Specialty Podcast: Current Trends in Employment Practice Liability

Intro (00:00):
You're listening to the Alliant Specialty Podcast, dedicated to insurance and risk management solutions and trends shaping the market today.

Tim Crowley (00:08):
Hello everyone and welcome back to the Alliant Specialty Podcast Network. Today I am your host, Tim Crowley, from Alliant Management Professional Solutions Group. I'm a Senior Vice President, focusing on the specific natures of employment practices insurance and risks. In addition to myself, we have Wendy Mellk, who's a partner at Jackson Lewis, who specializes in management-side employment claims. To start off, I thought it might be helpful for you to give our audience an update on some of the most notable employment litigation trends that you experienced in 2022.

Wendy Mellk (00:41):
When thinking about this, I bucketed the claims into five areas that I'll go through quickly. So number one, we are starting to see more religious discrimination claims, and we started this with COVID-19 and people raising religious objections to being vaccinated, and we expect, as we are moving into 2023, to see a greater uptick in these claims. There is a case being argued before the Supreme Court, and depending upon the outcome of that claim, we could see a lot of religious accommodation claims. And just very briefly, under Title Seven of the Civil Rights Act, employers have an obligation to reasonably accommodate employees whose sincerely held religious beliefs or observances conflict with work requirements, unless doing so would create an undue hardship. And the statute doesn't define undue hardship, but for about 40 years, employers have relied on a Supreme Court decision, which articulated that an undue hardship is really something that resulted more than a de minimis cost and employers have relied on this. And in this case that's being argued before the Supreme Court, Gerald Groff, who worked as a rural mail carrier for the United States Postal Service, resigned claiming that the USPS failed to accommodate his sincerely held religious beliefs, which prevented him from working on Sundays. And the USPS really tried to accommodate him, but ultimately could not, because it was a rural area, and they couldn't find people to work on Sundays. So the issue that is before the Supreme Court is whether, number one, it's the Supreme Court's own definition of undue hardship, this de minimis definition with respect to accommodation request is still valid. And number two, whether an accommodation that burdens other employees can be said to burden the employer when analyzing undue hardship. So if the Supreme Court comes down and says, we're not going to use this de minimus standard anymore, it's going to be a sea change.

Number two, expect an uptick in litigation with regard to independent contractors. So, the Department of Labor is scheduled to issue a final independent contractor rule in May, which will make it easier for independent contractors to assert claims that they were misclassified as independent contractors rather than employees. And that really exposes employers to claims for overtime. We've seen over the past year or two, the Department of Labor becoming much more aggressive in terms of going after employers for violations of the law. We tend to see things seesaw, depending upon an administration. We are in the midst of a democratic administration, so that means that enforcement is more aggressive. I also want to note that the Department of Labor is going to be issuing new overtime rules. So employers should keep their eyes open for that.

The third bucket is pay transparency. We have seen over the past couple of years an uptick of laws requiring employers to disclose prospective salaries or salary ranges when advertising open positions. So right now we have New York City, New York, California, Washington, Colorado, to name a few. We are starting to see some litigation arising out of these pay transparency laws. And we expect to see the potential for discrimination laws now that employees are able to see what others in their job titles will be making. There's the potential for claims of treatment discrimination, right? Employees may allege that they're receiving lower compensation because of their gender or their race. Pregnancy, a new law was passed that actually won't go into effect, I believe, until June, that requires employers to accommodate pregnant workers. So many local or states have these kinds of laws, but it has not been a federal law. So we expect as this law goes into effect to see more pregnancy related claims. And I will say that in my own practice, over the past two or three years, I have seen an uptick in claims where employees allege that they have been treated less favorably because they are pregnant or they've been discharged because they're pregnant. So we expect to see those claims rise.

Finally, it's not necessarily a litigation trend, but it does impact litigation. There has been a winnowing away of rights in terms of arbitration agreements, and there was a law passed last year, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, which gives employees who are parties to arbitration agreements with their employer the option of bringing claims of sexual assault or sex harassment, either in arbitration or court. And most employers who do have these arbitration agreements implement them, number one, to gain confidentiality and number two, to avoid a jury trial. So this law will have a significant impact on those types of arbitrations.

Tim Crowley (05:47):
Great. Certainly a lot for our risk management colleagues to consider and monitor going forward. You touched upon it a little bit with respect to some of the notable trends within COVID employment litigation, but what areas, if any, do you see remaining at the Center of COVID employment related litigation in 2023?

Wendy Mellk (06:05):
So we're sort of moving beyond the, "you treated me poorly or you discriminated against me because I have COVID." We're cleaning up some of the vaccination cases, which really we saw a lot of vaccination cases in '21and '22 coming to an end. But now that most jurisdictions are really removing any kind of obligations for employers to have vaccinated employees in the workplace, we're sort of moving away. So we're now moving into claims where individuals are alleging that they are being discriminated against for employers failing to accommodate them by allowing them to work remotely. So the claim really is, "I worked remotely, I adequately performed my job, you're now requiring me to come back into the office. I have a medical condition or some sort of other religious accommodation that requires me to work from home. And your failure to provide that accommodation to me is unreasonable." And we've seen the EEOC is involved in some litigation regarding this, and this seems to be the area where most employers are concerned about litigation.

Tim Crowley (07:15):
Great. Thank you for that update. Very helpful. What other employment related litigation trends do you anticipate in 2023? And furthermore, do you anticipate continued litigation focusing on biometric data, including BIPA as the subject of claims?

Wendy Mellk (07:29):
So let's start with BIPA, right, because there were a couple of big decisions in the first quarter of 2023. The Biometric Privacy Act is a law in Illinois. It prohibits employers from utilizing biometric information or biometric identifiers without consent, without release. There's certain requirements that employers need to comply with before they can require their employees to use facial recognition or any kind of technology that gathers biometric information. And in Illinois Supreme Court decisions that were handed down in January, February and March, the Illinois Court found number one, that there is a five-year statute of limitations on claims under BIPA. Number two, the Illinois Supreme Court found that every single collection of biometric information is a violation of the act. And that is significant because each collection under BIPA that violates the act comes with either a $1,000 penalty or a $5,000 penalty. And so when you look at it if an employer requires some kind of palm print as a means of time system, right?

Somebody who swipes in, then goes to lunch, swipes out and comes back to lunch and swipes in and then leaves during the day, that's four collections. If it's a willful violation, it's $5,000. It's $20,000 a day times five, that's a $100,000 a week, times 52 or 48, however many weeks this individual is working, times the number of employees that the employer has in the workforce going back five years. And so one of these cases involved White Castle and White Castle determined that if in fact there was to be a finding of a violation of BIPA with respect to their case, it could result in something like $17 billion worth of damages. There is a petition for rehearing before the Illinois Supreme Court, and there is hope on the employer side that the Supreme Court will modify the decision, but it is very significant and we are also seeing other BIPA type laws cropping up in other jurisdictions.

And we expect to see more and more laws like this go into effect as we move through '23 and '24. In terms of other trends, we're seeing more regulatory activity related to workplace technologies and privacy. So in 2022, President Biden released a blueprint for an AI bill of rights. The EEOC has issued guidance regarding AI, artificial intelligence related disability discrimination. The NLRB has announced a focus on monitoring and algorithm driven management, and there's new laws in effect with regards to electronic monitoring in New York and New Jersey. New York City actually has a law that took effect in January, although enforcement is delayed until April, regarding employers’ use and collection of automated employment decision tools. So this really seems to be a very fertile area of regulation.

Tim Crowley (10:53):
Great. Thanks Wendy. I know underwriters for employment practice liability insurance have certainly expressed an increased scrutiny on the BIPA procedures protocols and overall risk of our clients. It's certainly helpful for our insured base to monitor these developments and understand the potential exposures.

Wendy Mellk (11:12):
Yeah, and on that note, there was one jury trial under BIPA, and what I found fascinating about this jury trial, it had to do with BNSF. Number one, the jury was only out for an hour before they came back and returned a verdict of $220 million against BNSF. And what BNSF argued was that they should not be held responsible for violations of BIPA because it was a third party who was collecting the information and the jury rejected that. So you're right. So employers, part of the issue is that I don't think a lot of employers are fully cognizant that they are collecting biometric information. And so it's really, really important that employers pay attention to their timekeeping systems, to their logons to computers, to their entries, and to building to fleet safety, that you really understand if you are collecting this information and then take the appropriate steps for the consent and information that needs to go out.

Tim Crowley (12:10):
Yeah, great point. And overseas it presents some unique challenges too in different work areas there. So again, very important for everyone to monitor that and control their exposures. Are there any meaningful emerging local regulations nationwide or regionally that you are monitoring? And if so, how are you advising our clients on those items?

Wendy Mellk (12:29):
So I had mentioned pay transparency, right? We just had a law go into effect here in New York City. This is really a nationwide trend. We call it the patchwork of laws. So for those multi-state employers, it is sometimes difficult to really make sure you're complying with all of these laws. Sometimes it's easiest to take the most restrictive law and comply with that law nationwide so that you know that you are in compliance. Other employers decide that they are just going to track what the developments are and implement those developments within the jurisdictions that they're in based on the letter of the law. But it really takes a lot of time and energy to track. So we're seeing pay transparency, we're seeing a little bit of an increase in whistleblower laws. So, in my state, New York, in February of 2022, we passed an amendment to our labor law, we have one of the most expansive whistleblower laws in the country.

And what these laws prohibit is employers taking adverse action against employees who report about an individual or a policy that the worker reasonably believes has violated a law or rule, right? It can be any law or rule. And so they're very, very broad laws. They tend to be difficult for employers to comply with. And you know, just going, how can employers deal with these things? A lot of training, making sure their policy's up to date and making sure they track in every jurisdiction they're in any new laws or regulations that are coming into effect.

Tim Crowley (14:10):
Great. One last category for you, Wendy. Have you noticed any meaningful new trends from the EEOCs efforts this year?

Wendy Mellk (14:17):
So the EEOC, as I had said earlier, is really focusing on AI. They believe that there are aspects to employers’ use of AI that could result in disparate impact, that could negatively affect a group of employees versus another group of employees, negatively affect on the basis of race or gender. Another agency that has really brought itself into the mix with private employers, and I'd be remiss not to mention this, is the National Labor Relations Board. So most employers who are not particularly sophisticated believe that if they're not unionized, the National Labor Relations Board does not apply to them, right? That they're not going to oversee any of their employment practices. That is untrue. There is the National Labor Relations Act, which applies to all employers and all employees, and in particular under the National Labor Relations Act, there is section seven, which provides that employers cannot engage in conduct that would restrict or prohibit employees from engaging in activities where they can talk to their colleagues about the terms and conditions of employment.

And most notably, the NLRB in March came out with a decision that significantly impacts employer's ability to enter into confidential severance or settlement agreements. And so what the NLRB said is that blanket confidentiality agreements in either a severance agreement or a settlement agreement violate the section seven rights, right? These protected concerted activity rights. And so therefore, while employers can protect the dollar amount of a severance or settlement agreement, the blanket confidentiality, which says you can't talk about your claims or you can't talk about your employment, those the NLRB say are unlawful. They also have found that broad non-disparagement clause which lots of employers utilized are unlawful. The language that they say they believe would comply with the National Labor Relations Act is that employers can prohibit maliciously disparaging comments in these agreements. But this blanket, you can't disparage the employer in any venue are, according to the NLRB, unenforceable. So that is a very significant sea change, right? One of the reasons employers get severance agreements or settlement agreements is for confidentiality purposes. So we're going to see how that all plays out.

Tim Crowley (17:02):
A lot to keep informed on and certainly appreciate your advice and insights there. Which leads us back to the insurance landscape. Over the last several years, there's been a very firm or hard market for management professional liability insurance products. Over roughly the last 12 months, we've seen some softening in certain insurance products in that space. I would say employment practices liability is one that hasn't necessarily shifted as much in the favor of our insureds. But in the last, quarter or so, we are starting to see the employment practices landscape stabilized. Part of that being from some of the impact that the premiums they received in 2021 and 2022 did shift quite a bit. But we're starting to see the better risk getting a little bit more of a favorable view from the underwriters based on the protocols and procedures and HR department functions at the various insureds and given industry classes and demographic and geographic regions.

One thing for our insureds that are listening to this podcast, is really to continue to take a proactive approach in the marketing of your insurance placements and carefully articulate the meaningful improvement steps and protocols that you're taking to control the exposure of these types of claims. And that's the best way to drive the most desirable results for employment practices. Overall, we have seen an uptick in the amount of competition amongst insurers in this space, which generally leads to more favorable results. We have seen in certain cases, insurance companies providing more capacity than maybe they were two years ago, both domestically and in Bermuda, in certain cases, seeing more favorable retentions. But it does take some work to get there. So the insurance companies are continuing to scrutinize this area of risk very carefully. And again, it takes some effort with quality insurance brokers and legal counsel to present your submissions to the insurance companies in the most favorable light to take advantage of the best insurance market conditions that we can. So thank you for participating and everyone listening to the Alliant Specialty Podcast. I'll leave you with the following functions of try and be careful, be prudent and be proactive in how you monitor these risks. And please feel free to reach out to your Alliant team and or the folks over at Jackson Lewis to continue to help your firms navigate these uncertain times.