrimination by their employees. Such policies usually cover the expense of retaining an employment law attorney to defend such claims and reimburse the company for any judgments and settlements.

But the court's ruling, which is coming at a time when there is a virtual explosion in the number of charges, complaints and lawsuits filed by employees against their employers, have business owners concerned that their EPLI policies may be inadequate to cover the anticipated increased potential for exposure to liability.

For instance, plaintiffs who previously were able to seek all available remedies in pursing a discrimination claim may now be bound to process all disputes exclusively through the collective bargaining agreement's grievance procedure, potentially resulting in binding and final arbitration if the union pursues the grievance.

While this may seem like a victory for business owners, it could leave them vulnerable.

Many EPLI policies exclude coverage for such “labor disputes,” even though the core claim may be sounding in discrimination.

In addition, union arbitration is usually not the most effective manner in which to resolve claims, particularly those involving discrimination. While the alternative dispute resolution method offers positives–such as informality, simplified rules and procedures, cost and speed of decision–arbitration is plagued with disadvantages.

Arbitrators are notorious for King Solomon-type decisions, which ensure he or she will be selected by one or both parties to arbitrate another dispute. Extensive discovery is absent in most arbitrations, so the summary judgment motion is almost always not viable.

There is also a significant level of uncertainty regarding how an arbitrator might rule. This makes many employers naturally uncomfortable.

The absence of formal pleadings and prehearing motions can make it difficult for the arbitrator to know what the real issues are until the case is fully presented. Arbitrators generally lean toward including rather than excluding evidence, so it is common for “inadmissible” evidence to be admitted.

Arbitrators also have varied backgrounds, training and abilities, so there are differences in their abilities and willingness to “disregard” evidence that turns out to be irrelevant or immaterial, as well as understand the laws involved.

Finally, the ability to successfully appeal an arbitration award is limited.

Employers must be vigilant. Many insureds are under the false impression that an EPLI policy alone can effectively substitute for established risk management procedures that enable an employer to prevent employment-related claims.

Regardless of the court's ruling, the focus should always be on preventing complaints, grievances and lawsuits from ever proceeding to an adjudicatory stage. Yet, many organizations, including small businesses and nonprofit groups that lack a full-fledged human resources department, do not understand the proactive measures that need to be put in place, monitored and updated when necessary.

Such measures include regular communications with employees regarding policies and procedures. Supervisors who undergo formal EEO training at least every other year is mandatory. In addition to helping supervisors and managers identify potential problems, this often inexpensive training provides the employer with an affirmative defense if sued by an employee.

With policies properly established and communicated, employees who feel they have experienced any form of discrimination know there are procedures in place to handle complaints. Employers also ensure that supervisors and managers understand precisely what kind of behavior constitutes discrimination, including sexual harassment. What's more, they make it clear that the company will not tolerate any such conduct.

Michael A. Kaufman is managing partner in the Woodbury, N.Y. office of Kaufman Dolowich & Voluck and Philip R. Voluck is managing partner in the Blue Bell, Pa. office of the firm. Mr. Kaufman can be reached at [email protected] and Mr. Voluck can be reached at [email protected].