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Small/mid-sized employers in some states face higher risk of employment charges than national average

October 27th, 2015  |  Pamela Wolf

U.S.-based companies have at least an 11.7 percent chance of being named in an employment discrimination charge, according to a study of employment practices litigation by global specialist insurer Hiscox. But businesses in New Mexico, District of Columbia, Nevada, Alabama, and California face a substantially higher risk of being sued by their employees when compared to the national average.

The 2015 Hiscox Guide to Employee Lawsuits uncovers the impact of employee charges and litigation on small- and medium-sized businesses and organizations with less than 500 employees, including defense costs and settlements. The report was compiled using the latest data on employment discrimination charge activity from the EEOC and its state counterparts across the United States.

High-risk states. Companies based in New Mexico face the greatest risk nationwide, according to the study, with a 66-percent higher chance of facing an employee charge than the national average. Employers are also at a high risk of employee charges in the jurisdictions listed below, along with the risk of litigation higher than the national average:

  • District of Columbia (65 percent)
  • Nevada (47 percent)
  • Alabama (41 percent)
  • California (40 percent)
  • Mississippi (39 percent)
  • Delaware (35 percent)
  • Illinois (34 percent)
  • Arkansas (22 percent)
  • Tennessee (20 percent)

Variance between states. As to why there is so much variance in the level of risk among states, Hiscox pointed out that many of the higher-risk states identified in the survey have state laws that go beyond federal guidelines, which means additional obligations and risks for employers. Hiscox warned that it’s important for corporations, especially those operating in several states, to keep track of developments and related exposures.

Costs of defending litigation. A representative study of 446 closed claims for small and mid-sized businesses (under 500 employees) showed that one in five will face employment charges, with an average cost to defend of $125,000, including expenses such as attorney’s fees and settlement costs, according to Hiscox. For those with insurance coverage, the average deductible cost was only $35,000, compared to the $90,000 balance paid out by their insurance company. While most employment matters do not end up in court, when they do, the median judgment for cases that go to trial is about $200,000. One in four cases resulted in a judgment of $500,000 or more, according to Hiscox.

“Prevention is the best defense against lawsuits,” remarked Bertrand Spunberg, Practice Leader—Executive Risks at Hiscox USA. “Simple preventative and mitigation measures such as having written hiring procedures, an up-to-date employee handbook and proper training for employees on workplace discrimination and harassment are essential to minimizing risk and protecting your business.”