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Nonprofit Risk Management Center A source for tools, advice and training to control risks ... so you can focus on your nonprofit's mission

June 4, 2008

Employment Law Issues Continue To Pose Risks

Employment practices lawsuits continue to be among the more prevalent and most draining legal actions that a nonprofit is likely to face. Discrimination claims filed with the EEOC rose 9% in 2007 — the biggest jump in close to a decade. Nearly one-third of those claims included an allegation that the employer retaliated against an employee for exercising a legal right, such as filing a discrimination suit, or “blowing the whistle” on an allegedly illegal practice of the employer. Most states have their own whistleblower protection laws. The federal Sarbanes Oxley Act also makes it a crime to retaliate against an employee who raises allegations of financial impropriety or accounting mismanagement. In two opinions issued just this past month, the US Supreme Court has affirmed that employees have the right to bring retaliation claims against their employers under various federal anti-discrimination statutes, even though the specific laws make no mention of a cause of action for retaliation. [See CBOCS West, Inc. v. Humphries, No. 06-1431, 553 U.S. ____ (May 27, 2008) (Section 1981, a Reconstruction-era civil rights statute that prohibits race discrimination, also prohibits employers from retaliating against an employee who raises complaints about race discrimination at the workplace) and Gómez-Pérez v. Potter, No. 06-1321, 553 U.S. ____ (May 27, 2008) (federal employees who complain about age discrimination are protected from retaliation by their employers under the Age Discrimination in Employment Act (“ADEA”).]

Meanwhile insurance industry statistics inform us that having an internal grievance procedure that effectively captures employee complaints and compels employers to conduct investigations into employee concerns about discrimination and other perceived unfair or illegal practices, AND that prohibits supervisors or the nonprofit from retaliating against employees who raise such concerns, is an effective tool in avoiding lawsuits. Don’t get caught between a rock and a hard place. When an employee makes noises about discriminatory or illegal practices: listen; promptly investigate the allegations; and determine whether any inappropriate conduct or practices have occurred. If so, take action. And don’t forget to close the loop with the employee. Employees who never hear what happened in response to their complaints are the ones who are most likely to assume that their complaints fell on deaf ears. Their next move may be to call an attorney, or contact a federal or state regulator, which could trigger an investigation of the nonprofit’s practices.

The trend of an increasing number of retaliation claims is likely to continue with these recent Supreme Court holdings. In this environment it is even more important to have the right policies in place and keep your supervisory staff up-to-date with the latest developments in the employment law area.

Stay Up- to-Date With the Latest Developments in Employment Law and More!

Join us at the 2008 Risk Management and Finance Summit for Nonprofits in Minneapolis, September 7-9th for two and a half days of risk management information, resources and practical advice. For a detailed look at all the sessions, download the brochure.

Back by popular demand are several workshops on employment law, suitable for HR managers, executive directors, finance directors or anyone at your nonprofit who oversees the human resources area:

  • Liar Liar: What to Do When an Employee’s Pants Are on Fire and Other Risk Management Challenges in Today’s Workplace,
  • State of the Art Screening for Paid and Volunteer Staff: What’s New and What You Need to Know
  • Any Day But Friday: Compassionate Layoffs and Staff Terminations

The Center’s regional conferences, Risk Management and Financial Essentials for Nonprofit Leaders happening this month in Texas, Arkansas, Montana and Maine, will each feature a session on the latest developments in employment law applicable in those states. It’s not too late to register!

Can’t attend the Summit or a regional conference?

Other Resources on Employment Practices from the Center:

Calling All Nonprofit Insurance Specialists!

Would your insurance agent or broker benefit from attending our Summit? The program includes a special two-part program for agents and brokers who specialize in helping nonprofits. Please forward information on the Summit to your insurance professional. And if you send us contact information for your broker (name and email address will suffice), we will send them information on the Summit and enter you in a drawing to receive a complimentary copy of our new insurance book, Coverage, Claims and Consequences. We'll select one winner from every ten new contacts we receiveat a drawing at the Summit in September. You need not be present to win. Please send us an email with your name, organization’s name and address, as well as the name and contact information of your organization’s insurance specialist. We hope you win a prize!

Your Questions Answered by the Center’s Staff

Q. What type of insurance would a nonprofit need when it’s first starting out and how much will it cost?

A. It’s never too early to start thinking about insurable risks, but it is probably too early to apply for coverage and obtain firm quotes on pricing from reputable carriers until your nonprofit has been incorporated and is up and running. General liability insurance (claims alleging bodily injury or property damage) will run at least $1,000 annually, and special event coverage may be available for $200 per event (depending on nature and size of event). The latter might not be needed if your General Liability covers events. Professional liability coverage, if needed to protect against claims alleging negligence in the delivery of services, is likely to run around $2,000 annually. Directors and Officers Liability Insurance that includes Employment Practices Liability coverage is important both to protect volunteers as well as the entity from errors and omissions, and to provide legal defense costs for employment-related claims. D&O with EPL may cost upwards of $3,000 depending upon the number of employees/volunteers in the organization. If your organization utilizes volunteers for activities where the volunteers are exposed to physical activities that could result in injury, consider Volunteer Accident Insurance, which is less expensive than D&O but may not be insignificant, depending on the numbers of volunteers involved and the nature of their activities for the nonprofit. The first step in obtaining any of the above is to locate an insurance agent who specializes in nonprofits who will not only be able to identify the types of policies that will meet your needs but who also has experience with the marketplace and products designed specifically for nonprofits’ needs.

Q. Our nonprofit needs to retain legal counsel and we are not sure where to begin. Do we need to have a signed agreement with an attorney? Who should the attorney report to? the Board of Directors or the staff of the agency?

A. If you need to retain legal counsel because of a claim that has been filed against your nonprofit (or your knowledge of a potential claim) you are required to contact your insurance professional(s) to alert to them to the legal action/potential legal action. The nonprofit’s insurance policy(ies) may provide for the insurance carrier to defend the claim(s) against the nonprofit, in which case the carrier will identify the appropriate legal counsel and the attorney/client relationship will be between the insurance carrier and the attorney. (If you do not provide notice to the insurance carrier, the carrier may deny the claim.)

In other situations, the board of directors may forge the relationship with legal counsel and the attorney generally then reports to the board -- in some organizations the staff rather than the board identifies and recommends legal representation, with approval from the board. In those situations the chief staff officer is usually the primary “relationship manager” with outside counsel. If the chief staff officer has authority, s/he may sign a retainer letter with the law firm/attorney selected. Otherwise the Chair of the Board may be the appropriate person to sign the retention letter. In either case, it is wise to have a signed agreement, and to know up front what the fee schedule and costs charged to the nonprofit will be. Assuming that actions of board and staff are authorized, or within the scope of authority as a board/staff member, then the attorney for the nonprofit will also represent any individual board or staff members involved in a lawsuit.

If you have a question, just go to our web site, click on the ADVICE tab and select “FAQs” to see what questions are already answered, or click on “Technical Assistance.” A simple form allows you to submit your question to our staff experts. We’ll respond within 48 hours and you can look for your question in a future eNews! or call us at: 202-785-3891.

© 2008 Nonprofit Risk Management Center

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