EMPLOYMENT PRACTICES AUDITS: A LOSS CONTROL TOOL

EMPLOYMENT PRACTICES AUDITS: A LOSS CONTROL TOOL

        Remember the story about the Emperor's new clothes?  The Emperor convinced himself and his loyal subjects that he was wearing the finest clothes, when in fact he was exposed to the elements.  It was only a little boy's honest - if undiplomatic - observation that finally brought reality to the empire.  Like the emperor, many organizations convince themselves that they are protected (clothed), when in reality they are exposed to employment-related liabilities.  Only when there is a charge of an unlawful employment practice does an organization begin to recognize it is vulnerable.

          Remember connect-the-dots puzzles?  Without a numbered path to define the picture, the answer typically remains a mystery.  In solving the puzzle of effective human resource and risk management, organizations similarly need a structured approach (a numbered path).  Without this approach, organizations frequently fail to see the picture of employment practices vulnerability - at least until a claim is filed.

          To help organizations recognize and define their exposure to employment practices issues and help reduce losses, employers - and more frequently insurers - are increasingly using human resource (HR) auditing and risk management assessment techniques.  Some of these techniques, including the Employment-Labor Law Audit^TM (ELLA®,), the most frequently used employment practices auditing tool, are discussed below.

GENERAL COMMENTS

          There has been a significant growth in the use of HR audits in recent years.  Some of these audits evaluate the effectiveness of human resource management, while others benchmark best practices.  Employment practices audits are designed to assess an organization's compliance with the myriad of federal, state, and local laws and regulations.

          Unfortunately, many organizations limit the benefits they derive from these audits.  Some use audits only as a tool to identify what someone is doing wrong.  Once they identify a wrongdoer, punishment is meted out.  Other organizations use audits solely as a tool to collect information about employing units' activities and performance.  Once collected, this information is then sorted, dissected, analyzed, compared, and stored for future use, which often never occurs.  While this information is useful in reports to top management, it has few other uses.

           Considering the potential benefit from HR audits and the cost to conduct them, they should be more than purveyors of punishment and collectors of data.  The primary purpose of HR audits is to cause action to occur: either to strengthen positive employment practices or to correct negative or unlawful activities.  Experience shows that when audits are used to accentuate the positive and correct the negative they increase the active participation and cooperation of managers and supervisors, they reduce tendencies to react defensively, and they increase the stake employees have in achieving the desired outcomes.  The net effect is a reduced exposure to employment-related claims and greater loss control.

          One note of warning:  Information obtained from audits, assessments, and surveys can be a "smoking gun" and may be discoverable.  You should investigate immediately, and take corrective action where required, reported incidents or perceptions of discrimination, harassment, or other inappropriate conduct.  General auditing rule #1: You should never collect information you cannot use in making employment decisions.  General auditing rule #2: You should not conduct an audit if you do not intent to act on your findings.   

 EMPLOYMENT PRACTICES ASSESSMENTS TOOLS

1) The Facilities Inspection.  The Americans With Disabilities Act requires employers to create equal employment opportunities for workers with disabilities.  The starting point in the employer-employee relationship is the recruitment, selection, and hiring process.  Since most employers still require an applicant to visit their office to complete an application form or to be interviewed, an employer's application intake area and interviewing facilities must be able to accommodate individuals with a variety of disabilities.  In inspecting facilities, consider the facility from the individual-with-a-disability perspective.  Examples: Can an individual with a mobility impairment gain access to the building and get to the human resources office?  Will an individual with a visual impairment be able to complete the job application form?  Is the form in braille?  Is there someone assigned and trained to help individuals needing assistance?

2) Posters and Notices Inspection.  Federal, state, and local employment laws require that employers post in a "conspicuous" place posters and notices concerning employer obligations and employee rights under these laws.  A visual inspection should be made to ensure that these posters are properly displayed.

3) An Image Audit.  The 1991 Amendments to the Civil Rights Act allow plaintiffs to seek compensatory and punitive damages and provide for jury trials.  Jury trials are usually problematic for employers.  While the facts of each case are important, juries will typically consider such subjective factors as an employer's reputation for fair treatment and due process.  An employer's reputation can be enhanced or destroyed by the explicit and implicit messages it sends in its annual report, advertising media, press coverage, and internal documents.  A regular review of this material from a jury's perspective will help reduce negative impressions.

4) Employee Attitude Surveys.  Employers are held accountable for the unlawful practices they knew about or should have known about.  In the future, employers are likely to be held to a new and higher standard: Why didn't the employer know about the unlawful practice?  Ideally, an employer should never be surprised - usually when a charge is filed - that its employees feel that they are mistreated, discriminated against, or are harassed.  NOTE: A study of EEOC data shows that most discrimination claims occur after employees have been terminated. That obviously is the wrong time to learn that there is a problem.

The only way most employers can effectively determine employees' workplace experiences and perceptions is through employee attitude surveys.  Experience shows that when conducted on a periodic basis, and when the findings from these surveys are acted upon, employees feel more positive about their organization and more willing to use internal complaint mechanisms.  This improved feedback mechanism allows employers to take corrective action before it is too late.

 5) Employment Practices Audits.  While a number of internally-designed audit programs exist, the Employment-Labor Law Audit (ELLA^TM) is the most widely used and effective employment practices - loss control auditing tool.  Endorsed by the insurance industry and by a number of employer associations, peer reviewed by the Society for Human Resource Management, the American Institute for Certified Public Accountants, and number of the nation's leading employment law experts, and used as course material for continuing professional education credit, ELLA^TM helps employers  ask the "right" questions about their employment practices, assess their organization's strength and weaknesses, identify problem areas, and prioritize corrective measures.

 Available in both hard copy and software, ELLA^TM allows employers, insurers, brokers, and risk managers to audit 18 employment practices issues, including:

* recruitment, selection, and hiring
* application forms
* reference checking and responding
* employment handbooks
* workplace discrimination
* the Americans With Disabilities Act
* sexual harassment
* performance appraisals
* leaves of absence
* the termination process

As the incident and severity of employment related claims increase, employers are being forced to pay greater attention to their employment practices and to take corrective active where needed.  Additionally, as third-party intervention by stockholders and investors, the SEC, financial institutions, civil rights and consumer groups, and others increases, employers are more frequently being asked to explain and defend publicly their employment practices.  For many companies there is a new internal question now being asked: Do we want to be known as a company or a case?  In this environment, HR audits have become more important element in loss control.