Employment Law for Businesses –

Easy Steps to Protect Your Business

Importance of Preventative Employment Audits -

An Ounce of Prevention Is Worth a Pound of Cure

June 13, 2012

I. What Is an HR Employment Audit?

II. Why HR Audits Are Not Optional.

III. Scope of an HR Audit.

IV. Insurance Implications.

V. Protecting the Confidentiality of an HR Audit.

Today’s Agenda

Review of all HR policies, practices and procedures.

Involves review of documents, interviewing HR professionals, managers and staff.

Determines compliance with federal, state and local laws, regulations and ordinances.

I. What Is an HR Employment Audit

Helps companies identify potential liability and costs.

Be as limited or broad as needed.

Can be done internally or externally, with or without an attorney.

Legal Reasons

Business Reasons

“Real” Reasons

II. Why HR Audits Are Not Optional

Audits provide “good faith” defense to punitive damages in discrimination claims.

Audits provide defense to employer liability for supervisor harassment.

II. Why HR Audits Are Not Optional

Legal Reasons

Audits help preserve “good faith” defense to liquidated damages under the FLSA.

Defense applies to FLSA, ADEA, Equal Pay Act and WARN Act claims.

Legal Reasons (cont.)

Increase in class and collective actions by:

• Employees

• Independent

Contractors

• Volunteers/Summer

Interns

Legal Reasons (cont.)

EEOC/DOL/OFCCP: New focus on systemic discrimination.

Increased enforcement and governmental audits.

Legal Reasons (cont.)

Gives early opportunity to remedy problems before they become lawsuits.

Prevents indictments, penalties and bad publicity.

Gains better understanding of company practices and procedures.

Improves systems/recordkeeping.

Improves employee morale, productivity, ROI.

Can reduce insurance costs.

II. Why HR Audits Are Not Optional

Business Reasons

Cost – You can’t afford not to audit.

• $615 million paid by Boeing to settle employment-related criminal charges

• Toyota North American CEO quits amid $190 million sexual harassment suit

• Dukes v. Wal-Mart: class of 1.6 million female employees certified

An audit is significantly cheaper than protracted litigation.

II. Why HR Audits Are Not Optional

“Real” Reasons

Depends on objective and needs of the company.

Be as limited or broad as necessary.

Written policies and unwritten policies.

Size of employer.

Are you a federal or state contractor?

III. Scope of an HR Audit

Appropriate disclaimers?

Written clearly so easily understood?

Are policies consistent with actual practice?

Clear explanation of complaint procedures?

Policies comply with federal, state and local laws?

Maintain proper and necessary policies?

Employee Handbook/Policies

Contain at will disclaimer/EEO statement?

Impermissible inquiries (birth dates, race, marital status, religion, arrest records, etc.)?

Criminal convictions must generally not automatically disqualify.

Request work reference information?

Certification of accuracy?

Employment Applications

Have necessary posters?

Are the posters up to date?

Posted in correct location?

Necessary to have posters in multiple languages?

Posting Requirements

Required to maintain them?

If so, what needs to be contained in personnel file?

Segregate medical/worker compensation materials/drug testing documents.

Segregate I-9 forms.

Policies and procedures allowing for access.

Recommend setting up checklist.

Personnel File Maintenance

Should you have them?

Are existing job descriptions accurate?

Do they contain essential functions?

Share with employees?

Job Descriptions

Exempt or non-exempt?

If exempt, review duties to ensure proper classification.

If non-exempt, ensure time keeping policies accurately record hours of work.

Worker Classification

Are they up-to-date?

Are they consistent with others?

Contain necessary provisions?

Representations and warranties?

Employment Agreements

Are they enforceable?

Non-solicitation, non-compete or both?

Implement for existing employees?

Contain proper enforcement provisions?

Extension clause?

Blue pencil provision?

Restrictive Covenants

Do you have a written policy?

If not, should you have one?

If so, does it address current records of company?

Litigation hold provision?

Does it address electronically stored information (ESI)?

Does it outline employee responsibilities?

Record Retention

Recruitment and advertising have EEO liability issues.

Seeking employees through appropriate media sources?

Avoid only word of mouth hiring practice.

Job postings within company?

Training of employees who interview.

Hiring and Selection Procedures

No pre-offer medical examinations.

Is test necessary for essential job duties?

Be careful with impact on minorities or other protected groups.

Validation may be necessary (expensive).

Pre-Employment Testing

Compensation appropriate under FLSA.

Equal Pay Act implications.

Compensation of Employees

Conducted on regular basis?

Measuring proper skills and responsibilities?

Employees being evaluated uniformly?

Beware of artificial inflation.

Performance Evaluations

Employment Practices Liability – this covers alleged and actual acts of discrimination, harassment, retaliation, wrongful termination and other similar acts. Some polices are not including defense coverage for FLSA claims.

IV. Insurance Implications

What types of insurance can protect you

from your Human Resource mistakes?

Employee Benefits Liability - this covers an error or omission in the administration of an employee benefit program, such as failure to advise employees of benefit programs. This coverage is provided by endorsement to the general liability policy or through a fiduciary liability policy.

Fiduciary Liability Policy - this covers potential liability for various officers of an organization as well as other persons acting in some capacity relating to an employer’s pension, savings, profit-sharing, employee benefit and health and welfare plans.

Directors and Officers Coverage - this provides financial protection for the directors and officers of a company in the event they are sued in conjunction with the performance of their duties as they relate to company. This coverage is an errors and omissions policy for the management of the company.

1. Have an employee handbook.

2. Have a written Email/Internet Policy.

3. Have a written Anti-Discrimination and Anti-Harassment policy.

4. Have a social media policy.

5. A valid, current employment audit.

6. Fewer employment-related lawsuits.

Steps to make your business more attractive

to the underwriter:

The point of insurance is to pool the risk-

a common group of people sharing the

risk related to their health. We don’t

know when we are going to need our

health insurance and most of us don’t

have $100,000 sitting in a bank to handle

an emergency heart surgery. By pooling

the risk we share the cost with others.

Health Insurance – what it was intended to be?

Health insurance premiums are based on

the risks of each policy holder—which

we call medical underwriting.

Adverse Selection - When the price of

health insurance is unfairly high for low-

risk individuals they choose not to

purchase coverage. The high-risk

individuals will buy insurance and the

total cost for all individuals goes up.

Health Insurance – what it was intended to be?

Valid fear of having audit used against

company.

Why audit if it could be Exhibit “A” to any

lawsuit?

Three possible protections:

1) Attorney-client privilege.

2) Attorney work-product doctrine.

3) Self-criticism privilege.

V. Protecting Confidentiality of an HR Audit

Prevents disclosure of communications

between attorney and client which are

legal in nature.

Having outside or inside counsel

spearhead the audit can be the best way

to make audit “confidential.”

(Attorney-Client Privilege)

Information, statements, mental

impressions and other written

memoranda prepared by an attorney in

anticipation of litigation or trial may be

protected.

Only exception is where party seeking the

content shows a substantial need for the

materials and the materials cannot be

obtained by other sources.

(Attorney Work Product Doctrine)

Common law doctrine that can be

invoked to prevent disclosure of

documents that contain potentially

damaging self-criticism of company.

Self-criticism is protected, not the

underlying facts.

Not available in all jurisdictions.

(Self-Criticism Privilege)

1. Written directive from management to

attorneys requesting an HR audit.

2. Written directive should indicate

attorneys controlling the audit process.

3. Employer representative should execute

statement expressing purpose of audit is

to determine legal compliance and to

obtain legal advice.

(Establishing “Protected” Framework)

4. Statements should be marked

“Confidential.”

5. All written communications between

client and attorney regarding the audit

should be marked “Privileged and

Confidential; Attorney-Client

Communication; Attorney Work-

Product.”

(Establishing “Protected” Framework)

6. Audit should not involve too many

employees.

7. Final audit report should be drafted by

attorneys.

8. Audit report should only be circulated to

those employer representatives who are

responsible for legal compliance.

9. All underlying materials to and drafts of

audit report should be destroyed.

(Establishing “Protected” Framework)

E. Jason Tremblay Arnstein & Lehr LLP 120 South Riverside Plaza Suite 1200 Chicago, Illinois 60606 Work: (312) 876-6676 Cell: (773) 710-3438 ejtremblay@arnstein.com

Carolyn Hanna Corkill Insurance Agency, Inc. 25 Northwest Point Boulevard Suite 625 Elk Grove Village, IL 60007 Work: (847) 437-2831 channa@corkillinsurance.com

Questions?