Charges of Discrimination: An Avoidable Cost of Doing Business

Avoidable Costs.BLOGPreventing and immediately correcting harassment and discrimination claims in the workplace is the goal of any prudent employer and one of the reasons MSEC exists. Yet, employers of all types still find themselves entangled in these claims. A recent study conducted by international specialist insurer, Hiscox, looked at how much the average claim costs and which states are the riskiest for employers. The study is based on the number of charges of discrimination filed with the EEOC and state civil rights agencies.

Across the United States in 2014, an employer with 10 or more employees had nearly a 12 percent chance of being charged with discrimination, harassment, or retaliation. When certain states were isolated, the numbers revealed some surprising results. An employer in California was 40 percent more likely than average to receive a charge. Employers in Nevada faced 47 percent more charges than average, while New Mexico employers were 66 percent more likely than average to receive a charge. Illinois, Missouri, Arkansas, Tennessee, Mississippi, Alabama, Georgia, Delaware, and Washington D.C. all faced more charges than the national average. Employers in West Virginia, Massachusetts, Michigan, Kentucky, and Washington enjoyed lower than average risk.

In a study of businesses with fewer than 500 employees, only 19 percent of charges led to defense and settlement costs. Of those, the average settlement was around $125,000. One could conclude that 81 percent of the charges were successfully defended or settled for a nominal or “nuisance” amount. However, with deductibles averaging nearly $35,000 for employment practices liability insurance, the study may not have accounted for charges settled or defended below the deductible threshold. The average time to resolve the charges was 275 days, but in some jurisdictions, such as California, EEOC charges can be pending for as long as two years.

Out of the charges that were adjudicated in court, the median judgment was about $200,000, which does not include the cost of the defense. Federal civil rights charges cap compensatory and punitive damages at $300,000, but most state civil rights charges do not have such a cap. This means that some state judgments can be far higher than the average or the federal cap. In fact, about 25 percent of the judgments resulted in $500,000 or more in liability alone.

To minimize claims, employers should use sound hiring practices, establish internal EEO policies with complaint procedures, conduct frequent anti-discrimination and harassment training, handle employee medical issues with sensitivity, and improve documentation for disciplinary and termination actions. Should an employee nevertheless complain of harassment or discrimination, an employer should promptly investigate and take appropriate corrective action to mitigate liability. Finally, if the employee files a charge of discrimination, harassment, or retaliation with the EEOC or state civil rights agency, an employer should contact MSEC immediately. We will help evaluate liability and assess the best strategy for defending or settling the claim.