Workplace Discrimination Claims Surge: What Businesses Need to Know
The US Equal Employment Opportunity Commission (EEOC) has reported a significant increase in workplace discrimination charges, signaling a heightened risk for businesses. According to recent data, companies need to be prepared for potential litigation and regulatory scrutiny by proactively implementing risk management strategies.
In FY 2024, the EEOC received 88,531 new charges, marking a more than 9% increase from the previous year. This rise is part of a larger trend: overall, workplace discrimination charges increased by 44% between 2021 and 2024. Further analysis showed that between 2022 and 2023, claims of race discrimination rose 31%, color discrimination claims jumped 42%, sex discrimination claims increased 28%, and retaliation claims were up 10%.
Chris Williams, employment practices liability (EPL) product manager at Travelers, points to several key factors behind the rise in claims. These include “social inflation,” increased employee awareness of their legal rights, the expansion of existing employment laws, and rises in firings and layoffs.
Layoffs and Firings Drive EPL Claims
Williams notes a direct correlation between layoffs and the number of EPL claim filings. “When we look at our data, 60% of claims come from people who were fired or laid off,” he told Insurance Business. Data from the Federal Reserve supports this pattern: since 2022, firings and layoffs across the country have been on the rise, leading to a larger pool of displaced workers who may consider filing a claim. “The Fed also tracks the number of open positions in the US economy, and those open positions have gradually declined,” Williams added. “If people are fired and laid off and can’t find another job, I think it’s reasonable to suspect that they might be more likely to bring a claim against their former employer when they’ve been terminated.”
Beyond job losses, economic conditions also play a role. Inflation over the past few years has increased the financial stakes of employment-related lawsuits. The potential payout of a wrongful termination lawsuit filed by a high-earning employee is significantly greater than a similar claim from a lower-wage worker. “Higher wages are generally going to drive up the cost of that EPL claim,” Williams said.
The Return to Office: New Challenges
The return to office is creating another dynamic in the increase in claims. During the pandemic, with many employees working remotely, workplace discrimination claims decreased. “The EEOC charges were down significantly during that time, which is a little bit surprising because a lot of people got laid off as well,” Williams noted. “We did see some claims coming out of people being terminated or laid off as a result of COVID, but, overall, claims were down.”
However, as companies move employees back into offices, interactions that might have been avoided in remote work settings are reemerging. “There’s more one-on-one interaction, people talking to one another, and sometimes there’s unprofessional conduct in the workplace that maybe employees could avoid if they were on a Zoom call or working remotely. It’s harder to avoid some of that contact,” Williams indicated. He further observed that the increase in workplace functions, business travel, and in-person events has created new opportunities for misconduct. “People are probably going on more work dinners, work trips, functions where alcohol is served, and that sometimes gives rise to sexual harassment claims,” Williams said.
Mitigating the Risk of Workplace Discrimination Claims
Despite the rise in claims, the EPL insurance market has remained relatively stable, with few restrictions and readily available coverage, according to Williams. However, with the recent surge in EPL claims, carriers and businesses shouldn’t be so complacent.
“The increasing number of terminations, the rising wages, fewer open positions – it does just present a real challenge for the EPL industry overall and employers by and large,” Williams said.
When it comes to risk management, some organizations fall short in critical areas, leaving them vulnerable:
- One of the most critical mistakes is not aligning their documentation with termination decisions. Employers, for example, may state that they are firing an employee for ‘poor performance’. However, their performance reviews from previous years might show that the same employee was previously considered a stellar employee, creating a contradiction that can be exploited in court.
- Another is not following employment laws and regulations, especially in the handling of employee accommodations. This includes denying appropriate leave requests under the Family Medical Leave Act or failing to engage in the interactive process required by the Americans with Disabilities Act.
While no single industry faces a disproportionate impact, company culture plays a bigger role than the actual sector. “If an organization has employees, they risk exposure to a claim for wrongful termination, sexual harassment, discrimination,” Williams explained.
