How to Handle the Cost of Retaliation

The economic crisis may have provided the impetus for a rise in retaliation claims brought by employees against their employers.

Comprising 38 percent of all charges filed, retaliation was the fastest-growing and most frequently filed charge for a second year in a row, according to 2012 Equal Employment Opportunity Commission, or EEOC, statistics.

What is retaliation? It’s a perceived or real retaliatory act committed by an employer against an employee who has exercised his or her rights under the law, refused to violate any law, opposed any unlawful practice or disclosed such information to superiors or a governmental agency.

Retaliation occurs when an employer takes an adverse action against an employee — including termination, failure to promote or a demotion — in response to the employee exercising his or her rights under the law, such as filing a whistleblower action, a workers’ compensation claim or testifying in a fellow employee’s internal human resources department investigation.

Retaliation claims are challenging for employers and employees, as they are often mired in perception and subjectivity. Even if the underlying allegations — failure to promote, age discrimination, etc. — prove unfounded, the ambiguity sometimes makes these claims difficult to settle or dismiss, meaning a retaliation claim can continue to survive after the underlying allegations have been dismissed.

According to recent EEOC data, settlements and damages arising from retaliation cases cost employers about $177.4 million in 2012, and this amount does not include the cost to investigate and the legal fees to defend these cases. And with little indication that retaliation claims are waning, it’s best practice to know what to do, what not to do and how to manage the risk.

Working with general counsel, companies should consider the following:

Draft and implement a retaliation policy. Written policies not only allow employers to set forth strong language regarding a zero tolerance policy of harassment, discrimination and retaliation, but may also be used during legal proceedings to support an employer’s actions and decisions.

Employers should work with their legal counsel to develop a well-defined and explicit policy. In addition, this policy should not be under lock and key — the information needs to be part of employee handbooks, manager guidelines and training courses.

Provide comprehensive training. Employers should not leave decision-making up to managers or supervisors without properly training them first. People in these roles should be thoroughly trained on how to help prevent and identify retaliation, along with other prohibited or discouraged behavior. Annual training should be mandatory, but semiannual courses or sessions might be beneficial to proving a company’s commitment to preventing retaliatory actions.

Explore insurance protection. In the end, if an employee alleges that he or she suffered due to retaliatory actions by the employer, it may result in an extended and costly legal process. A prudent decision may be to purchase employment practices liability insurance — which can help protect an employer against the costs from damages, settlements and hiring defense counsel.

Often, where permitted by law, employment practices liability insurers may also provide value-added benefits for customers, such as access to expert defense firms as well as loss prevention and mitigation resources.

The fallout from a retaliation charge or the mismanagement of one can have a widespread impact on a company beyond monetary implications. Depressed employee morale and reputational damage may also result from a retaliation charge. While there is no way to fully prevent this from happening, companies can take steps to help arm themselves with the right policies and tactics to weather the storm.

Mike Schraer is a senior vice president and global employment practices liability product manager at the Chubb Group of Insurance Companies. He can be reached at editor@Talentmgt.com.