Employment-Related Liability

And How About The Liability of a Contractor?

“In my heart, you are an asset

But in my mind, a liability.”

from Accounting 143 by Larry Potter

In a recent ve-BINAR, a question was raised about the liability of a fractional or interim contractor.

The question caught me off-guard.

I am neither a lawyer nor an insurance expert, so I went on to research this question.

Most, if not all companies carry some form of insurance that covers them in the event of employment-related liabilities. This is important because by virtue of the laws relating to immunity and indemnification, employees generally have no individual liability, meaning they are immune for acts taken in the scope of their responsibilities as an employee.

On the flip side, there is no immunity for acts taken by an employee which are manifestly outside the scope of the employee's responsibilities or for acts that are taken with malicious purpose, in bad faith, or in a reckless manner.

SHRM identifies these top 10 employment-related liability concerns:

1. Wage and Hour Claims

Violations of the Fair Labor Standards Act (FLSA)—and wage and hour claims in particular—arise out of a variety of scenarios, such as when employers alter time records to avoid paying overtime, misclassify exempt and nonexempt employees and independent contractors, or fail to provide due rest and meal periods. Defense costs for these lawsuits can be substantial, particularly if they become class actions.

2. Class Actions

Wage and hour and other claims have the potential to affect large groups of individuals and thus incur hundreds of millions of dollars in liability.

3. Family and Medical Leave Act (FMLA) Violations

With an aging workforce and many employees deferring retirement, employers are seeing more requests for medical leave and more reasons for those requests. Any denial of leave presents the potential for a claim against the employer or the individual supervisor or HR professional.

4. Whistle-Blower Actions

The number of whistle-blower and retaliation claims continues to rise as workplace regulations intensify, and whistle-blower protections multiply.

5. Data Breaches

With corporate data breaches becoming more common, employers and executives are increasingly taking the blame—and incurring the liability. Suits are diverse, ranging from shareholder derivative actions to ordinary lawsuits seeking consequential damages.

6. Social Media

Employees are using social media to defame, disparage or harass organizations and co-workers.

7. Alternative Work Arrangements

Alternative working arrangements, such as telecommuting, compressed workweeks, and staggered schedules, continue to increase in popularity. The arrangements may give rise to a host of employer liabilities, from FLSA violations based on nonexempt employees working longer days to discrimination in the selection of employees to be afforded alternative work arrangements to claims of missed promotion opportunities.

8. Discrimination

This includes claims alleging employment-related discrimination based on the violation of any federal, state, or local law that prohibits discrimination on the basis of race, sexual orientation, color, marital status, creed, national origin, religion, gender, age, military service, disability or pregnancy.

9. Sexual Harassment

The facts of each claim will determine whether the claim implicates personal injury coverage. And these claims often include alleged failures at the corporate level regarding the enactment of workplace safeguards and policies.

10. Gender and Sexual Orientation Claims

The last couple of years have seen a rapid increase in the protections afforded to lesbian, gay, bisexual, and transgender individuals; and, with it, an increase in claims.

So, how about a fractional or interim contractor?

A typical independent contractor agreement includes a paragraph where the contractor agrees to bear all responsibility for the actions related to themselves and their employees or personnel under the contract. The contractor also agrees to obtain comprehensive liability insurance coverage in case of bodily injury, personal injury, property damage, contractual liability, and cross-liability.

Simply put, a company can not hold an employee liable for acts taken in the scope of their responsibilities. But with the right agreement in place, they can do so with a contractor. For acts that are manifestly outside the scope or for acts that are taken with malicious purpose, in bad faith, or in a reckless manner, both can be held liable.

Please note this article is for informational purposes only and does represent legal or insurance advice. It does not create an attorney-client relationship, nor is it a solicitation to offer legal advice.

Contact us to find out how we handle liability with our fractional and interim sales leaders.

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SHRM - Top 10 Employment Liability Concerns

Photo by Anne Gosewehr