Diversity in dispute: companies that fail to address diversity-related risks today may be forced to pay the price tomorrow

Risk & Insurance, Nov, 2003 by Dennis McCafferty

These days, mitigating risk from diversity-based disputes involves far more than reviewing hiring practices. It requires examining the image a business presents to the outside community, as well as the atmosphere cultivated within. Recognition of modern-day complications is so universal that even those companies who have 'gotten it' when it comes to non-discriminatory practices are questioning whether they can do better--protecting themselves from risk even more.

Take Atlanta-based InterContinental Hotels Group, which has had a long-standing reputation for sound diversity practices based upon the global nature of its business. Diversity dispute claims have never really been an issue, says Gail Copelan, claims manager for InterContinental. That didn't stop the company from, six months ago, launching new programs to further train staff on diversity sensitivity. "We've even started diversity luncheons," Copelan explains, "where we bring a dish to the office that represents our own ethnic background." Copelan, being of German descent, was the one who brought the hearty plate of sausage.

With a recent Supreme Court decision allowing the University of Michigan to favor minority students in admission practices, experts say that businesses will be under higher scrutiny to cultivate better diversity policies. The decision confirmed that the civil rights legislation that has guided the nation since the 1960s still holds true. While higher education was the subject of this case, the same statutes that determined its outcome are legally applicable to employers.

The decision should also ensure that future graduates of higher education will remain diverse, so employers will be compelled to hire fairly within that base. While big companies have resources to incorporate risk-adverse diversity programs--many have a vice president who focuses solely on the issue--small and medium-sized businesses often do not.

And they can find themselves in a bit of trouble as a result. Overall, discrimination complaints filed with the U.S. Equal Employment Opportunity Commission totaled more than 84,400 in 2002--up from nearly 77,600 in 1998, a nearly 9 percent increase. Race and sex, of course, account for most of the complaints, at a combined 65 percent. But what many experts find telling is the emergence of age discrimination, which ac counted for nearly one-quarter of the complaints, up from about 19 percent in 1998. Those age-based complaints resulted in $55.7 million in awards--and that's not counting any age-related litigation.

"This wave of age-based employee disputes was easy to predict two years ago," says Lucy Ann Galioto, who, as vice president of New York-based National Union Fire Insurance Company, evaluates risk for companies with respect to their employment practices. "We had a downturn in the economy intersecting with the aging of the baby boomers. In the first round of layoffs, they laid off the managers who were making the most money. Those people happened to be 55 and older. Eventually, those lawsuits were resolved in favor of the older workers. Jury members conclude, 'This could be my grand-dad, my dad--or me someday.'"

It's also going far beyond the classic issues of race, age and sex discrimination. There are diversity-based complaints that risk managers may have never thought of: Discrimination against single people? Discrimination against married parents? Remember the famous Randy Newman song lyric: "Short people got/No reason/To live ..."? Don't laugh, but such attitudes exist and they will put small and medium-sized businesses at risk.

Jon Miller, an employment law specialist, says it's not unusual for a security firm to impose a height and weight minimum for hiring. They may conclude that it's simply a sound common-sense recruitment practice for the services they provide. A jury could disagree, especially if they have a soft spot for tiny people. And you may think it's universal to reject a job applicant because he or she has a criminal conviction in the past. But guess again. "The EEOC has ruled that a conviction or arrest cannot be the sole basis to refuse a job applicant," says Miller, who is with Berger Kahn in Irvine, Calif. "It has to be relevant to the job. If the conviction is job-related, you aren't required to bring them on board. So if you have an opening for comptroller and they were convicted of embezzlement, you should be OK in refusing to consider them for hire. But if they only had a minor shoplifting incident when they were 18, you may not. The EEOC is saying you simply have to dig deeper now in justifying your hiring--and non-hiring--practices."

All of which has more and more companies considering Employment Liability Practices Insurance (EPLI). To a small employer, after all, one single courtroom defeat could crush the company. With more than 70 insurers providing the coverage, companies with 25 to 50 employees can expect to pay about $5,000 to $10,000 for coverage. "The pricing has dropped so dramatically, it's not even an issue as to whether a company should consider it," says risk management specialist Marc Bishara, a partner at Woodland Hills, Calif.-based Venbrook Insurance Services. "In California, you're more likely to be sued by an employee than a third party. There are pre-arranged legal services built into these policies, with HR attorneys available who specialize in these very issues. So you can get free legal advice with this. If, say, you're thinking about firing somebody, you can bounce the situation off an attorney and get a legal assessment of the decision."