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Employee-Related Litigation
Business bankruptcy filings are down significantly from their high point during the Great Recession. Some reports have corporate bankruptcies down nearly 70% from 2010. There is no shortage of speculation as to why this is the case, but all seem to agree that the ready availability of cash from institutional and non-institutional lenders, coupled with interest rates that have remained at all-time lows for years, are allowing even under-performing businesses to stay out of Chapter 11. The days of the main catalyst for business bankruptcies being a lender tightening a credit line or calling a loan due appear to be over, at least for now. Even if a company's existing lender wants out, often there is a new lender anxious to provide replacement financing. What appears to have replaced foreclosures and institutional debt issues as the straw that breaks the camel's back is litigation. In many cases seen locally (in the Central District of California), the nature of litigation that pushes a company over the line comes in the form of employee-related causes of action.
EEOC Charges
While overall bankruptcy filings are down, employee-related charges to the Equal Employment Opportunity Commission (EEOC) for various types of discrimination have been constant at around 90,000 charges per year. When these charges turn into civil litigation, the fate and future of the defendant company may be on the line. This is particularly true if the defendant does not have Employment Practices Liabilities Insurance (EPLI). Companies that carry EPLI can rest somewhat easier knowing that they are covered for most liability for which they may be found culpable, and that the insurance company will typically attempt to negotiate a resolution of these actions on their behalf (EPLI does not typically cover any punitive damages awards ' so if there is any chance of punitive damages, it is important to try and negotiate a settlement prior to trial. EPLI also does not typically cover WARN Act or wage and hour disputes). Many small- to mid-sized companies elect to forgo EPLI because of its cost. When companies are working hard to make ends meet, it may be difficult to sell them on an expensive policy when it is something they perceive they do not need in order to stay in business. A company with more robust earnings is more likely to be willing to take on that cost to protect itself. Ironically, though, it is the business that is barely scraping by that is the most vulnerable to these types of lawsuits.
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