An Economic Downturn Means More Employment Lawsuits; New EEOC Stats Adding Fuel to the Fire

Whether the economy is … dare I say it … in a recession or not, employers and employees are feeling the pinch. Bad news in the housing market and the financial sector has made us all a bit skittish.  And rest assured, you can count your employees among the nervous masses. What’s on their minds?  A heady mix of stress that includes job security, threatened retirement savings, personal debt load, and future career prospects.

If your organization is tightening its belt or considering how to weather this period, it’s critical to steer senior leaders away from making one big mistake – cutting back on essential employment law training.  Employment law training budgets should never be considered “discretionary spending,” especially in a downturn.

Employment law claims don’t dwindle along with a poor economy – they actually increase. This isn’t just speculative theory – it’s supported by a formal analysis of case filings.  A great study published in the Stanford Law Review by John Donohue and Peter Siegelman (The Changing Nature of Employment Discrimination Litigation, 43 Stan. Law. Rev. 983 (1991)), gives a clear picture of claim trends during an economic downturn:

• When the economy goes into a recession, there is a dramatic increase in the number of employment lawsuits filed in federal court.  A scarcity of alternative employment serves as a catalyst for litigation.

• The single largest predictor in the long-term growth trend of case filings is the national unemployment rate.  When the economy booms, employment discrimination case filings fall in the next half-year; when the economy slumps, case filings rise over the next half-year.  This phenomenon explains roughly 95% of the variance in the number of cases filed.  A modest rise in the current unemployment rate from 4% to 5.5% could generate a 21% increase in the number of employment discrimination claims.

• The average damage award to a successful plaintiff rises in business downturns, particularly with respect to employment discrimination suits.  Because the length of time it takes for a plaintiff to find another job increases in a recessionary economy, monetary awards are elevated.

• Overall charges surged by 9% over the prior year – the largest annual increase since 1993.

• Race claims still top the list at 37% of all EEOC charges.

• Up 18%, retaliation is now the second most common claim.

• Pregnancy discrimination claims jumped 14% over last year – a number that’s likely to only increase.

• The EEOC collected record monetary relief for victims of discrimination in 2007 -- $345M, an increase of 26% over 2006.

• Consent decrees and settlements with the EEOC consistently featured mandatory harassment and discrimination prevention training.

By now, you’re probably all familiar with your compliance training obligations and mandates. They really focus on three key areas – ethics, harassment and discrimination. If you’re not familiar, just check out the free ELT resources designed to help you understand the legal landscape.

And as a final note, remember to pay attention to your potential wage-and-hour liability during these tough economic times.  Like discrimination claims, wage-and-hour claims are increasingly attractive when wallets are thin, and alternative job prospects grim.  Wage-and-hour class action claims now outnumber all discrimination class action claims, combined.  So during our current downturn, I’m confident we can expect to see an increasing surge of claims related to pay and hours or work.  Training in wage-and-hour compliance, like with harassment and discrimination, can help your organization to establish invaluable affirmative defenses in the event of litigation.  Learn more about how training can impact the bottom line with ELT’s wage-and-hour resources.

At the end of the day, employment law training is so much more than “training” – it’s bottom line risk management.  You wouldn’t start canceling your business insurance policies to save money in a downturn.  The same goes for foundational employment law compliance.  It’s non negotiable.