R&R Insurance Blog

Update: 5/19/2023

The EEOC has just posted additional guidance on the use of AI in hiring practices. The guidance can be found here and pretty much follows what I recorded on the video and wrote below. Here is a summary of the guidance in bullet points: 

• AI is not, by itself, going to solve discrimination issues 
  • You still have to monitor your selections
  • Review choices against parameters you set so they don't have a disparate impact
• Your organization can't hind behind 3rd party software
  • The buck stops with the employer
• As suspected, there is a safe harbor provision
  • The EEOC wants you to review your selection criteria and correct adverse impacts

Artificial intelligence is becoming ubiquitous, and it has the potential to revolutionize many aspects of society, including human resources. However, there are also risks associated with the use of AI, and the Equal Employment Opportunity Commission (EEOC) is paying close attention to this issue.

According to a recent hearing by the EEOC, there are many potential benefits to using AI in the employment process, such as streamlining the hiring process and saving time and money. However, there are also many risks associated with AI, and the EEOC is interested in all aspects of the employment relationship.

One of the biggest concerns about using AI in the hiring process is the issue of "garbage in, garbage out." This means that if the data used to train the AI is biased, the results will be biased as well. Additionally, AI changes how it makes decisions over time, sometimes with unpredictable results. This means that even if the AI is unbiased when it is first implemented, it may become biased over time.

The EEOC launched the Artificial Intelligence and Algorithmic Fairness Initiative in 2021 to study the use of AI in the employment process. In 2022 they released their first technical assistance document, which focuses on the Americans with Disabilities Act. While this document is not a regulation, it provides guidance for employers who are considering using AI in the hiring process.

The EEOC is most concerned with the four stages of the hiring process that are most easily affected by AI: announcing the job, reviewing applications, screening candidates, and final selection. Large companies may create their own AI software, but most businesses will buy software from third party vendors. This means that they may not be able to control the biases in the data used to train the AI.

The use of AI in the employment process has potential benefits, but there are many risks that need to be fleshed out.   As we await further guidance from the EEOC, employers should be aware of the risks associated with AI and take steps to ensure that their systems comply with employment discrimination laws. 

Harvey Weinstein, Roger Ailes, Charlie Rose, Mike Cagney, David Guillod, Michael Oreskes and the growing list of executive sexual harassment scandals have dominated headline news over the past few months. The rising awareness of workplace misconduct, in an increasingly litigious society, may have employers quaking at the cost of defense. Regardless in size of the company, every business should consider putting the proper coverage in place to respond to this type of event.

Management fearful of costs associated with allegations ranging from sexual harassment to retaliation would best find relief with proper employment practice liability insurance (EPLI).

EPLI Overview

For most businesses, EPLI would not rank highest on a list of insurances to obtain such as general liability, property & casualty, and workers’ compensation. That said, EPLI should be an enticing insurance since, by a wide margin, it is the least expensive of the aforementioned.

EPLI coverage can be summed up as settlements, judgements, and the defense costs associated with claims against improper acts in the employment process. Common claims include harassment, defamation, discrimination, a hostile work environment, breach of contract, emotional distress, wrongful termination, and denial of career opportunity.

Not all EPLI polices are the same and it is best to discuss with your agent the proper coverage. One difference is the way policies may respond to 3^rd party claims.

Many EPL policies will only cover 1^st party claims. These are claims made by your employees or independent contractors. John Doe claiming wrongful termination would be covered in this scenario, but a customer receiving a harassing comment from your staff would be excluded from the policy. In short, if you deal with vendors, clients, or anyone from outside your organization, you have a 3^rd party exposure. Certain classes of business are at a greater risk - think restaurants, bars, and retail.

To address this exposure, make sure your EPLI carrier includes 3^rd party claims. In this scenario the company would also have coverage with vendors, customers, service providers, or business invitees.

A comprehensive summary of the legal environment and coverage practices of EPLI can be seen for free in R&R Insurance’s Employer's Practices Liability Insurance by Brian Bean. The 80 minute video is an excellent introduction for the information seeking executive wearing many hats.

EPLI Increasing Need

The elephant in the room is increased media attention around sexual harassment. Every day it seems a new celebrity or high profile executive has an allegation brought forth. A cursory glance at the trending #MeToo on Twitter would suggest a growing movement to callout organizational harassment of women.

EPLI not only mitigates sexual harassment risk, but a wide range of trending risk in the employment process.

In the last 20 years America has seen a 12% uptick in individual charge filings with the Federal Equal Employment Opportunity Commission. While Race and Sex discrimination make up the majority of cases, they have only risen slightly in number going year by year. The largest percentage increase in discrimination cases since 1997 have been Age (24% increase), Disability (36% increase), Religion (55% increase), and Retaliation (57% increase).

It may be surprising that 41.5% of these complaints were filed against companies with less than 100 employees – and these numbers only count filings at a federal level.

Media attention and rising awareness should be a major concern for a business lacking proper EPLI coverage. Its cost, relative to other business insurance, is low and mitigates a financially disastrous risk to the company. Executives would do well to, at the very least, inquire about the proper EPLI coverage from their agent.

This effort should be combined with proactive harassment training for your employees along with and proper procedures to respond to a claim situation.

Employers have a 1 in 3 chance of being the target of an employment related action for every 100 employees. Private and small companies are even more vulnerable as many have less HR resources, think of themselves as “family”, and generally pay less attention to potential risk areas. In 2012 the EEOC received more complaints than any previous year. They have increased their budget by 20% to increase staff to handle the pure volume of complaints being filed. Regulators have become more aggressive in enforcement at both the federal and local level.

The top four complaints being filed against employers:

1. Age related discrimination
2. Retaliation (at an all-time high)
3. Sexual Harassment (account for 25-30% of all complaints)
4. Wage and Hour

It is important for employers to realize that the EEOC is looking at every charge for a pattern of behavior. A single complaint can easily balloon into a much bigger problem. Recently, St. Mary’s Hospital in Madison, WI agreed to settle a class action lawsuit alleging that the hospital failed to pay 1,400 nurses for meal breaks when they had to stay at the hospital on call.

In the broad context of wage and hour issues, allegations include misclassification of employees as exempt to avoid overtime pay (i.e. sales personnel), not paying for the time spent donning or removing of gear, booting up computers, preparing for the work day, etc.. and the use of mobile devices to access voice mail or email off hours without compensation. The 4^th district Court Appeals ruled recently that Tyson Foods must pay back wages for the time spent putting on and taking off gear that can include hair nets, hard hats, shoe covers, safety glasses and frocks. The back wages could top more than $1 million.

Looking into the future, employers should be aware of the potential claims concerning obesity and corporate wellness programs. The American Medical Association recently classified obesity as a disease. Is this a precursor to becoming a protected class? The challenge for employers is being able to show that an applicant or employee cannot perform the job duties rather than the impact that an obese person can have on health insurance, sick time, and productivity. With regard to wellness programs employers are advised to be careful that individual’s privacy is protected, that they are not being judged /monitored and that employment decisions are not being influenced by an employee opting out of participation or following recommendations.

The average cost to defend against an employment action brought by a single plaintiff that is ultimately dismissed is $150,000. Costs for complex and class actions can skyrocket and have a huge financial impact to any employer regardless of industry. Employment Practices Liability insurance should be a part of the insurance program for all employers. Taking time to understand the policy, the obligations of both the employer and carrier, and what to do in the event of a claim is time well spent. Odds of becoming the target of an employment action are on the rise.

For more information about Employment Practices Liability Insurance for your Wisconsin company, contact a knowledgebroker.

Related topics:
Corporate wellness programs