The Importance of Employment Practices Liability Coverage

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Every employer, no matter how small, faces the specter of being sued by a past, present or prospective employee at some time.

In fact, such employment practices claims are widespread – so much so that most businesses are much more likely to have an employment practices liability claim than a general liability or property loss claim.

Nearly three-quarters of all litigation against corporations today involves employment disputes, which can be extremely costly. The cost associated with an employment practices claim can be significant.

In 2018, the Equal Employment Opportunity Commission resolved 90,558 charges of discrimination and recovered about $505 million in remedies for discrimination plaintiffs.

In addition, the EEOC recovered nearly $70 million for victims of sexual harassment through litigation and administrative enforcement that year, up roughly 50% from $47.5 million in 2017.

The massive jump in sexual harassment claims and recoveries is a direct result of a surge in lawsuits since the start of the #MeToo movement, which has emboldened many victims to come forward and file complaints.

Keep in mind, the above are just penalties and do not include defense costs, which can exceed $100,000 per claim for employers.

For these reasons and more, employment practices liability insurance is crucial for any employer. The risks of being sued by an employee for discrimination or harassment have increased substantially, particularly now in the #MeToo era.

Employers need EPLI coverage because comprehensive general liability policies and workers’ comp policies exclude employment-related claims.

EPLI coverage

Policies cover:

  • Defense costs (court fees, attorney fees and related costs).
  • Payment of settlements and/or judgments up to the policy’s limits.
  • Any fines or penalties levied by government agencies.

EPLI policies cover business owners as well as directors, officers and managers. Some policies also cover employees. Additionally, you can buy third-party policies to cover claims brought by non-employees, such as clients.

Types of action covered include:

  • Discrimination based on gender, race, national origin, religion, disability or sexual orientation
  • Sexual harassment or other unlawful harassment in the workplace
  • Wrongful termination
  • Failure to employ or promote
  • Retaliation
  • Employment-related misrepresentation
  • Failure to adopt adequate workplace or employment policies and procedures
  • Employment-related defamation or invasion of privacy
  • Negligent evaluation of an employee
  • Wrongful discipline of an employee
  • Employment-related infliction of emotional distress

NOTE: Wage and hour claims, or disputes regarding overtime pay for non-exempt employees, have become more expensive in recent years, so most EPLI policies exclude this coverage. Business owners may be able to find endorsements to add wage and hour coverage.

Costs

EPLI claims can be extremely expensive. The average cost of a discrimination claim is $125,000, and 25% of judgments exceed $500,000.

Most businesses are wise to have at least $1 million in coverage. However, higher coverage limits increase your premium cost, so you want to balance your coverage needs and your budgetary concerns.

Call us if you want further information or need help in gauging your EPLI coverage needs.

Newsom Set to Sign in Sweeping Independent Contractor Bill

independent contractor

California Gov. Gavin Newsom has signed legislation into law that will codify a court ruling from last year that set new ground rules for what constitutes an independent contractor, and which expands on that ruling.

There’s been a lot written in the media about the legislation, AB 5, and unfortunately much of it misses the point. Some news reports have said it will spell the end of independent contractors in the state and that anyone a company hires to do a temporary job on contract must be treated as an employee, along with all of the obligations that go with that relationship.

Now that AB 5 is the law, state and federal labor laws will apply to independent contractors who have to be reclassified as employees. That means they would be afforded all of the associated worker protections, from overtime pay and minimum wages to the right to unionize. Employers would have to cover them under their workers’ comp policies, and extend benefits to them as they do to other employees.

The bill also gives the state and cities the right to file suit against companies over misclassification.

In its essence, AB 5 codifies and expands on a 2018 California Supreme Court decision that adopted a strict, three-part standard for determining whether workers should be treated as employees.

Known as the “ABC test,” the standard requires companies to prove that people working for them as independent contractors are:

  1. A) Free from the company’s control when they’re on the job;
  2. B) Doing work that falls outside the company’s normal business; and
  3. C) Operating an independent business or trade beyond the job for which they were hired.

The court explained that the first prong aligns with the common-law test for employment, evaluating the degree of control exercised by the company over the worker. The second prong examines whether the worker can reasonably be viewed as working in the hiring company’s business.

The third prong inquires whether the worker independently made the decision to go into business. The fact that the hiring company does not prohibit the worker’s engagement in such an independent business is not sufficient.

The bill will likely cause many industries to reclassify workers by allowing the state to enforce a stricter standard for independent contractors and freelancers.

Occupations affected

Below is a list of those occupations and the types of companies that would be affected:

  • Rideshare & delivery services – Like Uber, Lyft, DoorDash and Postmates
  • Truck drivers – Heavy duty trucks, Amazon delivery trucks, some tow truck companies
  • Janitors and housekeepers – Commercial cleaning services
  • Health aides – Nursing homes, assisted living facilities
  • Newspaper carriers – The bill’s author agreed to delay implementation by one year in a concession to newspaper publishers.
  • Unlicensed manicurists – Licensed manicurists will get a two-year exemption.
  • Land surveyors, landscape architects, geologists
  • Campaign workers
  • Language interpreters
  • Strippers
  • Rabbis

Occupations that would be specifically exempted by the bill include:

  • Doctors
  • Some licensed professionals (lawyers, architects, engineers)
  • Financial services
  • Insurance brokers, accountants, securities broker-dealers, investment advisors
  • Real estate agents
  • Direct sales (the salesperson’s compensation must be based on actual sales rather than wholesale purchases or referrals)
  • Commercial fishermen (exempt until 2023)
  • Builders and contractors (who work for construction firms that build major infrastructure projects and large buildings)
  • Professional services (marketing, human resources administrators, travel agents, graphic designers, grant writers, fine artists)
  • Freelance writers, photographers (provided the worker contributes no more than 35 submissions to an outlet in a year)
  • Hair stylists, barbers (provided that the person sets their own rates and schedule)
  • Estheticians, electrologists, manicurists (must be licensed)
  • Tutors (must teach their own curriculum, and does not apply to public school tutors)
  • AAA-affiliated tow truck drivers.

What employers should do

Legal experts recommend that employers:

  • Perform a worker classification audit, and especially review all contracts with personnel.
  • Determine which benefits and protections should be provided to any workers who are reclassified from independent contractor to employee (think health insurance and other benefits).
  • Notify any state agencies about corrections and changes to a worker’s status.

Discuss with legal counsel whether they should now also include them as employees for the purposes of payroll taxes, workers’ compensation insurance, federal income tax withholding, FICA payment and withholding.

New Experience Rating and Physical Audit Levels Set

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Starting in 2020, the threshold for California employers to be eligible for experience rating (X-Mod) has been reduced by order of the state insurance commissioner.

Commissioner Ricardo Lara in September approved the recommendations by the Workers’ Compensation Insurance Rating Bureau to lower thresholds for determining eligibility for experience rating and when a carrier needs to perform a physical audit of an employer’s payroll records.

The threshold for physical audits that takes effect for policies incepting on or after Jan. 1, 2020 will be $10,500 in annual premium, a drop from $13,000. This means that any employer with an annual workers’ comp premium of $10,500 or more will be subject to a physical audit at least once a year.

“Physical audit” is defined as an “audit of payroll, whether conducted at the policyholder’s location or at a remote site, that is based upon an auditor’s examination of the policyholder’s books of accounts and original payroll records (in either electronic or hard copy form), as necessary to determine and verify the exposure amounts by classification.”

Additionally, the threshold for experience rating or to have an X-Mod, has been reduced to $9,700 in annual premium from $10,000.

The eligibility rating threshold is the amount of payroll developed during the experience period in each classification multiplied by the expected loss rates for each class. If the total for all assigned classes is at or above the threshold, then the employer is eligible for an X-Mod.

Changes to dual-wage class codes

The insurance commissioner in September also approved the Rating Bureau’s recommendations for changes to a number of construction dual-wage class codes.

While most workers’ comp classes have one rate, in some classes the difference in claims costs between high- and lower-wage workers is so great that a dual-wage classification is needed. In those cases, the workers above the threshold rate are assigned one rate, while those below that threshold are assigned a higher rate.

This is usually because the higher-wage workers are generally more experienced and tend to suffer fewer workplace injuries compared to those below the threshold.

The new thresholds are for 14 construction classifications, and any workers above the threshold will have a lower rate applied.

CLASSIFICATIONS AFFECTED         

Masonry – 2020 threshold: $28 per hour (+$1 from 2019)
Heating/Plumbing/Refrigeration – 2020 threshold: $28 (+$2)
Automatic sprinkler installation – 2020 threshold: $29 (+$2)
Concrete/Cement work – 2020 threshold: $28 (+$3)
Carpentry – 2020 threshold: $35 (+$3)
Wallboard application – 2020 threshold: $36 (+$2)
Glaziers – 2020 threshold: $33 (+$1)
Painting/Waterproofing – 2020 threshold: $28 (+$2)
Plastering/Stucco work – 2020 threshold: $32 (+$3)
Roofing – 2020 threshold: $27 (+$2)
Steel framing – 2020 threshold: $35 (+$3)
Excavation/Grading/Land leveling – 2020 threshold: $34 (+$3)
Sewer construction – 2020 threshold: $34 (+$3)
Water/Gas main construction – 2020 threshold: $34 (+$3)

Basics of a Strong Lockout/Tagout Program

Engineer check and control welding robotics automatic arms machine in intelligent factory automotive industrial with monitoring system software. Digital manufacturing operation. Industry 4.0

A lockout/tagout program will not be effective if your employees are not properly trained in how it works, and if you don’t have consequences for them if they fail to follow the program.

Every year, hundreds of workers in the United States die because they don’t follow lockout/tagout procedures or their employers did not have them in place – or, if they did, failed to enforce their rules.

Failure to train or inadequate training is one of the top-cited lockout/tagout violations by Cal/OSHA.

Improper training or failing to train all of your workers can have dire consequences, even for staff that are trained in procedures.

In this past year in California, two workers died because of inadequate training. One died on the job at a nut cannery because he had missed lockout/tagout training when he was on layoff.

In the other case, an employee at a clothing manufacturer was killed after a maintenance mechanic who had not been trained in lockout/tagout walked away when his co-worker entered part of the machine to remove finished product. The machine was de-energized but not locked out, and it started up when the worker entered it.

Under Cal/OSHA’s lockout/tagout standard, all authorized and affected employees, plus those who work in areas where energy-control procedures are used, must be trained on lockout/tagout procedures.

Training must include hazards related to:

  • Cleaning,
  • Repairing,
  • Servicing,
  • Setting up and adjusting prime movers, and
  • Machinery and equipment.

“Affected” employees include:

  • Qualified persons who lockout or tag out specific machines for such operations.
  • Those whose jobs require them to operate a machine. They must be instructed on the purpose and use of energy-control procedures.
  • Other employees include those whose work might be in an area where the procedures might be used. They must be instructed about the prohibitions on restarting or energizing machines that have been locked or tagged out.

HECP training requirements

The training provisions of the Cal/OSHA standard require that authorized employees be trained on hazardous energy control procedures (HECPs) and associated hazards.

Affected employees must be trained on the purpose and use of HECPs, and all other workers in the area must be instructed on the prohibition on attempting to restart machines which are locked or tagged out.

Pay especially close attention to training on controlling all sources of hazardous energy. That can sometimes require developing equipment-specific lockout procedures.

Turning off a machine is often not enough. It needs to be disengaged or de-energized. That’s because the control switch can still contain electrical energy. A release of stored energy can start the machine again briefly, but enough to cause serious injury.

If possible, you should also block out moveable parts during lockout/tagout procedures.

You also need to develop, implement and enforce a lockout program.

Cal/OSHA requires that employers must develop and utilize an HECP for cleaning, repairing, etc., and shall clearly and specifically outline the scope, purpose, authorization, rules and techniques to be utilized for the control of hazardous energy, and the means to enforce compliance, including:

  • Shutting down, isolating, blocking and securing machines or equipment;
  • Placement, removal and transfer of lockout/tagout devices;
  • Testing machines to determine the effectiveness of lockout/tagout devices; and
  • Separate procedural steps for safe lockout/tagout of each machine.

All workers involved in lockout/tagout should get their own locks. They should not use someone else’s lock, and they should not install or remove another employee’s lock.

One final bit of advice: Once a machine is locked out, the operator should try to turn it on again to see if it has been effectively disengaged.