This article was derived from a presentation at the AAMGAUniversity Weekend, which was held in August in Scottsdale,Ariz.

As usual, the staff at your office caps off a busy week of workwith a happy-hour visit to the local watering hole. Much of thetalk still centers on work, but the mood is light. Staff membersare less inhibited, the conversation is peppered with some“colorful” jokes, and everyone laughs and seems to have a goodtime.

You face a less enjoyable task on Monday. You've had severalinformal conversations with one of your employees about her poorperformance, and you recently decided to terminate her. You'repreparing to meet with her later in the day when your humanresources manager calls. This same employee has just left the HRoffice, where she asked about how to file a sexual-harassmentcomplaint. Because of the off-color humor at the weekly happyhours, she says, the office has become a hostile work environmentfor her.

You now face a number of new questions. Should you stillterminate the employee? Does she even have a claim, if all of herallegations concern things that were said off-premises? Can sheclaim retaliation if you fire her, even though you were planning todo so before she mentioned harassment?

This scenario illustrates some of the problems businesses mayface when dealing with the increasingly complex issues of workplacediscrimination and harassment. Allegations of unfair treatment canbe expensive to defend, and their cost doesn't stop with a judgmentor settlement. A company's reputation can be damaged, to saynothing of workplace morale.

Writing EPLI coverage for clients is just one part of helpingprotect them against employment-practices claims. In this article,we'll review the legislation and court decisions that insuranceagencies should understand to write good coverage. We'll alsodiscuss how agencies can help their clients develop procedures toreduce the likelihood of employment-practices claims and provide asound defense when they unfortunately occur.

Legal landscape

Title VII of the Civil Rights Act of 1964 is the “landmark”legislation in employment-practices law. It prohibitsdiscrimination that is based on any of six “protected classes”:age, race, gender, religion, disability and national origin.

The Civil Rights Act of 1991 increased the potential impact ofTitle VII on employers in two ways. Before the 1991 law, Title VIIclaims were decided by a bench trial–a judge. The 1991 act grantedplaintiffs the right to a jury trial. Plaintiffs now get to presenttheir claims to a jury of 12 ordinary people, many of whom mighthave a grudge against their own employer and see a plaintiffsympathetically as the “little guy.”

When a finding of discrimination is made, the 1991 law alsoallows juries to award up to $300,000 in damages to a plaintiff,even if they don't find the plaintiff suffered any loss as a resultof the discrimination. Looking at the average guy, with adefendant's corporate attorney seated across the aisle, this maylead some juries to think, “Gee, let's just give the guy the money,even if we're not sure he suffered any loss. The business canafford it.”

Several other laws have either expanded the protection affordedto certain Title VII classes or created additional enforceablerights. In almost every case, the impact of these laws has beenpartially shaped by subsequent court decisions:

o Americans with Disabilities Act: This 1991 lawapplies to companies employing 50 or more people. It prohibitsdiscrimination “against a qualified individual with a disabilitybecause of the disability of such individual in regard to jobapplication procedures, the hiring, advancement or discharge ofemployees, employee compensation, job training, and other terms,conditions and privileges of employment” and requires “reasonableaccommodations” for these qualified employees. The statute defines“disability” as a physical or mental condition that substantiallylimits one or more “major life activities” and states that a personhas a disability if he or she has such a condition, has a medicalrecord of having such a condition, or is regarded as having such acondition.

A series of court decisions has limited the scope of the lawsomewhat. Toyota Mfg., Ky., Inc. v. Williams is one ofseveral cases in which the court–in deciding that the ability toperform required manual tasks at work was not a “major lifeactivity”–has defined major life activities to include tasks suchas performing household chores, bathing and dressing. In Suttonv. United Air Lines, the court ruled that individuals claiminga disability must be evaluated in their corrected states. In theexample in this case, airline pilots could not claim that theirpoor vision was a disability that afforded them protection, becausethey could perform all major life activities with visioncorrection–eyeglasses. In the 2002 case of Chevron USA v.Echazabal, the court ruled that employers could refuse to hirea disabled individual if the disability would pose a direct threatto the health or safety of that individual. (This ruling expandedthe interpretation of an EEOC rule that allowed refusal to hirebased on a threat to other employees).

In general, the U.S. Supreme Court has repeatedly declared thatclaims of disability must be evaluated on an individual basis,rather than granting “disabled” status to everyone with aparticular condition. The court stated an important exception tothis rule in Bragdon v. Abbott, ruling that HIV infectionis a physical impairment from the moment of infection, due to thedisease's immediate, constant and severely detrimental impact.

o Family and Medical Leave Act: The Family and MedicalLeave Act provides job-protected, unpaid leave for certain familyor medical reasons to employees who have worked for an employer forat least one year and have worked at least 1,250 hours during theprevious 12 months. The law applies to employers that have morethan 50 employees within a 75-mile radius.

Businesses should be careful when evaluating FMLA requests,because the court's interpretation of the law can change. Forinstance, an employee may say he needs time off to care for hissick nephew, which some employers might not consider within thestatute's definition of family. But perhaps the employee's sisteris widowed, lives with the employee and is unable to take time offwork herself. A court may find that such a circumstance wouldqualify the nephew as family under the law.

o Pregnancy Discrimination Act: Under this statute,pregnancy is considered a physical disability. Managers shouldnever ask a job candidate if she is or plans to become pregnant. Ifa candidate volunteers the information, it cannot be used to makean employment decision. In such a case, it behooves the employer tohave solid documentation about the legitimate criteria used to makea decision.

o Age Discrimination Act, Older Worker Benefit ProtectionAct: These laws prohibit discrimination against individuals 40years of age and older. They cover employers, labor unions andemployment agencies with 50 or more employees.

Sexual harassment

Sexual harassment claims technically fall under Title VII'sprotection from gender-based discrimination. The phrase was coinedat a 1975 conference at Cornell University, and it was two moreyears before the courts recognized a cause of action under TitleVII as a result of alleged sexual harassment.

Unfortunately, human nature is such that it's impossible foremployers to guarantee such incidents will never occur. The mostemployers can do is take steps to make them less likely–which alsoserves as the foundation of a good defense when claims arise.

Sexual harassment claims take two forms: “quid-pro-quo” and“hostile work environment.” An employee making a quid-pro-quo claimalleges that sexual favors were requested, that adverse employmentaction was taken because such favors were denied, or both. Anexample of such a claim might be that an employee was told, “If youwant to get ahead here, you need to raise the hem on yourskirt.”

The definition of hostile work environment is “pervasiveoffensive behavior to a reasonable person.” Even using thisstandard, what is considered offensive behavior is stillsubjective. It could be a racy picture displayed in someone'scubicle, telling off-color jokes, or repetitive behavior such aspatting someone on the back or a manager putting his arm aroundemployees.

As our opening scenario hints, the legal definition of“workplace” is important. The courts have defined the workplace as“where you conduct business.” If you're off site–such as at thelocal watering hole–and the discussion turns to work-relatedtopics, that watering hole is now the workplace.

The cases of Faragher v. City of Boca Raton andBurlington Industries Inc. v. Ellerth, decided by theSupreme Court on the same day five years ago, have had twosignificant effects on sexual harassment claims. Both decisionsfirmly established that the employer itself can be held liable forsexual harassment committed by one of its employees, particularlyharassment committed by a supervisor or manager. While thedecisions left some questions open, they also helped articulate thesteps an employer can take that would strengthen its defenseagainst such charges when a supervisor has committed sexualharassment.

Specifically, the court declared that employers are liable fortheir supervisory employees' actions, regardless of whether aquid-pro-quo or hostile-environment claim is made. However, anemployer may defend itself against a hostile-environment claim, ifno “tangible job action” has been taken against a plaintiffemployee, by asserting either that (1) the employer acted withreasonable care to prevent and correct the harassing behavior or(2) that the employee/plaintiff unreasonably failed to takeadvantage of any preventative or corrective opportunities providedby the employer. Since these decisions, the courts and the EEOChave continued to clarify some important issues:

o Who is a supervisor? The EEOC defines a supervisor assomeone who has the authority to make “tangible employmentdecisions,” someone whose recommendations about such matters wouldbe given serious weight, someone with the authority to directanother employee's daily work activities, or someone whom anotheremployee reasonably believed possessed such powers.

The courts have consistently applied this definition, but theyhave rejected the plaintiff's subjective view of a harasser's rolewithin a company. Particularly, the courts do not subject anemployer to strict liability based on a plaintiff's reasonablebelief that another employee is a supervisor. The critical questionrelates to the degree to which an individual can affect the termsand conditions of employment, including such examples as the powerto hire, fire, demote, transfer, evaluate or disciplineemployees.

o What is “tangible employment action”? The EEOCdefines tangible employment action as “a significant change inemployment status,” such as hiring, firing, promotion, demotion,undesirable reassignment and a change in compensation workassignment. According to the EEOC, such a change renders anemployee's claim actionable, regardless of whether it wasdetrimental or beneficial to the employee and even in the absenceof a change in salary or benefits. Only if no such action has beentaken can an employer/defendant assert the “two-pronged” defenseset forth in Faragher and Ellerth.

Retaliation

The right to allege discrimination is legally protected. In somecases, employees first allege discrimination, then later chargethat their employers retaliated against them for filing a claim.Sometimes employers who are charged with both offenses areeventually found not culpable for the underlying allegation ofdiscrimination but responsible for the retaliation. Juries have anemotional response to retaliation charges, and often react byawarding significant punitive damages.

To make a charge of retaliation, an employee must demonstratethat he or she was engaged in a legally protected activity, thatthe employer took an adverse employment action against him or her,and that a causal connection exists between the employee's activityand the employer's action. Two protected activities have beendefined: opposition and participation. Examples of opposition arethreatening to file a formal charge of discrimination, making aninformal complaint and protesting alleged discrimination.Participation is the filing of a charge or testifying, assisting orparticipating in an investigation, proceeding or hearing.Opposition is protected only if the employee believes in good faiththat discrimination has occurred; participation is protectedwithout regard to such a belief or the reasonableness of anunderlying charge.

Employees must demonstrate retaliation by showing they wereterminated, demoted, suspended, refused promotion or hire, given anegative evaluation or denied benefits. They must prove that suchaction was the result of their protected activity, which they oftenestablish through timing and the employer's knowledge–in otherwords, the employer knew of the protected activity before takingaction, and the action took place shortly after the activityoccurred. Employers can defend against such claims by demonstratinga legitimate reason for any adverse employment action. Thisrequires a consistent process and thorough documentation.

Avoiding problems

As your clients seek to create a harassment-free workplace, theyshould focus on several objectives: ensuring a fair, equitable,legal and safe work environment; ensuring that all employees knowtheir rights, responsibilities and the company's internal complaintprocess; and knowing how to prevent, stop or mitigate problems.

The courts and the EEOC have made it clear that they holdmanagement to a higher standard than other employees when it comesto fighting harassment. This begins with ownership and seniormanagement. The Supreme Court has established some guidelines forwhat they call a roadmap to avoiding discrimination and harassmentproblems.

The guidelines start with the employer, which is equated withsenior management. Senior management needs to establish and enforcepolicies related to non-discrimination and non-harassment. Theymust have a legitimate complaint procedure that is understandableand communicated to employees, so that employees know their rightsand the employer's due-process procedures.

Posting basic information on the wall of a common workplace areais one way many employers address this responsibility. Not all ofthe information has to be posted. If your clients have an employeemanual or company intranet site that contains complete information,wall posters can point them to those sources. There are twocaveats, however. First, all employees must have easy access towherever the information can be found. If your information is on anintranet, this means everyone should have access to a computer andtraining on how to access the intranet. If the information is in amanual, every employee should be given one–and they should berequired to sign off that they have read and understand the manual,not just that they have received it. Second, some employers have asizable population of employees for whom English is not their firstlanguage. When this is the case, anti-harassment and due-processinformation must be made available in their primary language.

Below senior managers, managers must “watch their words andactions”–they are responsible for acting professionally and settingthe tone for other employees. They also have what is referred to asthe “manager's duty to act.” When a manager gets even an inklingthat harassment is going on–whether it be through a directcomplaint, the manager's own observation or an off-hand comment byan uninvolved employee–the manager must investigate the situationand document steps that were taken. Managers should seek help whena situation is too complex. This might mean going to the humanresources person, or an in-house or outside attorney.

It's also important to be consistent and professional. Manymanagers get into trouble not because they did something withmalice or intent, but because they didn't treat all employees thesame way–such as by asking women in interviews different questionsthan men. Of course, discrimination is not illegal per se–it's themanager's job, in effect, to legitimately discriminate amongemployees. When doing so, managers must always document theirdecision and their legitimate rationale.

Non-managerial employees have some of the same responsibilitiesas managers, such as watching their words and actions. Though notas important as management's duty to prevent unfair behavior,employees have a responsibility to speak up and seek help when theyhave a problem. Employees may be allowed to avoid their employers'internal complaint procedure and make claims directly to outsideagencies such as the EEOC if they fear retaliation. However, inthese cases there is a burden of proof on the plaintiff to showthat more than just his subjective opinion leads him to fearretaliation. If an employer confronts an alleged harasser withallegations, investigates complaints and minimizes contact betweena complaining employee and alleged harasser, courts generally deferto the employer's decisions.

In summary, the EEOC has identified the precautionary measuresemployers can take to avoid harassment in the workplace, as well asthe components of an effective anti-harassment policy and complaintprocedure. Employers can help prevent harassment in the workplaceby:
o Periodically training managers and supervisors on anti-harassmentpolicies.
o Screening applicants for managerial positions and monitoringbehavior.
o Keeping accurate and confidential records of complaints.
o Requiring management to report any incidents of harassment andcorrect offending conduct, whether or not a complaint has beenbrought.

The elements of an effective policy include:
o A clear definition of what constitutes harassment.
o A clear description of the complaint procedure, with multipleavenues of access for the employee.
o Time frames for the formal filing of complaints withadministrative agencies, including the EEOC.
o A guarantee of a prompt, thorough and impartialinvestigation.
o Assurance that immediate, proportional and appropriate measureswill be taken to stop the offending behavior, prevent itsrecurrence and remedy the effects on the victim.
o Assurance that the victim or participants in the investigationwill be protected from retaliation.
o Assurance that the complaints will be kept confidential to theextent possible.
o A description of interim steps to be taken during the pendency ofthe investigation.

It would be nice to guarantee that acts of discrimination andharassment would never occur in the workplace, and that yourclients would never need to call upon their EPLI coverage. Sincethat's not possible, it's clear that the best defense is a goodoffense against offensive behavior.

Russ Rado, CPCU, is director of education for the AAMGAUniversity, the educational arm of the American Association ofManaging General Agents, located in King of Prussia, Penn. Mr. Radowas previously a director of training & development with ACEINA and CIGNA Property & Casualty Insurance Cos. He also workedas a training director at Wausau Insurance Cos, and as a trainingcoordinator and claims representative at Government EmployeesInsurance Co. He has a master's of education degree from WestChester University and holds the CPCU, AIM and ARPdesignations.

Bernd G. Heinze, Esq., is AAMGA's executive director andpresident and chief executive officer of Beacon Management GroupInc. Mr. Heinze earned his J.D. from the Temple University Schoolof Law in Philadelphia and his B.A. in international relations andeconomics from Canisus College in Buffalo, N.Y. Mr. Heinze islicensed by all state insurance departments to provide continuingeducation seminars and is admitted to practice in the U.S. SupremeCourt.