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January 16, 2024

Employment Practices Liability Trends Affecting Small Businesses

Small businesses may lack robust HR departments dedicated to dealing with employment issues, but they still face employment-related liability.

The EEOC says even businesses with just one employee must provide equal pay for male and female employees, whereas employers with 15 or more employees are prohibited from discriminating against protected classes.

Employers may also need to navigate state and local laws. Unfortunately, recent employment practices liability trends are making compliance more challenging.

Workers Are Demanding Equal Pay

The U.S Department of Labor says employees have the right to discuss their pay with other employees or applicants and must not be punished for doing so. Nevertheless, many private employers have tried to keep salaries secret – an endeavor that’s becoming more difficult as states have passed pay transparency laws in recent years.

According to the Center for American Progress, eight states have passed salary range transparency laws and at least 15 more are considering doing so. The states with laws on the books are Washington, California, Nevada, Colorado, New York, Connecticut, Maryland, and Rhode Island.

These new laws could lead to lawsuits in numerous ways. If increased pay transparency reveals pay discrimination, employees may file lawsuits. According to Bloomberg, approximately 40 lawsuits have already been filed over job ads that didn’t provide the required pay information. However, Legal Dive warns that pay disclosures could lead to claims of pay collusion.

DEI Strategies Can Lead to Discrimination Claims

The societal push for diversity, equity, and inclusion (DEI) has impacted businesses of all sizes. However, DEI efforts vary significantly. According to a report from Perceptyx, approximately 80% of companies are going through the motions of DEI without actually holding themselves accountable. The report also found that 40% of companies view diversity efforts as a way to control legal, compliance, or reputational risks.

Although companies may embrace DEI to avoid litigation, a careless approach could in fact increase the risk of litigation. Bloomberg Law says there’s been an increase in DEI lawsuits since 2020, many of which involve allegations that companies are failing to uphold their own DEI pledges. On the flip side, USA Today says more businesses are facing allegations of reverse discrimination. These claims frequently argue that companies are discriminating against white people to meet diversity quotas.

AI Can Land Employers in Hot Water

For small businesses struggling with labor shortages, new AI tools may seem like the perfect solution. However, using AI in employment-related decisions could lead to claims of discrimination if the algorithm is found to show bias against older workers, disabled workers, or workers who belong to another protected class. For instance, the EEOC says a tutoring company will have to pay $365,000 to settle a lawsuit involving discriminatory hiring practices. The company reportedly used an AI program that screened out older applicants.

As more businesses adopt AI to assist with applications, more lawsuits could follow. Small businesses won’t be off the hook just because they didn’t create the programs. The EEOC says employers are responsible for ADA compliance when using algorithmic decision-making tools, even if another entity designed or administered the tools.

Although some companies may be found guilty of using algorithms to intentionally discriminate, others may end up adopting discriminatory processes by accident. For example, NPR warns that a program that analyzes speech patterns to assess problem-solving abilities could discriminate against someone with a speech impediment, whereas a program that rejects applicants with gaps in their resume could discriminate against workers who had to take time off for disability or childbirth.

Protecting Your Small Business from Employment Practices Liability

Lawsuits can be especially devastating for small businesses. Protect your small business from claims and losses by following best practices.

  • Conduct a risk assessment when adopting new tools. Although new technologies may offer some advantages, you need to be aware of the possible downsides to mitigate the risks.
  • Stay abreast of legal trends. Make sure you’re in compliance with new state and local laws as well as federal laws and monitor litigation trends that could impact your company.
  • Consider DEI positions carefully. Avoid making statements if you don’t have plans and policies to follow through. Avoid actions that could lead to claims of reverse discrimination.
  • 3 This provides coverage for many common employment-related claims, including wrongful termination, retaliation, sexual harassment, and discrimination.

Do you need help securing employment practices liability insurance and other coverages for your small business? Heffernan Insurance Brokers offers tailor-made insurance packages for small businesses. Learn more.

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