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The Risks of Retaliation

Employee retaliation claims are on the rise. Should companies be worried?
Marielle Segarra, CFO.com | US
August 18, 2011

As if companies weren't facing enough risks these days, there's a new one to add to the list: retaliation claims. Over the last 10 years, employee retaliation charges have skyrocketed; charges filed with the Equal Employment Opportunity Commission (EEOC) increased nearly 70% from 2000 to 2010, from 21,600 to just over 36,000. It's not surprising, says Matthew C. Moschella, a partner at Sherin and Lodgen. "In this economy, where there are more terminations . . . and less severance pay, employees are looking for some financial remuneration when they leave the workplace involuntarily," Moschella says. "And the categories of people who can bring those claims, as well as the categories of conduct that courts find retaliatory, are expanding."

With this in mind, companies should understand the definition of retaliation, explain it to their employees, and review their insurance coverage, if they have a policy against retaliation.

Federal and state laws define retaliation as a vindictive or adverse action that an employee takes against another employee who has engaged in a "protected activity." This activity could include filing or attempting to file a charge of discrimination or sexual harassment, requesting workers' compensation, reporting a violation of Occupational Safety and Health Administration standards, and whistle-blowing on illegal or fraudulent activities.

Employee-charge don'ts

The reason retaliation cases pose a risk is that they are often easier for employees to win than discrimination or harassment charges. In fact, an employee can win a retaliation case even if the original charge lacked merit. And however the original charge is resolved, it creates a climate in which retaliation may be a natural impulse. "Once an employee has filed a harassment or discrimination complaint, the employer is likely to be unhappy about continuing to employ that person," he says. "But any negative actions against that employee can be interpreted as retaliatory."

Making matters more complicated, in recent years, the Supreme Court has made several decisions that broaden the definition of retaliation. In a 2006 ruling, the Court decided that retaliation was not confined to firing or demotion and could include any behaviors that discourage a worker from making or supporting a discrimination charge. Even adverse actions against an affiliate of the employee who filed a charge can be considered retaliation, according to a Supreme Court ruling earlier this year in Thompson v. North American Stainless LP.  In this case, an employee was fired after his fiancée filed a sex discrimination charge.

What to Do
If an employer loses a retaliation case, the employee may be entitled to back pay, emotional-distress damages, attorney fees, future wages and benefits or reinstatement, and sometimes punitive damages. Even if an employee loses the case, a company will still have to pay legal fees. And because these cases are so fact-intensive, they often proceed to full trials, making them more expensive and time-consuming than other cases. Because the definition of retaliation is far-reaching, and because fighting the case can be costly, Moschella advises companies to talk to their lawyers about retaliation policies as soon as a harassment or discrimination case is resolved.

Another option is insurance. Some directors' and officers' insurance policies will cover employee retaliation charges, says Jeanne Oronzio, senior technical specialist at The Graham Company. If a company is covered under this type of policy or under separate employment practices liability insurance, management should review whom the policy covers and how it defines retaliation. Some policies have not caught up with the ever-expanding definition of retaliation, so they may not include third-party discrimination or claims made by independent contractors or other employees.

Often, these policies will not cover penalties if a company loses the case, but they will pay for legal fees and for damages past the deductible amount and up to the limit of insurance, Oronzio says. When deciding whether to buy insurance for employee retaliation, companies will have unique considerations, depending on size. Larger employers will probably see more frequent and more severe claims, and possibly class-action lawsuits, but small employers will probably be harder hit financially by these lawsuits than large companies, adds Oronzio.




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