Dealer Ops

Reducing Employment Litigation Risks

It’s a fact of business life: Even the best-run companies are vulnerable to employment-related lawsuits and the damage awards that can result. In the last few years, as employment statutes have proliferated, employers face an increasingly treacherous legal environment. The laws are broad, complex and, in some cases, open to competing interpretations. 

Complaints are on the rise; an increasing number of terminated or displaced employees are alleging discrimination. Employment-related lawsuits have increased significantly over the last few years. In 2005, the Equal Employment Opportunity Commission (EEOC) collected a record $378 million in pre-litigation settlements and fines from employers found to be in violation of discrimination laws. This figure is up from $362 million the year before. However, these figures do not include the billions that businesses are paying in legal or court-ordered judgments and settlements or the hundreds of class-action suits filed on allegations of breach of fiduciary duty.

With many recent lawsuits in the news, employers recognize the need to take effective, proactive steps to eliminate, or at least decrease, their risk of being sued. In 2006, the EEOC settlements alone totaled more than $48 million with more than 12,000 complaints of sexual harassment filed with the EEOC. Settlements for cases in 2005 exceeded $47 million. Defense costs were several times this number. For a small- or medium-sized company, just one award of this magnitude could be crippling. 

The best solution for employers today is to purchase comprehensive employment practices liability insurance (EPLI), which covers a business against potential liability losses such as sexual harassment, discrimination and wrongful termination. However, the policies are expensive: companies often pay $5,000 to $100,000 in annual premiums for the plans. Many plans also contain high deductibles. 

Enter the Professional Employer Organization (PEO). A growing trend in business today, PEOs contract with companies to handle all of their human resource functions. PEOs are full-service human resource organizations that manage the day-to-day administrative headaches of small- and medium-sized companies. 

PEOs establish a co-employer relationship with their clients and contractually assume substantial employer responsibilities and share specified employment-related liabilities, including employment practices liability (EPL) management. A PEO leverages its access to far greater resources than most companies can obtain to provide EPL insurance at little or no cost to its clients. 

The key to preventing employment-related problems is an informed workforce. PEOs provide comprehensive training to reduce their clients’ exposure to lawsuits. Supervisors are taught to be aware of problems such as sexual harassment in the workplace and recognize relevant laws and employees’ rights and responsibilities under the law.

There are many benefits in hiring a PEO. The most difficult decision will be which PEO to choose. A business owner should conduct a thorough background check of a PEO before entering into any agreement and look for answers to the following questions:

How long has the PEO been in business and does it provide references?

Does the PEO have a stable financial history? Are the benefits plans offered properly funded and backed by a reputable insurance company?

Does the PEO have a license, if it operates in a state that requires one?

Is the PEO accredited by the Employer Service Assurance Corporation (ESAC)? The ESAC is an independent body that is nationally recognized for its monitoring of professional responsibility standards and financial benchmarks in the PEO industry.

Achieving business success requires a relentless focus on the basics: the core product or service, customers, distribution channels, competitors and the bottom line. Utilizing a PEO to deal with a company’s human resource duties can significantly advance a company’s growth potential and profitability. 

Vol 5, Issue 7

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