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Written By: Dennis J. Alessi, Esq.

Mandelbaum Salsburg

West Orange, New Jersey

Unemployment has been at a high level for over four years, and the level of underemployment is even higher.  This has resulted in a dramatic rise in discrimination, harassment, wrongful termination and other lawsuits by employees.

Under New Jersey statutes there is no limit to the amount of punitive damages that a jury can award an employee.  In addition, not only does your company have to pay its own attorneys, but if the employee wins, it also pays his/her attorney for bringing the law suit.

Just one employment-related lawsuit can have a devastating impact on a company, particularly a smaller one.  In addition to the financial burdens, there is the time and attention the company’s owners and key managers must devote to the defense, which distracts them from their all-important tasks of operating the business.

Most troubling of all, in some situations the company’s owners can have personal liability.  This means that an owner’s assets can be attached to satisfy any jury award to the former employee.

Action Steps to Protect Against Lawsuits

We urge our clients to take three actions to protect against such employee lawsuits.  These are:

1.         Every employee, even managers and executives, must be required to execute an arbitration agreement in which they waive their right to bring employment-related law suits in court with a jury.  Instead, these suits are heard by private arbitrators who, in general, are more neutral; more often tend to find in favor of the employer; and tend to award significantly smaller amounts of money than juries, when they do find for the employee.

2.         Purchase Employment Practices Liability Insurance (“EPLI”), which provides important coverage against employee complaints, even though it has some limitations.  Such policies do not cover punitive damages, which is sometimes the largest amount of the damage award.  Some policies also do not cover lost wages and benefits. This means that the defense attorney assigned by the insurance carrier is not obligated under the policy to defend the company against these damage claims.  These coverage limitations result in our third recommendation…

3.         When purchasing EPLI, you should opt for a policy provision that retains your company’s right to select its own defense counsel. You can even have a provision included in the policy that expressly names Mandelbaum Salsburg as the designated defense counsel. (Most insurance carriers routinely permit such a designation if you ask for it.) Usually, there is no additional premium. But even if there is a minor increase, the cost is far outweighed by the advantages.

The advantages are:  (1) our law firm, which knows your company, its owners and key managers, and which understands how it operates, will be defending you against all the employee’s damage claims, (both covered and not covered by the policy); (2) your company will have far more control over how the case is litigated; (3) it eliminates any concerns over possible divided loyalty by an unknown law firm that is beholden to the insurance carrier that assigned it to defend your company; and (4) the carrier will be paying a substantial portion of your legal fees.           

You may contact Dennis Alessi, Chairman of the Employment Law Department at Mandelbaum Salsburg, at dalessi@msgld.com. He will provide the necessary arbitration documents; will guide you through the process of implementing them; and will answer any questions you have about purchasing EPLI .

For more information about Mandelbaum Salsburg, please visit www.msgldlaw.com or the International Society of Primerus Law Firms.