The US Equal Employment Opportunity Commission (EEOC) has reported a sharp rise in workplace discrimination charges, with 88,531 new cases filed in FY 2024, a more than 9% increase from 2023. Businesses must brace for potential litigation and regulatory scrutiny by having proactive risk management strategies in place.
The rise continues a growing trend as EEOC data showed an overall 44% surge in workplace discrimination charges between 2021 and 2024. Between 2022 and 2023, race discrimination claims were up by 31%, color discrimination claims up 42%, sex discrimination up 28%, and retaliation claims up 10%, the agency reported.
According to Chris Williams (pictured), employment practices liability (EPL) product manager at Travelers, several key factors are driving the rise in workplace discrimination claims, including social inflation and increased employee awareness of their legal rights, the gradual expansion of employment laws, and an uptick in firings and layoffs.
Williams noted a direct correlation between layoffs and EPL claim filings. “When we look at our data, 60% of claims come from people who were fired or laid off," Williams told Insurance Business.
The Federal Reserve’s data supports this pattern. Since 2022, firings and layoffs have been on a steady incline, leading to more displaced workers who might consider filing a claim.
"The Fed also tracks the number of open positions in the US economy, and those open positions have gradually declined,” Williams added. “If people are fired and laid off and can’t find another job, I think it’s reasonable to suspect that they might be more likely to bring a claim against their former employer when they’ve been terminated.”
Beyond job losses, economic conditions play another role. Inflation over the past few years has increased the financial stakes of employment-related lawsuits. A wrongful termination lawsuit filed by a high-earning employee also has a significantly greater potential payout than a similar claim from a lower-wage worker.
"Higher wages are generally going to drive up the cost of that EPL claim," Williams said.
The return to office has introduced another dynamic to the rise in claims. During the pandemic, with much of the workforce operating remotely, workplace discrimination claims dropped.
"The EEOC charges were down significantly during that time, which is a little bit surprising because a lot of people got laid off as well,” Williams noted. “We did see some claims coming out of people being terminated or laid off as a result of COVID, but, overall, claims were down.”
However, as more companies push employees back into offices, interactions that might have been avoided in remote work settings are reemerging.
"There’s more one-on-one interaction, people talking to one another, and sometimes there’s unprofessional conduct in the workplace that maybe employees could avoid if they were on a Zoom call or working remotely. It’s harder to avoid some of that contact," Williams said.
He also noted that workplace functions, business travel, and other in-person events have ramped up, creating new opportunities for misconduct.
"People are probably going on more work dinners, work trips, functions where alcohol is served, and that sometimes gives rise to sexual harassment claims," Williams said.
Despite the sharp rise in claims, the EPL insurance market has remained relatively stable, with no meaningful restrictions and coverage, according to Williams. While this suggests robust capacity, carriers can’t ignore the rise in EPL claims in recent years.
"The increasing number of terminations, the rising wages, fewer open positions - it does just present a real challenge for the EPL industry overall and employers by and large," said Williams.
When it comes to risk management, many organizations make preventable mistakes that leave them vulnerable. For one, employers often fail to align their documentation with termination decisions.
"An employer may say, ‘This individual is a poor employee, we’re going to terminate them for poor performance,’ but then you go back and look at the performance reviews for the last several years, and those performance reviews all reflect that person was a stellar employee,” Williams said. “So, the story doesn’t quite connect.”
Another common misstep is failing to follow employment laws, particularly when it comes to employee accommodations. For instance, an employee may ask for leave under the Family Medical Leave Act or a state equivalent, and that leave may be inappropriately denied.
In another potential example, an employee may ask for accommodation under the Americans with Disabilities Act, and the employer may not engage in the interactive process to come to a resolution that would be appropriate for both parties.
Industries across the board are feeling the pressure, though some, such as healthcare and legal firms, are more exposed than others. While there isn’t a single industry facing a disproportionate impact, Williams points out that company culture plays a bigger role in determining risk than the sector itself.
"If an organization has employees, they risk exposure to a claim for wrongful termination, sexual harassment, discrimination," he said.
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