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This article by Kathleen McGinn Spring was prepared for the June 12, 2002 edition of U.S. 1 Newspaper. All rights reserved.

Employment Law: Protecting Assets

There is a way for attorneys to go through a back door

in deciding whether an employment discrimination case is worth taking

on. Often attorneys take these cases on a contingency fee basis —

if they win they get a percentage of the award, if they lose they

get nothing. Sometimes, says John Thurman, a client will come

into with a complaint that could go either way. Thurman is a partner

in Montgomery Knoll-based Farrell & Thurman, which specializes in

employment and labor law (609-924-1115).

The attorney, uncertain of a good outcome, may not want to invest

his time in the case right off the bat. "They tell the people,"

Thurman says, "file a charge. I want to see the employer’s reaction."

Stressing that this is a tactic his firm never uses, he explains why

it poses a substantial danger for employers. It costs nothing for

an unhappy employee — or former employee — to file a charge

with the EEOC, and the employer must answer that charge. The employer,

believing the charge baseless, may quickly send over documents that

look innocent enough to him, but could be damning, and could provide

all the reason an employment discrimination attorney would need to

take on the case, confident in extracting a settlement or winning

a jury award.

This is just one reason that Thurman believes the prudent employer

should consider obtaining employment practice liability insurance.

Princeton Harvest, the HR consulting arm of Thurman’s practice, sponsors

an interactive seminar, "Protecting Tangible Assets with Intangible

Assets: How Employment Practices Can Make or Break Your Bottom Line,"

on Tuesday, June 25, at 8 a.m. at the Nassau Club. Other speakers

are Paula Gould, principal in business insurance consulting

firm, Paula Gould Consulting (www.gouldconsulting.com), and Andrea

Schutz, founding principal at Management Due Diligence, a human

resources consulting firm. Call Princeton Harvest at 609-924-9370.

New Jersey, Thurman points out, has 16 different protected groups

of employees. Classifications include age, gender, sexual orientation,

handicap, race, and veteran status. And, he says, it is very easy

for any of these individuals to bring a discrimination case. "They

can pursue a claim against the employer, or they can file an administrative

charge with a state or federal agency."

Claims are on the rise. "It’s happening a lot," he says. "With

the growth through the ’90s, followed by a big turndown, companies

need to reduce their workforces. There are very common mistakes. They

often use subjective factors, things that are hard to defend. We see

quite a few people seeking counsel."

One industry where claims are rife right now, he says, is biotech.

It is not uncommon for a biotech company to have one project derailed

just as it gears up for another. "They’re putting one group out

the door, and hiring through the other door," says Thurman. Disgruntled

laid-off workers are not the only source of law suits, though. Disputes

over promotions also are a trigger, as are job seekers’ claims that

they would have been hired if an employer had not used discriminatory

hiring criteria, perhaps requiring a college degree for a job with

duties, in the candidate’s opinion, that did not require that credential.

Gould was a senior vice president at Marsh McClennan in New York City,

before starting her own firm, which is based in Princeton Junction,

in January, 2000. She talks about why small and mid-sized employers

might want to consider insuring themselves against claims by their

employees, and what they should look for in the policies.

The policies whip you into shape. Insurance companies

make prospective clients jump through hoops before issuing employment

practice liability insurance — and that is a good thing. A major

reason an employee can wring a big settlement out of his employer

is that the employer has booby-trapped himself, perhaps by failing

to conduct employee reviews or to train managers in recognizing and

dealing with sexual harassment. Before an insurance company will issue

a policy, it makes sure that the employer is doing all it can to protect

itself against suits.

The best policies let you choose your own attorney. Employment

practice liability policies typically pay a fixed amount per hour

of legal representation. Say a policy pays $150 an hour, but the attorney

who has been advising your company for 20 years charges $200. You

may want his help on an employment discrimination case, and you can

get it if you get a clause in your policy saying that you can take

the $150 an hour and give it to an attorney of your choice, rather

than using the insurance company’s.

The policies can save your firm a lot of money. A basic

defense of a straightforward case that settles out of court will most

likely cost between $100,000 and $150,000. A complex case, or one

that ends up in court, will cost much more just in legal defense.

Only five percent of all cases, on average, end up in court, but when

they do, the employee bringing the action has a better than 50 percent

chance to winning.

What does coverage cost? A $1 million policy costs between

$5,000 and $30,000 a year. Deductibles, commonly about $5,000 just

a short while ago, have climbed substantially as the insurance industry

is reeling from losses and from the dip in the stock markets that

subsidized those losses throughout the 1990s. A deductible now could

be $25,000.

How much coverage does your firm need? One million dollars

is plenty for most companies, but those going through reorganizations

that result in many lay-offs probably need more.

Every single New Jersey employer needs to consider the coverage,

says Thurman. In other states, only employers with a certain number

of employees can be sued for employment discrimination, but no such

limitation applies in New Jersey. "Under New Jersey law,"

says Thurman, "every employer is covered, no matter how many employees

he has." This, he says, means that "every employee is a potential

plaintiff."


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