How to Manage Employment Risk in a Slow Economy

By Dennis Molenaar | October 14, 2010

The difficult economic conditions of the last few years are on top of most people’s minds. Challenging economic circumstances are adversely impacting individuals and proving destructive to public entities across the nation. The weak economy affects cities and counties everywhere and it seems no person or group is entirely immune.

Layoffs have become increasingly common — and along with them, the number of employee discrimination cases has grown.Last year saw a sharp increase in the number of claims filed under the Americans with Disabilities Act (ADA), meaning more people are filing lawsuits claiming discrimination against their employers. More claims were filed by people with disabilities during 2009 than at any other time during the 20-year history of the ADA, with almost 21,500 related charges filed with the Equal Employment Opportunity Commission.

It’s no coincidence that increased layoffs and discrimination suits have a direct relationship. Two circumstances have helped generate this alarming fact. First, recent changes to the ADA have expanded the reach of the act, opening up benefits to those who were formerly not protected. Second, current economic conditions have led to widespread workforce reductions, which makes employers more vulnerable to discrimination suits. Complaints include issues such as arbitrary firing (or dismissals), being overlooked for a promotion or not receiving proper accommodations to complete one’s work.

Layoffs Done Right

In order to avoid lawsuits, employers must not inadvertently discriminate in workforce reduction plans, not only against those with disabilities, but also against those belonging to other protected classes. Terminating employees is never easy, but there are some suggested practices to minimize legal repercussions. Among them:

• Exhaust available options. Prior to layoffs, ensure all other alternatives have been explored. Reduce the number of temporary and part-time employees. Offer early retirement buy-out options. Establish an abbreviated work week.

• Communicate early and often. Advise employees as soon as possible of the coming changes. Hold individual meetings with affected employees. Make information readily available to all staff members so concerns can be addressed and the spread of misinformation diminished.

• Ease the transition. If possible, make assistance available to employees. Consider offering outplacement programs such as vocational rehab, family financial planning and health-care/benefits meetings.

• Document everything. Document all actions and why those decisions were made. Have a clearly written plan on staff reductions and be sure to follow it.

• Work closely with legal counsel. Each step of the process of employee reduction, termination or furloughs should be closely scrutinized by your legal advisers. Prepare legal counsel with documentation to ensure that there is not a violation of a federal law or an unintentional appearance of discrimination. Most insurance carriers are willing to provide assistance with employment practices and employment issues.

• Make security a priority. We’ve all heard of the tragic episodes of workplace violence that are somber reminders that workplace safety cannot be taken for granted. Employing proper security practices can help ensure that employees are protected from a potentially dangerous situation. Your business should also train employees to recognize warning signs such as employees making threatening remarks about supervisors and other employees. When layoffs do occur, ensure current employees are safe from retaliation.

EPLI: Your Legal Protection
Layoffs come with a whole host of potential legal claims. State laws and other government entities, such as the EEOC, are also catalysts for discrimination suits. Consequently, it is important that risk managers ask themselves: Do we have the right to reduce staff or employee work hours? The quick answer is yes, absent a contract, union agreement or other employment manual, and as long as staff or work-hour reductions are not discriminating against a protected person or in violation of a federal or state law. All decisions regarding staff reductions should include the insight of experienced legal counsel, lest an organization risk putting itself into an unforeseen legal position.

But even when a layoff is conducted in the most appropriate, fair way possible, lawsuits are sometimes inevitable. That’s where Employment Practices Liability Insurance (EPLI) comes in, to help protect your business against claims by workers that their legal rights as employees have been violated. EPLI offers defense against a wide range of employee lawsuits, including discrimination, sexual harassment and wrongful termination.

Available as a stand-alone product and sometimes as an endorsement to a Business Owner’s Policy (BOP), companies large and small should invest in this type of protection, as no business is immune from legal repercussions.


Molenaar is vice president of risk control for OneBeacon Government Risks.

Was this article valuable?

Here are more articles you may enjoy.