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Consider Lawsuit Risk When Switching States

Companies are most likely to be sued by employees in California and least likely to be targeted in a cluster of states that includes traditional union strongholds such as Michigan, according to a new study of the issue.

The former is no surprise; the latter certainly is. The differences may reflect relative economic performance.

On average, a U.S.-based business with at least 10 employees has a 12.5% chance of having an employment-liability charge filed against it, according to the study by Hiscox, a Bermuda-based international specialty insurer with U.S. headquarters in New York.

That national statistic alone should be enough to get the attention of CEOs and business owners. But appreciating the minefield of employee lawsuits can be particularly important to companies in the highest-rated states in the Hiscox analysis: California, where employers face a 42% higher chance of being sued; the District of Columbia, 33%; Illinois, 26%; Alabama, 25%; Mississippi, 19%; Arizona, 19% and Georgia, 18%.

The friendliest states in this regard are West Virginia, Massachusetts, Michigan, Kentucky and Washington.

“Understanding the employee-litigation risk at a state level is a crucial step for an organization to establish the processes and protections to effectively manage their risk in this changing legal environment,” said Bert Spunberg, senior vice president and practice leader for executive risk at Hiscox.

Spunberg told CEO Briefing that the firm hasn’t yet made a detailed study of the factors that differentiate the riskiest states from the least, but said “there seems to be a correlation between economic performance and charge activity” in many of them, especially as measured by unemployment rates.

The three riskiest jurisdictions on the list also have reputations as being among the least business-friendly across the country. Some of the characteristics that have created such reputations also may feed the number of instances of employee lawsuits.

In any event, California is a clear leader in this distinction. One reason, Spunberg said, is that the Fair Employment and Housing Act in the Golden state lowers the state’s threshold for application of employment-discrimination laws to companies with just five employees, compared with the federal standard of 15 employees.

“Also,” he said, “California has a very employee-friendly culture” in other ways. For example: Employees can file charges online.

It doesn’t make sense at first glance that heavy industrial and union states Michigan, Massachusetts and West Virginia should offer among the lowest risks to employers from worker lawsuits. Spunberg couldn’t explain, saying that the firm “isn’t conducting research right now” in figuring out the important commonalities among the riskiest and least risky states.

About dale buss

dale buss
Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other top-flight business publications. He lives in Michigan.