Maryland Bar Bulletin
Publications : Bar Bulletin : August 2011

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Across the country, the number of high-profile employment-related lawsuits continues to escalate. This trend is consistent with the preliminary charge filing statistics for the 2010 fiscal year, released by the U.S. Equal Employment Opportunity Commission (EEOC) in January. The 99,022 charges filed with the EEOC represented the highest number of discrimination charges in its 45-year history.

Law firms, like other employers, are not immune from employment practices liability litigation. Examples of employment-related disputes at law firms are plentiful and law firm blogs have been swift to expose firms that have been sued by their own employees or by the EEOC. Nonetheless, a law firm’s exposure to employment practices liability claims is often ignored or overlooked. Many law firms disregard this risk, even though a single employment practices liability lawsuit can have debilitating financial consequences on a firm and consume a considerable amount of management’s time.

In 2007, a large law firm settled a seminal suit brought by the EEOC for $27.5 million. The suit involved a retirement policy in which the firm “de-equitized” 32 partners when they reached the firm’s mandatory retirement age. Last year, the EEOC filed a similar age-bias suit against an international law firm based on the firm’s long-standing mandatory requirement that partners retire by age 70. As part of their settlements, the defendants in both suits changed their retirement policies.

Additional examples of employment practices liability claims against law firms are numerous and include several more recent claims: a Texas firm faced a claim by the EEOC for alleged sexual misconduct, as well as retaliation against the claimant for reporting the misconduct; a Pittsburgh firm was sued by a female partner who claimed gender discrimination; and a Virginia firm faced claims of religious discrimination following a round of layoffs.

There are many elements that comprise an effective process for law firms to reduce the likelihood and severity of employment practice claims. These include proper maintenance of personnel records; comprehensive anti-discrimination and sexual harassment policies; standardized approaches to performance appraisals and promotions; manager and employee training; and detailed and on-going communications.

In addition to these measures, one of the best ways to protect a law firm from the direct financial consequences of employment-related litigation is by having a well-designed Employment Practices Liability Insurance (EPLI) policy in place. EPLI policies typically cover a broad range of discrimination claims based on gender, race, religion and other protected categories. Law firms opting to purchase an EPLI policy should examine the alternatives carefully and determine which policy offers the broadest coverage to address their risks and meet their needs.

Understanding what is and is not covered by an EPLI policy is key. Here are some guidelines to help you find the coverage that fits your budget and may offer the protection you need:

  • Start by looking for an EPLI policy that has the most expansive definition of “wrongful act.” A broader definition typically translates into more extensive coverage.
  • Watch for exclusions and “sub-limited” exposures, which means the policy provides reduced coverage for certain types of risks. For example, several types of retaliation claims are sometimes omitted, yet this is the fastest growing category of claims being filed with the EEOC. By the same token, punitive damages are often sub-limited to between 25 percent and 50 percent of the policy limit; and the defense and/or indemnity for other coverages, such as ADA accommodations, OSHA claims, claims resulting in workforce reductions, and claims under the Worker Adjustment and Retraining Notification (WARN) act are also often sub-limited.
  • Be sure to consider who is covered under the EPLI policy; look for a policy that offers coverage for claims made by all types of employees – full and part-time, seasonal and temporary (to cover summer associates and interns) and even unpaid volunteers. Law firms should look for policies that also provide coverage for leased employees and independent contractors.
  • Check to see if the policy covers claims related to downsizing, failure to make partner and claims brought by third parties (including clients or vendors of the firm).
  • Understand whether or not defense costs are covered under the policy, as they can often exceed the actual damages in a case.
  • Most importantly, be sure your firm has coverage for claims made by its partners. Partnership disputes are common at law firms and not always covered under an EPLI policy unless partners are included in the definition of employee. If partnership disputes are not covered under your firm’s EPLI policy, you will want to make sure the firm has a Management Liability policy that covers these matters. Many insurers offer the two policies in tandem, with combined limits for both coverages.

Recognizing the increase in employment-related claims throughout the law firm community is imperative for sound law firm risk management. With the appropriate loss-control measures in place and a well-structured insurance program, law firms can manage the rising exposures associated with employment risks.

Eileen Garczynski is a vice president of Ames & Gough, where she co-leads the law firm initiative, focusing on the risk management and insurance needs of law firms. She is also the chair of the Insurance & Risk Management Committee for the Section of Intellectual Property Law of the American Bar Association.

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Publications : Bar Bulletin: August 2011

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