Layoffs Leave Law Firms Vulnerable to Lawsuits, Exec Says

February 25, 2009

As lawfirms face tough economic conditions today, some firms have been forced to make cutbacks, including employee layoffs. Such downsizing leaves businesses, even lawfirms, vulnerable to employment lawsuits, says one industry executive.

“Even law firms are not immune to employment practices liability suits—especially as they now are forced to lay off employees to cope with the economic downturn,” said Catherine Padalino, the worldwide employment practices liability manager for the Chubb Group of Insurance Cos.

Padalino advised a group of managing attorneys, law firm human resources managers and insurance agents and brokers, how law firms can mitigate the increased exposure of employment practices liability (EPL) lawsuits as they reduce their workforce during a presentation in Chicago. She noted that the legal services industry lost 7,000 jobs in 2008, according to the U.S. Department of Labor.

“The growing trend toward more single-plaintiff EPL lawsuits will hit small to midsize firms the hardest,” said Padalino. “These firms may find it difficult to bear the financial burden of a lawsuit without insurance protection.”

In addition to insurance, Padalino recommended that law firms consider some critical steps when planning staff reductions. She advised firms to:

— Evaluate the overall anticipated impact of the layoff, including the potential for litigation as well as public scrutiny.

— Use quantitative criteria such as tenure and performance, rather than “soft” criteria such as social situations and financial hardship, to determine which employees to let go. Be consistent in applying the criteria, which should be communicated to all employees.

— Review the demographics of the staff that will be laid off to eliminate any appearance of discrimination. Consider the status of each employee, including whether he or she recently requested a leave under the Family Medical Leave Act or filed a workers’ compensation claim.

— Use outside counsel to evaluate employment practices and severance policies. Law firms should refrain from self-diagnosis.

“Most important,” said Padalino, “remember to treat all employees—those who will be laid off and those who will stay—with dignity. Laying off employees is unpleasant, but firms that try to do the right thing can help mitigate the potential for an even more unpleasant EPL lawsuit.”

Chubb has insured law firms for nearly 30 years and currently insures 95 percent of the law firms listed in The American Lawyer magazine’s “Am Law 200.”

Source: Chubb Group of Insurance Cos.

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