Employers Foresee Gains and Losses in 2011

By Beth Mirza Dec 3, 2010

While employers expect to add jobs by the end of 2010, they’re forecasting losses for 2011—attributable to employment practices liability lawsuits and employee theft.

Forty-four percent of respondents to the 2010 Chubb Private Company Risk Survey said they expect that their organizations will add jobs by the end of 2010. Fifty-four percent said they will expand product or service offerings, while 12 percent said they will complete a major acquisition.

However, with increased hiring comes increased risk—36 percent of respondents said that an employment practices liability (EPL) lawsuit was the most costly potential loss for their companies. Nearly one in five believed that an EPL charge would be lodged against their firm in the next 12 months.

Eighteen percent cited employee theft as the most costly potential loss. More than half of respondents—54 percent—believed that employees would steal company funds, equipment, inventory or merchandise over the next year. In the past five years, 30 percent of companies experienced such theft.

The survey was conducted by Pollara, an independent public opinion and market research firm. The firm interviewed decision-makers at 451 for-profit companies in the United States.

Discrimination Claims

With the Equal Employment Opportunity Commission (EEOC) reporting record-setting numbers of workplace discrimination charges filed in 2008 and 2009, employers are more aware than ever of the potential for financial damages, said Cathy Padalino, EPL product manager and vice president at Chubb & Son Worldwide. The EEOC is on pace to set another record in 2010, she added, because of “the expansion of the legal environment: ADA (Americans with Disabilities Act) amendments, GINA (Genetic Information Nondiscrimination Act), the Ledbetter Fair Pay Act. Certainly, the EEOC has made (filing a charge) more accessible and increased education and awareness,” she said.

“From our point of view, it’s the economic situation,” Padalino continued. “A lot of companies laid people off and some people felt harmed. … They can’t find another job, not at the same pay level,” so they file discrimination claims.

Padalino recommends that companies invest in updating policies and procedures with new legal requirements—federal, state and local—and that they spend money to train supervisors and managers on those policies. Emphasize to employees the company’s open-door policy.

“Most (organizations) have a grievance or complaint resolution. This is of paramount importance. Particularly in this economy, emphasize fairness. Let employees feel they have a voice and can get an objective viewpoint,” Padalino said.

In addition, Padalino warned employers to beware of the increase in retaliation claims, which tied with race discrimination claims as the most commonly filed charges with the EEOC in 2009. Employees who alert supervisors to an unlawful practice might file a retaliation claim subsequently if, during the course of the investigation of the first claim, the employee is reassigned or moved to a different job or work area. What employers think might be fair and prudent—removing the complaining employee from the site where he or she might have discovered something unlawful—could be seen by the employee as the employer retaliating against him or her for blowing the whistle, Padalino said.

“All your policies can work well on paper, and you may think you’re doing the right thing in the investigation in moving someone, and then you’re hit with a claim of adverse employment action,” she added. “It’s a secondary charge, but it’s leading the way. … The courts have made it much easier to bring such a claim.”

Employee Theft

“Fraud is on the increase,” said Greg Bangs, product manager for crime expense insurance and vice president at Chubb & Son Worldwide. “Whenever there’s an economic crisis, there’s a significant uptick in fraud and dishonesty.”

When economic times are good, Bangs said, companies are less likely to examine internal processes and controls to prevent employee theft and fraud. When times turn bad, companies start looking for ways to save money and preserve assets—and that’s when they are particularly likely to discover a fraud that’s been perpetuated for a long time, he added.

“Our largest problem area is vendor-related fraud,” in which accounts payable employees create fictitious vendors, dummy up invoices and pay out company funds to a fake account, he said. Another type is when vendors overcharge the company for services, then split the difference with an accomplice in the company.

An inexpensive method of controlling such loss is to set up a fraud hotline. Such hotlines are required under the Sarbanes Oxley Act for publicly traded companies, but Chubb recommends that every company have one, Bangs said. “These are great to pick up (frauds) before they get out of control. Something doesn’t make sense, an employee suspects something—and it’s nipped in the bud.”

Background checks are also necessary, he added, to check for previous thefts. “If you do a simple and inexpensive check on credit, criminal and unemployment history, you’ll be surprised what is picked up.”

Employers should require annual vacation as well. Many clients have told Bangs they can’t believe that an employee has committed theft, saying that the employee was hardworking, dedicated and never took a vacation. “In complicated frauds, the employee must be there to manage it. If they are covering up invoices, someone must be there to physically do it. Make everyone take one week off—something will pop up, or someone will see something. That’s how most frauds are detected.”

Finally, follow the “golden rule of internal controls”: don’t let one employee do a transaction from beginning to end. Make purchasing, receiving and accounts payable separate job duties, Bangs said. “This can stop fraud in its tracks.”

Beth Mirza is senior editor for HR News. She can be reached at Beth.Mirza@shrm.org.


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