The recent COVID-19 outbreak and responsive efforts to limit its spread are significantly impacting the way businesses conduct operations and manage their workforces. These developments in turn have important implications for insurance carriers who underwrite Employment Practices Liability (“EPL”) Coverage for insured businesses.

Federal, state, and local governments continue to respond to the current pandemic with legislative relief, shelter-in-place orders, government mandates to limit or close so-called “non-essential” businesses, and changes in laws governing unemployment and paid leave. These measures have drastically changed many aspects of established employment law; and now more than ever, businesses must adapt to constantly changing legal obligations. This new and uncertain landscape significantly increases the risk of possible missteps by insured businesses that can trigger legal liability and possible EPL coverage.

In response to the Coronavirus outbreak, businesses are making a myriad of changes to workplace practices to combat the virus, including increased remote work and telework arrangements, reduced staffing and hours of operation, staggered scheduling, social distancing, and the use of additional personal protective equipment. Companies are faced with vastly increased requests for sick leave, paid time off, medical leave, caregiver leave, and personal leave due to employee illness, the need to care for others who are infected or quarantined, and childcare obligations from the closure of schools and daycare services. Many businesses are being forced to make difficult decisions about slow-downs, furloughs, temporary and permanent lay-offs, and staff reductions due to decreased demand and government-ordered suspension of operations.

Changes in the law abound as well. Many states are issuing mandates for “non-essential” businesses to temporarily cease operations, for business and personal travel to be severely limited or postponed, and for citizens to stay home or shelter-in-place. The specifics of these orders vary widely from state to state and continue to evolve as the virus spreads.

Importantly, on March 18, 2020, Congress passed the Families First Coronavirus Response Act (“FFCRA”) which imposes sweeping new obligations to provide paid sick leave and paid family and medical leave to millions of American workers based upon several COVID-19-related circumstances. While the Family and Medical Leave Act (“FMLA”) generally applies to companies with 50 or more employees, the FFCRA imposes these new paid leave obligations on companies employing “fewer than 500 employees,” thus introducing family and medical leave duties to thousands of smaller businesses that are likely unaccustomed to the FMLA.

Newly imposed FFCRA duties are far from uniform. They include two weeks of employer-paid emergency sick leave for several COVID-19-related circumstances, and up to 12 weeks of job-protected employer-paid family and medical leave for childcare needs resulting from a closed school or daycare. While dovetailing somewhat with the existing FMLA statute, the FFCRA includes a number of novel and detailed provisions governing eligibility for leave, length of service requirements, and the calculation of the number of hours and hourly rate for leave. The number of FFCRA paid sick leave hours varies between full-time and part-time employees, and the hourly rate of paid leave (either the employee’s full “regular rate of pay” or 2/3 of that rate) varies depending upon the reason leave is requested.

As employers adapt to these substantial workplace challenges in an environment of shifting legal duties, an increase in employment-related claims is highly likely. Specifically, employers and their EPL carriers can expect to see increased claims in the following six areas:

o FFCRA Paid Sick Leave. The FFCRA paid sick leave provisions are enforced as minimum wage violations under the Fair Labor Standards Act, and are therefore subject to recovery of back wages, liquidated “double” damages, attorneys’ fees, court costs, and injunctive relief, via administrative action by the U.S. Secretary of Labor or private civil suits by aggrieved employees. To the extent employers fail to comply with the FFCRA’s paid sick leave provisions or miscalculate the proper amount or rate of pay, they are susceptible to FLSA claims for these damages.

o WARN Act. The federal Worker Adjustment Retraining and Notification Act generally requires employers with 100 or more full-time employees to provide 60 days advance written notice to employees, union representatives, and certain elected and unemployment administration officials, when a “plant closing” or “mass layoff” will result in employment loss for more than 50 employees or 33% of a company’s workforce. Although the Act provides a defense in the context of “Unforeseen Business Circumstances” caused by sudden, dramatic, and unexpected conditions outside the employer’s control, even in that circumstance the employer still must provide as much notice as “practicable.” WARN Act requirements and defenses are highly technical and violations are enforceable by civil suits for back-pay and benefits, civil penalties up to $500 per day, and attorneys’ fees.

o FMLA Interference and Retaliation. The FMLA prohibits employers from interfering with, restraining, or denying employee rights to FMLA leave. It also prohibits retaliation for requesting or taking FMLA leave, asserting FMLA rights, or opposing or complaining about unlawful FMLA practices. Many smaller employers may be unfamiliar with FMLA requirements that have never before applied to their business, and even larger employers may struggle to correctly administer new paid leave provisions. As requests for paid emergency family and medical leave multiply, risks of mistakes and mishandling increase significantly. Claims of interference and retaliation are likely to rise correspondingly.

o Disability Discrimination. COVID-19 presents a number of risks relating to the Americans With Disabilities Act (“ADA”) and corresponding state and local disability discrimination laws. The ADA generally prohibits employment discrimination on the basis of a disability, which is defined as a physical or mental impairment that substantially limits one or more major life activities. Since COVID-19 symptoms range from mild fever and cough, to severe respiratory distress resulting in hospitalization and death, whether or not COVID-19 qualifies as a disability may depend upon how it affects an individual employee.

The ADA also provides protection for employees who have “a record of” a disability (possibly including a COVID-19 diagnosis), as well as those who are “regarded as” disabled and mistreated because of the mistaken perception the employee has COVID-19, regardless of whether or not they actually contract the virus. A “regarded as” disabled claim may fail if the perceived disability is both “transitory and minor,” but it is unclear how receptive courts may be to this defense if hospitalization or mortality rates continue to rise.

Lastly, COVID-19 symptoms – alone or in combination with other conditions – may trigger employer ADA obligations to provide reasonable accommodations, absent some undue burden on the employer or direct threat to coworkers. Either a company’s discriminatory treatment of an employee based upon actual or perceived COVID-19 symptoms or diagnosis, or a company’s failure to meaningfully engage in an interactive process to explore reasonable accommodations, can lead to a claim of disability discrimination.

o National Origin/Race/Color Discrimination. Since COVID-19 was first identified in Wuhan, China, there is an emerging tendency by some to blame those of Chinese and Asian descent for the outbreak, which can result in unlawful workplace hostility and harassment. Similarly, the misperception that employees of Asian descent may be more likely to carry or transmit the virus can lead to claims of discrimination where employment decisions are based on legally protected race or national origin, rather than upon behavior that can objectively increase the risk of infection, such as travel to heavily-infected areas.

o Other Discrimination and Wrongful Termination. As the current economic environment forces employers to downsize, some are using the “opportunity” to rid themselves of particularly unproductive or troublesome employees. Of course, it is completely lawful to eliminate “at will” employees for legitimate non-discriminatory business reasons including decreased demand and revenue. However, plaintiffs’ attorneys will be quick to suggest unlawful discriminatory grounds for these termination selections. Businesses that do not use and document objective verifiable criteria for staff reductions (such as tenure, quantifiable levels of production or performance, and the like) will be vulnerable to claims of discrimination and wrongful termination.

However, regardless of whether the claims described in the six categories above are ultimately successful, they are certain to implicate EPL coverage. Generally, EPL Coverage Parts contract to pay on behalf of the insured employer “Loss” which the insured is legally obligated to pay due to an “Employment Claim” arising from a “Wrongful Employment Practice or Act.” An “Employment Claim” typically includes a written demand for monetary or non-monetary relief, a civil lawsuit, or a formal administrative proceeding commenced by a government agency like the US Equal Employment Opportunity Commission (“EEOC”). “Wrongful Employment Practice” is typically defined broadly to include any actual or alleged discrimination, retaliation, workplace harassment, wrongful termination, or workplace tort by the insured against an employee. Certain policy forms expressly include FMLA violations, employment-related misrepresentation, defamation, infliction of emotional distress, wrongful demotion, and deprivation of seniority or career opportunity, in the definition of Wrongful Employment Practice.

Subject to other terms, conditions, and exclusions, these EPL policy provisions clearly contemplate coverage for the anticipated claims identified in the third through sixth categories above (i.e., FMLA, ADA, national origin/race/color, and wrongful termination). It is not uncommon however, for EPL policy Exclusions to expressly remove claims for violations of the WARN Act and the FLSA from the scope of EPL coverage. Where EPL policies contain such Exclusions, they may provide an effective coverage defense against the anticipated emergency paid sick leave and WARN Act claims discussed in the first two categories above.

On the other hand, certain EPL policies now expressly include “Wage and Hour Law” claims within the scope of covered “Wrongful Employment Practices.” Wage and Hour Law claims are defined to include alleged or actual violation of responsibilities, obligations, and duties imposed by any federal, state or local law governing wage, hour, and payroll policies and practices, such as the FLSA. Rather than extending EPL indemnification coverage to such Wage and Hour Law claims, other EPL Endorsements merely provide a Defense Expense Sublimit to assist the insured’s defense of the claim. As a result, claims for emergency paid sick leave under the FFCRA may trigger defense or indemnification obligations under policies that contain these various Wage and Hour Law provisions.

In conclusion, the COVID-19 health crisis presents strategic and legal challenges for insured businesses and EPL insurance carriers alike. The difficult employment decisions businesses will be forced to make, coupled with the fluid nature of their legal obligations, are nearly certain to result in an increase in employment-related claims. As these claims are reported, EPL insurance professionals must carefully review the precise terms, conditions, exclusions, and endorsements of the applicable EPL policy to ensure any coverage limitations or exclusions are fairly applied and the insureds are provided the coverage for which they contracted.

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