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In tough economic times, employers often look to reduce their training expenses. However, employers who seek to cut costs by avoiding or delaying compliance and ethics training run a huge risk -- they may be unable to raise an affirmative defense or avoid punitive damages in an employee lawsuit simply because they have not provided their employees with proper training. As described below, research demonstrates that the savings realized by compliance and ethics training far outweigh the costs of providing the training.
Training is a particularly good investment because:
A. Compliance and ethics training reduces the number of employee claims
Research supports the intuitive notion that effective training reduces the number of legal claims. For example,
- A healthcare company found that the year after implementing a harassment prevention training program, the number of internal complaints of harassment fell 36% and the number of litigated claims fell 41%. The total monetary costs of legal fees and settlement expenses fell by approximately 49%, saving the company over $800,000 in a single year. The company also found that employee turnover as a result of sexual harassment decreased substantially.
- After implementing an employment law training program, the State of Washington experienced a 37% decrease in employment law related claims, which saved the state an estimated $2 million per year.
Recognizing the litigation cost savings from compliance and ethics training, Employment Practices Liability Insurance carriers often offer a discount on premiums to employers who provide their employees such training.
B. The number of workplace compliance claims has risen dramatically
In recent years, Congress, state legislatures, and federal and state courts around the country have greatly increased the types of lawsuits that employees (and federal prosecutors) can bring and the amount of damages they can recover in those lawsuits. As a result, the number of employee lawsuits has mushroomed. Consider the following:
- According to a U.S. Department of Justice study, the number of employment discrimination and harassment cases filed per year between 1990 and 2000 tripled.
- In 2003, the number of federal Fair Labor Standards Act class action lawsuits was greater than the number of class actions under all other federal statutes combined.
- Employment law cases currently represent thirty percent of all civil litigation in the United States.
- In the wake of corporate scandals, the U.S. Department of Justice and several state attorney general offices have greatly increased their prosecution of civil and criminal compliance and ethics violations by companies.
- Employees are now suing employers under the whistleblower provisions of the Sarbanes-Oxley law.
When the economy slows and more employees are laid off, the number of employee lawsuits increases. Consequently, it's precisely at the time that employers think of skimping on (or altogether ignoring) training that exposure to workplace compliance claims is at its highest.
C. The costs of resolving workplace compliance claims have risen dramatically
The cost of verdicts and settlements resolving alleged compliance and ethics violations is high. According to Jury Verdict Research, the average verdict in a sexual harassment lawsuit is $250,000. What's more, with the availability of punitive damages and the threat of class action cases, many employers have paid exorbitant amounts to resolve harassment and discrimination cases. For example, in the past several years, Mitsubishi Motors paid $34 million, Texaco paid $176 million, Coca-Cola paid $192.5 million, and the U.S. Information Agency (Voice of America) paid $508 million to settle harassment and discrimination lawsuits against them. These large verdicts and settlements are not just confined to a few large companies. Between January 2000 and June 2001, there were 62 jury verdicts and settlements in excess of $2 million in harassment and discrimination cases.
Large verdicts and settlements are not limited to harassment and discrimination cases. In 2003, the number of federal Fair Labor Standards Act class action lawsuits was greater than the number of class actions under all other federal statutes combined. The judgments and settlements in these cases have also been high. For example, Perdue Farms paid $20 million, UPS paid $18 million, Radio Shack paid $30 million, Pacific Bell paid $35 million, and Farmer's Insurance paid $90 million to settle wage and hour lawsuits brought against them.
An employer defending an employment law claim faces not only the cost of the verdict or settlement but also the cost of attorney fees and employee time spent dealing with the claim. According to one national employment law firm, to defend a single employment law claim, an organization on average faces the following costs:
- Attorney fees if the case goes to trial
- Attorney fees if the case settles prior to trial
- Range of settlement costs or jury awards
- Manager time expended in the claim process
- Employee time expended in claim process
- Employee time spent investigating the claim
- Employee time spent preparing for trial
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$250,000
$95,000
$150,000 to $250,000+
40 hrs.
40 hrs.
60 hrs.
60 hrs.
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In addition to these costs, claims of workplace compliance and ethics violations can:
- Substantially disrupt business operations
- Lead to a negative workplace atmosphere that undermines collegiality and productivity
- Lead to higher employee turnover
- Present negative publicity that can damage an employer's reputation and business relationships
Given the substantial costs associated with workplace compliance and ethics claims, proactive employers ensure that they provide all employees the accurate and effective training necessary to ensure that they understand the nuances of legal and ethical requirements.
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