As businesses of all sizes strive to protect their employees and preserve cash flow during the coronavirus pandemic, likely the last thing on most of their minds is employment practices liability (EPL) exposures. But EPL risks are higher during pandemics and other periods when employers are more likely to furlough, lay off or ask employees to work from home.
Despite federal legislation aimed at relieving financial burdens on workers and their employers, many businesses face difficult choices – and more complicated record keeping.
The Families First Coronavirus Response Act (FFCRA), which takes effect April 1, permits workers to take paid public health emergency leave to care for themselves or their children through the end of 2020. The law requires employers with fewer than 500 employees to provide up to 12 weeks of paid leave for employees who cannot work due to the closure of their children’s school or child-care provider during the public health emergency. The law generally requires employers to restore the employee to his or her former job after leave, unless the employer has 25 or fewer workers, or the position no longer exists due to economic conditions resulting from the public health emergency (source 1, 2).
Several EPL risks for businesses can arise from the current coronavirus (COVID-19) outbreak. These include:
Wage-and-hour issues. Employers should carefully track employees’ working time, especially in work-from- home arrangements, as well as during a furlough. Work hours are common tipping points for eligibility under an employer’s employee benefits plan.
“A lot of employment issues arise from COVID-19. Frequent questions I get from employers concern furloughs, layoffs, and working from home,” said Kunal Shah, Of Counsel at Wilson Elser Moskowitz Edelman & Dicker LLP in Dallas. “If a business temporarily closes its doors, or significantly reduces its staff and hours, how do we navigate employee compensation and benefits? Insureds need to be mindful that furloughs, if not handled properly, can lead to significant wage-and-hour claims.”
If an employer requires employees to take unpaid leave through furlough, problems can arise if employees are asked to spend even a little bit of that time working, Shah cautioned. “An employer can furlough an exempt employee, but if the employee does one second of work, he or she is entitled to full pay for the entire pay period under the Fair Labor Standards Act,” he said.
“Employers need to be mindful of local and state ordinances, too. Employees of businesses that are deemed non- essential should not be working if they are under a shelter-in-place order,” Shah said.
Hours spent working matter, to workers and their employers. “Benefit plans may no longer provide benefits if hours fall below a certain threshold,” Shah explained. “For example, if a full-time employee goes below a certain hours minimum required for benefits under their group health plan, he or she may trigger coverage under COBRA,” or the Consolidated Omnibus Budget Reconciliation Act, a federal law that allows workers to obtain group health insurance temporarily, usually for up to 18 months.
“The reverse can also happen, where an employee works more hours than agreed upon, thus making him or her eligible for certain benefits otherwise not agreed to. For these reasons, timekeeping and logging hours are important steps for every employer, especially in a working-from-home arrangement,” Shah advised. Relying on employees to track their own time can be risky. “Asking employees to report their hours daily, even in an e-mail, is a good way to document work time if an employer lacks a logging system for remote workers,” Shah suggested.
“Also, employees who are on unpaid leave or working less hours due to furlough can still apply for unemployment benefits. An employer must be mindful of these sorts of situations to avoid wage-and-hour claims,” Shah advised.
Wrongful termination. Reductions in force (RIFs) are an unfortunate fact during economic downturns, such as the one that is occurring due to COVID-19. RIFs often lead to wrongful termination claims, and potentially even class-action lawsuits.
Because the coronavirus so far poses greater health risks to people over age 65, people with obesity and underlying uncontrolled health conditions such as diabetes or liver disease, and pregnant women, employers must proceed carefully with terminations. The Centers for Disease Control & Prevention offers information resources to help business and employers slow the spread of COVID-19 (source).
It might seem logical to some employers to lay off workers at greater risk of contracting COVID-19, but that is problematic and could invite lawsuits alleging discrimination and wrongful termination.
Americans With Disabilities Act (ADA) issues. The U.S. Equal Employment Opportunity Commission enforces anti- discrimination laws, including the ADA and the Rehabilitation Act. With the stress and anxiety over COVID-19, employees with disabilities might make more requests for reasonable accommodations under the ADA. Employers should consider any accommodation requests during the pandemic in the same manner in which they otherwise would. The EEOC also has published guidance for employers on COVID-19 (source).
The ADA allows employers to seek certain information about employees’ health and disabilities, insofar as such information is job-related and consistent with “business necessity,” but employers must remain aware of their obligations to apply it consistently and keep information confidential.
“Because we are dealing with a pandemic, it is now OK for employers to take employees’ temperatures or send an employee home if he or she is exhibiting COVID-19 symptoms, but any information an employer collects about an employee’s health must be treated as a confidential medical record,” Shah said. “During a pandemic like COVID-19, employees exhibiting symptoms consistent with the virus post a direct threat under the ADA, warranting an employer’s questions out of business necessity. Employers should remember that all other aspects of the ADA remain in effect. There is still the potential for retaliation claims under the ADA and other laws.”
Third-party discrimination. Another form of EPL exposure is third-party discrimination. Such claims may come from customers or others. For example, refusal of service or preferential treatment could be construed as third-party discrimination.
“Businesses all over the United States have been mandated to practice social distancing and not put their employees or customers in jeopardy. Businesses can’t prevent claims, but they may have lots of meritorious defenses,” Shah said.
WHAT RETAIL AGENTS CAN DO
Retail insurance agents are important advisers for the businesses they serve. Some things retail agents should do with their insureds during the pandemic are:
- Talk about planning. If an insured does not have policies for illness-response plans, now is a perfect time to create and implement them. Business continuity planning is another great conversation topic.
- Discuss business needs and employment practices. Smaller and midsize employers in particular may struggle to keep their doors open and retain all of their employees during the pandemic. If layoffs and furloughs become necessary, agents should advise insureds to proceed with caution and review employment practices to ensure they comply with applicable laws.
- Explore insurance and risk management options. EPL insurance coverage is valuable because it can respond to many of the types of employment claims that businesses face. EPL policies and the coverage they offer do vary, such as defense costs inside or outside the policy limits. It’s important to work with a specialist to obtain the broadest available coverage to meet insureds’ needs.
The marketplace is changing, as insurers assess their exposure to COVID-19 claims. Some insurers are adding exclusions relating to pandemics in new and renewal policies, while others have ceased underwriting new EPL business temporarily until the pandemic resolves.
EPL policies typically exclude coverage for violations of the Occupational Safety and Health Act, though some insurers provide defense cost coverage for OSHA claims. Wage-and-hour exclusions also are common, but sometimes can be covered through endorsement. Other insurance markets are offering carvebacks to EPL exclusions. Agents should consult with their wholesale specialist to determine what is available.
“This is the time to have EPL insurance,” said Shah. “Unemployment numbers will skyrocket during the pandemic. People don’t want to be furloughed or laid off. Claims will certainly be made. The more transparent and kind employers are, the less likely they will face employment claims.”
The COVID-19 pandemic is creating major challenges for businesses everywhere. Among them are employment practices liability (EPL) claims, which can arise from businesses’ decisions to furlough, lay off or request that employees work from home. From wage-and-hour issues to wrongful termination to employment discrimination, businesses may experience a wave of claims during and after the coronavirus outbreak. A significant advantage to having EPL insurance is the ability to respond to these and other allegations, but the policies vary in how they cover specific situations, including pandemics. Agents and their insureds should work with a wholesale specialist to explore EPL coverage options in the marketplace and obtain the broadest available protection.
Contact your CRC Group producer for more information.
- Allyson Benda is a Senior Broker in CRC’s Nashville office, and member of the ExecPro Practice Advisory Committee.
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