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INDEX
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| Being smart in a bad time |
Whatever you call it - downsizing, rightsizing, smartsizing, outsourcing - layoffs are no fun, but they are becoming more common as the economy continues to shrink and employers look for ways to cut costs. But layoffs are more than simply unpleasant, if done incorrectly they can open up a company to lawsuits.
In the last year the unemployment rate in the United States has increased from 4.7 percent in November of 2007 to 7.2 percent in December of 2008, according to the U.S. Bureau of Labor Statistics. Many of those newly unemployed workers lost their jobs in mass layoffs. The Bureau of Labor Statistics reported that there were almost a thousand more mass layoffs over the last year than during the previous year. The bureau defines a "mass layoff" as when 50 or more employees lose their jobs from a single employer at the same time.
The increase in layoffs has come an increase in the number of lawsuits. A recent article in the San Francisco Daily Journal quoted many employment lawyers saying they were seeing a significant uptick in the number of laid off workers looking to sue their former employers. The U.S. Equal Employment Opportunity Commission has also seen a rise in the number of discrimination claims.
"As the number of employee layoffs increases, the potential for litigation also goes up," explained Heather Gatley, executive vice president of human resource services at AlphaStaff Group, Inc., a human resource outsourcing company.
But if you plan layoffs properly, you can limit your exposure to wrongful termination litigation. AlphaStaff Group recently made some recommendations for companies planning to do layoffs:
- Determine the method for who will be laid off. Eliminations can be based on job category, merit, seniority, or other factors.
- Train managers on the communications plan before performing any layoffs
- Document everything, from the reason for the layoff to the selection procedure
- Have objectively justifiable statistics
- Don't make false promises, or be dishonest to the employee being laid off
- Always have two people present during exit interviews
"Employers need to be especially conscientious of legal obligations during a recession," Gatley said. "Adopting fair employee policies and documenting your company's termination procedures now will help prevent HR-related lawsuits resulting from wrongful termination."
The most important thing an employer can do is to get legal advice if they are at all unsure about how to proceed. Some discrimination laws have changed since the last recession, the last time many employers had to perform layoffs, and there also might be laws specific to your state. If you're unsure, it might be a good idea to seek advice.
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| Third-party crime creates liability |
You've installed cameras, hired security guards, installed access card readers on all the doors and done background checks on all your employees. After taking all those steps you would think your business should be pretty safe from a lawsuit filed by a third party who is the victim of a crime on the premises. But a trend has recently emerged where businesses are being held liable for crimes committed against patrons or guests by third parties when inadequate security is alleged.
A new report, "2008 Liability Trends: Emergent Liabilities: Catastrophe Hidden in the Everyday Risk," highlights the trend. Businesses that truly have inadequate security are obviously the most at risk. The report points to several examples where businesses have been found liable when there is a history of crime and the company takes few or no steps to protect the public while they are on the premises.
But there are also examples of businesses being found liable even when they have provided what might be considered reasonable security. For example, a California jury awarded $5 million against a bank after it was argued that the bank should have hired two full-time security guards instead of one full-time and one part-time guard. In another example, a New York case was settled for $4 million on a claim that a co-op building did not employ enough security guards, required individual guards to cover too much area of the property, and did not update security measures in response to increased criminal activity.
But all is not lost and there are steps businesses can take to reduce their exposure. The report says that "foreseeability" is major factor in many of these cases. So it's important to know about crime in the area and to properly respond to anything that is brought to your attention. Employees should be required to report any criminal activity they see or hear about. And once they report something, steps should be taken to mitigate any problems that are brought to light. But no amount of preparation will protect your business from all liability in this area, so having adequate insurance coverage is important. Talk to your insurance representative if you have any questions.
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In a recession, businesses are always looking for places to reduce expenses. But when you're looking for places to cut it is important not to be penny wise and pound foolish. This is especially true when it comes to insurance.
Property and casualty insurance is there to protect your business in the event of catastrophe, but if you haven't made a claim in a while it's easy to look at premiums as an area that is easy to cut. But cutting corners with insurance coverage can leave you vulnerable to massive losses that have the potential to put companies out of business.
"Consumers should not try to save money by reducing or dropping necessary coverage. This could result in a financial disaster if there is a fire, hurricane, severe winter weather or other catastrophe," said Jeanne M. Salvatore, senior vice president and consumer spokesperson for the Insurance Information Institute.
But this isn't to say there is nothing you can do to save money by changing your insurance coverage. Because while it is likely a mistake to drop all coverage in a particular area, it might make sense to make some adjustments. One thing to consider is whether your exposure to risk has changed recently. This can be especially true if you have downsized your workforce or scaled back your business in some other way. Such changes might make it advisable to reconsider the size of your policy in some areas. Another thing to consider is increasing your deductible in order to reduce your premiums. This move has the obvious downside of making a disaster more expensive, but it is a better move than eliminating an area of coverage all together.
If you are looking to reduce your costs it is important to make sure your business has enough coverage to get it through a disaster or any potential legal problems. If you have any questions about your coverage, talk to your insurance representative.
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| Fewer but worse disasters |
The year is over and the tally is in: 2008 was a bad year for natural disasters around the world. The Munich Re Group reports that the large number of hurricanes and the major earthquake in China made 2008 one of the most devastating years on record.
The reinsurance company said that while the number of "loss-producing" events was actually lower in 2008 than 2007, there were far more victims and monetary losses. Throughout the world 220,000 people were killed in natural disasters and overall losses totaled about $200 billion. There are only two other years on record that surpass the losses in 2008:, 1995, the year of the Kobe earthquake in Japan and 2005, which set the record with a $232 billion loss for the year.
The major trend in natural disasters in 2008 was the number of weather-related disasters. Hurricane Ike in the United States was the most expensive and the most deadly was Cyclone Nargis, which likely killed more than 100,000 people in Myanmar. Munich Re attributes this trend, at least partially, to climate change.
"This continues the long-term trend we have been observing. Climate change has already started and is very probably contributing to increasingly frequent weather extremes and ensuing natural catastrophes. These, in turn, generate greater and greater losses because the concentration of values in exposed areas, like regions on the coast, is also increasing further throughout the world," said Torsten Jeworrek, a member of Munich Re's board of management.
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| Hardening market might be ahead |
All good things must come to an end. For years commercial insurance buyers have grown accustomed to a soft market where premium price were often lower from one year to the next. But Advisen Ltd. is predicting that we are close to the bottom of the insurance premium market. It says the market likely will level off by mid-year and higher rates for commercial insurance are likely by the end of 2009 or the first quarter of 2010.
Insurers have used investment income over the last several years to offset losses or small returns in the insurance market. But the recession has brought heavy losses from those investments. The investment losses are even more difficult as insurers were already suffering because of low insurance prices and higher than usual payouts for natural disasters, Advisen reports.
But the economic downturn also means that demand for insurance is falling. Demand for insurance closely tracks with the overall health of the economy and that decrease in demand is helping keep prices low for the moment. But Advisen predicts that the effect of lower demand will only keep prices down for a few months longer.
"In years past, insurance companies recouped underwriting losses with investment income, but in 2008 the combination of underwriting losses and material investment losses means a five-year soft market is coming to an end," said David K. Bradford, Advisen executive vice president. "The global recession may delay the return of hard market conditions by keeping demand for insurance down, but once the hard market sets in, it is likely to last longer than was the case in recent cycles."
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| Businesses Briefs: Smelly problem |
An appeals court in New Jersey recently held that a worker might be entitled to workers compensation benefits after a co-worker sprayed perfume nearby causing the woman to have difficulty breathing. The woman, who worked as a nurse, had smoked cigarettes for decades and had a pre-existing difficulty breathing. But an expert called by the woman at trial testified that the perfume she was exposed to on the job worsened her condition and caused permanent damage. The appeals court then held that arose "out of" her employment and therefore she may be entitled to workers compensation benefits. The trial court must still make the ultimate determination whether she is entitled to benefits and the decision has little relevance outside of New Jersey. But it is important to note that complaints about smells and chemicals brought in by other employees have come up in other cases and it is important for employers to take complaints about perfumes seriously.
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| Businesses Briefs: Call for action |
The National Safety Council, a leading advocate of road safety and a group that helped get seatbelt laws passed in many states, is urging state governments to ban the use of cell phones while driving. The council is also asking businesses to establish policies to discourage the use of phones while driving. "Studies show that driving while talking on a cell phone is extremely dangerous and puts drivers at a four times greater risk of a crash," said Janet Froetscher, president and CEO of the NSC. "Driving drunk is also dangerous and against the law. When our friends have been drinking, we take the car keys away. It's time to take the cell phone away." The council is pushing states to go further than many have already gone and not to allow exceptions for hands-free devices. The group points to leading studies that show using a hands-free device does little to lessen the risk.
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