Legal Myth #8 – The possibility of many employee lawsuits scares us

This article first appeared on the EACCNY website. It is part of a series of articles written by Marc S. Friedman, Director of Professional Relations at Global Commerce Education, Inc. as a collaboration with the European American Chamber of Commerce in New York.

In the most recent article in this series, I explained how many non-US companies, including Baltic businesses, refrain from doing business in the US because of Myths #6 and 7 – The US is very litigious and that is too threatening to a small company like ours. As a result, the risk of liability and lawsuits relating to our products and/or services is too great. In this installment, I will address Myth #8 – The possibility of many employee lawsuits scares us! Like the other Myths, this one, too, is easily debunked.

The five most common claims asserted by employees are claims for

(1) personal injury,

(2) overtime pay,

(3) discrimination because of race, skin color, national origin, gender, disability, religion or age, and marital status, in violation of Federal, state and even local laws,

(4) sexual harassment and

(5) wrongful termination.

These workplace claims are legally complicated but the risk of such claims against foreign companies or their affiliates in the US can be significantly reduced through careful planning. I will briefly discuss each of these.

Workplace personal injury claims typically fall into two categories – worker’s compensation claims for work-related injuries and in these cases the employer is strictly liable for medical expenses and lost wages. As an alternative, an injured employee can sue the employer for negligence which, if successful would also result in employer liability for pain and suffering damages. At a minimum you must carry workers compensation insurance and you can also buy commercial general liability insurance that will protect the employer from financial exposure for these claims.

Claims for overtime pay typically arise under the Fair Labor Standards Act and state laws required such pay for hourly employees. Understanding the laws’ requirements and careful record-keeping will reduce the likelihood of employer liability.

The risk of workplace discrimination claims can be significantly reduced if you understand the requirements of these laws that apply in hiring and firing, and well as in job promotions and assignments and reassignments. A lawyer specializing in employment law can easily guide you through this thicket to make the requirements understandable and to also know how to carefully document workplace decisions to avoid liability.

Lawsuits for sexual harassment, which can be direct (remarking about a female worker’s body) or indirect (such as by a hostile workplace) also can be minimized. All employers should have a comprehensive employee handbook that addresses these and other items. In addition, many companies offer sexual harassment training which reduces the risks and also may insulate an employer from an award of punitive damages.

Wrongful termination claims, where an employee contends he/she was fired, can often be prevented by a written employment agreement, which can be “at will” meaning an employee can be fired for any reason or no reason provided it is not for a discriminatory or unlawful purpose such as terminating a “whistleblower.” An employment contract can also be for a definite term where the employee can be fired during the term only “for cause” such as stealing, creating havoc and more. Beyond an employment agreement, the employer should keep very detailed personnel records which, among other things, describe employee misconduct, warnings given, etc.

For the last two categories of workplace claims – discrimination and wrongful termination – there are insurance policies available that are commonly known as employers’ liability insurance policies, so that if these claims are brought, the insurance company will provide a defense and pay and award of compensatory damages the employee might receive.

As you can see, the risks of each of these types of employee claims happening can be significantly reduced and, often, eliminated by being ahead of them through careful planning, creating systems for the keeping of records, and, in some areas, by obtaining insurance policies. The possibility of claims by an employee is not a reason to be discouraged from coming to America to do business. Many large and small companies have succeeded here by following the advice generally set forth above and by engaging an employment lawyer who can lead you through this thicket.

In the next installment of this series I will address Myth #9 – There are no effective ways to control the risks to our business if we come to the US.

Compliments of Global Commerce Education, a member of the EACCNY

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