The facts
Two employees worked together for a social services organization, which provided services to the under privileged in the community. Both were long time employees of the organization, and had risen through the organization to become supervisors. The two employees were terminated due to unauthorized payroll practices, after the organization’s staff had obtained confessions from each. Although the reason for discharge was apparent and understood, the organization failed to clearly notify them in writing of the reason for termination.
Unfortunately, the organization did not document the employees’ confessions properly. If the organization had documented the confessions and the employees had signed a statement describing their actions, many of their allegations could have been dismissed. Additionally, during the investigation and termination process much of the organization’s current staff were made aware of the situation. The two employees were displeased with the staff knowing of their actions and believed it may prevent future employment opportunities. Shortly after termination the two employees claimed they were victims of: wrongful termination, breach of employment contract, defamation of character, and age discrimination.
The result
The organization believed that they had committed no wrong doing and that the suit filed had little merit. The final damages for defense and settlement of the claim were in excess of $1.8 million. Despite purchasing a $1 million employment practices liability policy, the organization was forced to pay over $800,000 out of pocket in excess of their $5,000 retention.
Since the settlement of the suit, the organization has revised all termination procedures to require proper documentation of all conversations and findings. The new procedures were implemented to ensure confidentiality during the investigation process of company matters and mitigate future defamation suits. The procedures highlighted a defined termination process to include signatures from all parties to prevent wrongful termination allegations. Having simple policies and procedures in place may have saved them a large sum of money.
Risk factors
Risk factor #1
Due to the lack of documentation there was insufficient proof of the confessions. Properly documenting all correspondence with employees, both written and verbal, will ensure that all parties are on the same page. All conversations and discussions on performance should be documented and signed by all parties present.
Risk factor #2
Details of the termination should have been kept confidential. Organizations should maintain procedures for the investigation and termination of staff. The procedures should outline a level of confidentiality among management and supervisors that must be maintainedthroughout the process.
*The claim scenario is strictly documented for illustrative purposes only and provides an example of what a policy could cover. It is intended to provide a general overview of the program described. Please remember only the insurance policy can give actual terms, coverage, amounts, conditions and exclusions. Program availability and coverage are subject to individual underwriting criteria.
