25% of Private Companies Sued by Employees

One in four privately held companies has been sued by an employee or former employee in the past few years, according to a survey sponsored by the Chubb Group of Insurance Companies.

Executives at almost half the firms surveyed said it was likely that an employee would sue them, their board members and their companies and/or lodge a discrimination complaint with federal or state authorities in 2004.

According to the Chubb 2004 Private Company Risk Survey, 26 percent reported that their company had been sued by an employee or former employee, and 22 percent reported having an employee file a discrimination or harassment complaint with the Equal Employment Opportunity Commission or state agency during the past few years. Furthermore, 44 percent of executives said it was likely that an employee or former employee would sue their company in 2004 and 50 percent said it is likely that an employee would file a complaint with the EEOC this year. "Executives at many private companies realize that they are vulnerable to lawsuits from employees and former employees," said Lisa McGee of Chubb. "They are concerned about the cost to defend against these lawsuits and the potential losses."

More than half the executives surveyed estimated it would cost more than $100,000 to settle an employment discrimination or harassment lawsuit. Ten percent said it would cost at least $1 million. Executives were also concerned about lawsuits from retired employees. Nearly one-fourth reported that it is likely a retiree will sue the company, its directors and officers, and/or its benefits plan administrators and fiduciaries in 2004.

Under the Employee Retirement Income Security Act (ERISA), fiduciaries are personally liable for losses to benefit plans incurred as a result of their breach of duties. Past or present employees or their families bring the majority of fiduciary claims, but another fiduciary or the U.S. Department of Labor may also bring claims. The most frequent allegations include denial or change of benefits, administrative error, incorrect benefit calculation, improper advice or counsel, misleading representation and wrongful termination of plan.

The survey showed that many companies are taking steps to lower their risks. Forty percent purchased employment practices liability insurance and 24 percent purchased fiduciary liability insurance. Additionally, 72 percent had written policies banning employment discrimination and sexual harassment and 52 percent offered employment discrimination and/or sexual harassment training.

More Men Filing Sexual Harassment Claims

In a related development, according to the Equal Employment Opportunity Commission (EEOC), sexual harassment claims by men have grown from 9.1 percent of all charges in 1991 to 14.7 percent in 2003. During the past several years, many major employers have faced lawsuits alleging same-sex harassment by men, with some settlements topping $1 million.

Most recently, Jillian's, a nationwide chain of family restaurants, paid $360,000 to settle a sexual discrimination suit brought by male employees alleging that Jillian's maintained sex-segregated job classifications on a nationwide basis and failed to hire and/or transfer male employees to lucrative server positions and other so-called "female" job classifications because of their sex.

Extensis is one of New Jersey's largest professional employer organizations. We know what steps you can take to minimize the risk of your business being sued. Let us show you how!

For more information, go to www.extensisgroup.com, or call 888-473-6398.