Business Protection Bulletin

Most companies will need to undergo some remodeling, repairs, or possibly even an expansion at some point or another. Such work is most often outsourced to a vendor.

Before you hire a vendor to do work at your facility, you want to protect the financial security of your business and make sure that their liabilities don’t suddenly become a liability for you. For example, you’d likely feel bad for all involved if a contract worker suffered an injury working on your project. However, you might not realize that you too could be involved. If that injured contractor wasn’t insured, then it could involve an expensive lawsuit against your business. Such scenarios often prompt business owners to question how they can best protect themselves when hiring a vendor.

You might get lower bids by vendors not licensed and insured, but an unexpected injury later could result in insurmountable legal costs that would far surpass any savings. It can’t be emphasized enough just how important it is to hire only reputable, licensed, and insured companies.

How Do I Know If My Vendor Is Licensed?
Finding out if a contractor is licensed isn’t very difficult, as any licensed contractor must display their state licensing number on all marketing and advertising materials, such as phone book, billboard, and newspaper ads; the company logo on their building sign or company vehicles; and even the materials they pass out to the public.

How Do I Know If My Vendor Is Insured?
Finding out if a contractor is insured isn’t quite as simple as looking at their ads, but it’s a vetting step that you certainly don’t want to skip. Never work with a vendor that doesn’t have Commercial General Liability insurance and Workers Compensation. At a minimum, the Commercial General Liability insurance policy will cover advertising injuries, personal injuries, bodily injuries, and property damages.

If your contractor doesn’t voluntarily offer to show you a certificate of insurance as proof that they’re covered by a Commercial General Liability policy, then you should ask for it. Don’t accept that they’ll bring it by after they’re hired and don’t forget to check that the expiration and effective dates will be congruent with the dates of the project.

What Else Can I Do to Protect My Business?
Additionally, you might consider taking the following steps:

• Make a list of approved vendors that are both licensed and have shown proof of insurance.
• Ask the contractor’s insurance agent to mail you their certificate of insurance.
• Ask that your company be added to the contractor’s General Liability policy as an additional insured until the project is completed.
• Consider only hiring a contractor that has insurance limits equal to your own.
• Ask the contractor to sign a written legal contract indemnifying your company from a liability claim.
• Never work with a contractor that will need to use your tools or equipment to complete the job. Don’t even lend such items to the contractor. If your equipment or tools are defective and cause a contractor to be injured, it could result in a lawsuit.

According to the U.S. Bureau of Labor Statistics, around a third of all workers’ compensation claims are filed by employees only on the job for a year or less, with 13% being filed by an employee in their first three months of employment.

You can evaluate the statistics as they relate to your own company’s claims by sorting your employees into two categories – those employed longer than one year and those employed less than a year. Once all your employees have been sorted into the two groups, you can determine the frequency of claims per 100 employees from each group. If a large section of your workforce is aging and working physically demanding jobs, then you might find that your long-term employee group may have more claims. However, most employees will find that it’s their shorter-term employees that have the higher claim frequency.

It’s the lack of experience and training that’s one of the main culprits behind shorter-term employees having a higher claim frequency. The good news is that as they get more work hours under their belt and receive additional classroom and/or on-the-job training, they will gain experience and knowledge about safety hazards and become more safety conscious as they perform their job tasks.

Another factor causing new hires to be more prone to accidents is their personality traits and habits. Some workers might have a personality that leaves them with a tendency to ignore the rules. Other workers might simply believe that they should be left to their own devices if they get their work done on time. There are also certain employees that are prone to using short cuts. Maybe it’s in their nature, or maybe from habit, but either way they do it without regard to the risks involved.

As far as personality factors go, one of the best solutions will be to pre-screen applicants so that you can help avoid hiring someone that doesn’t demonstrate habits and personality traits conducive to your ideal working environment. The two types of pre-screening tests are: Behavioral assessments and personality measures.

Behavioral assessments will ask an applicant extremely direct questions, such as about personal drug use and theft. It’s easy to assume mistakenly that the applicant would just lie and answer the question as it should be answered. However, behavioral assessment questions are so blunt that the applicant is often caught not paying attention and will answer the questions honestly without even thinking about it or realizing they’re admitting to a bad behavior. The behavioral assessment will allow you to know the exact nature of the risk the applicant poses.

Personality tests will examine an applicant’s personal characteristics, attitude, and opinions. The questions are much more indirect than a behavioral assessment. The responses can help you evaluate and rank various job applicants based on the possible risks they pose.

In closing, using both tests together can be a very potent risk control tool. Employers that utilize such pre-screening tests also find that they can save significantly from better avoiding hiring an applicant that’s not very likely to stick with the job, and from potentially reducing their number of Workers Compensation claims.

The federal Fair Labor Standards Act forbids an employer from firing a worker because he filed a complaint accusing the employer of violating the law. It doesn’t say whether the employee’s complaint must be in writing. What if the worker complains verbally but never makes a written complaint? Does the FSLA’s prohibition against firing him still apply? That was the question the U.S. Supreme Court faced in a case it decided in March 2011.

Kevin Kasten, following the instructions in the employee handbook, told his supervisor that the location of the company’s time clocks might be illegal because it prevented workers from getting credit for the time they spent putting on and removing their protective work gear. (The FSLA requires employers to pay workers for this time.) Getting no response from his supervisor, he also complained to human resources staff and told them that he was contemplating a lawsuit. Eventually, the employer fired him. He claimed that he was fired for complaining about the location of the time clock; the company said it was because he repeatedly failed to punch in and out on the clock despite several warnings.

Kasten sued the company for illegal retaliation. The trial and appellate courts, while accepting his version of what happened, ruled in favor of the employer. The FSLA, they said, requires employees to make written complaints to their employers about possible violations, but Kasten made all his complaints verbally. Kasten appealed to the U.S. Supreme Court, which ruled in his favor.

Writing for the six-justice majority, Justice Stephen Breyer said, ” … (A)n interpretation that limited the provision’s coverage to written complaints would undermine the (FLSA’s) basic objectives … Why would Congress want to limit the enforcement scheme’s effectiveness by inhibiting use of the Act’s complaint procedure by those who would find it difficult to reduce their complaints to writing, particularly illiterate, less educated or overworked workers?” He also noted that the federal Department of Labor has for decades held that the law’s requirements include oral complaints, even going so far as to set up hotlines for employees to make complaints.

Moreover, Breyer pointed out that other laws, regulations and court decisions have used the word “filed” in connection with oral complaints. He particularly noted that court decisions at the time Congress enacted the FLSA used “filed” with oral complaints. “Filings may more often be made in writing … But we are interested in the filing of ‘any complaint.’ So even if the word ‘filed,’ considered alone, might suggest a narrow interpretation limited to writings, the phrase ‘any complaint’ suggests a broad interpretation that would include an oral complaint.”

Justices Antonin Scalia and Clarence Thomas disagreed (Justice Elena Kagan recused herself from the case). In a dissenting opinion, Scalia argued that the FSLA forbids discrimination against a worker if that worker has filed a complaint with a government agency. He pointed out that every other use of the word “complaint” in the FSLA refers to an official filing with a government entity. Further, he said that the phrase “filing any complaint” appears alongside other activities that involve interaction with a government entity. Because Kasten complained only to his employer and not to a government agency, Scalia said, he was not protected by the law’s anti-retaliation provisions.

The dissents notwithstanding, employers should be aware that this decision protects workers from retaliation for making oral complaints to their employers. Businesses should create and implement policies stating that employees who make such complaints will not suffer retaliation. Since Employment Practices Liability insurance policies cover employers for retaliation claims, insurance companies will expect employers to take steps to make these claims less likely.

Return-to-work programs are designed specifically to assist employees on disability in making a gradual return to work. Instead of assigning an employee a job with established tasks, which is done commonly when an employee is transitioning back to their routine job after a temporary medical restriction, return-to-work programs should include a variety of temporary and transitional work assignments that are flexible and take the needs of the employee’s temporary medical restriction into account.

Keep the following points in mind as you design your return-to-work program assignments:

1. Your policy book should include a section on transitional work assignments. Make sure that it is clear and concise in explaining that transitional work assignments are mandatory and what the consequences will be for refusing to take an appropriate transitional assignment.
2. Ask your supervisors to compose a list of tasks that could be assigned and performed by a transitioning employee, especially looking at tasks that have been delayed due to a lack of time or manpower. Jobs that are currently being outsourced can also make ideal assignments.
3. Make sure that assignments are congruent with the employee’s Work Status Report. This report is completed by the employee’s physician and will help you determine what transitional assignments the worker will physically be able to complete.
4. Contact the employee’s physician to let him/her know you have a return-to-work program. This initial contact is also the perfect time to ask the physician for recommendations on what types of transitional assignments would be appropriate for the employee’s specific temporary medical restriction.
5. Supervisors should also be aware of all medical restrictions a transitioning employee has and understand that any assigned tasks must be within those restrictions.
6. Work with the employee, their treating physician, and their supervisor to establish the transitional assignment’s start and end dates prior to the employee returning to work.
7. The specifics of temporary assignments should be documented, including the physical requirements for the assignment, the location from which the employee will be completing the assignment, and the schedule for the assignment. The document should also include a statement that any necessary training will be employer-provided. After you get the employee to sign and date the completed document, you can provide them with a copy and place the original in your personnel files.
8. The employee’s regular wage or salary shouldn’t be reduced during the temporary assignment, as this could impact indemnity payments and leave the employee with a negative attitude.
9. Avoid providing work just to keep the worker busy, as this could leave the employee feeling degraded.
10. Avoid modifying regular company rules on tardiness; time-off requests, even for medical appointments; attendance; and so forth.
11. Do monitor your employee’s progress and make routine follow-ups with their physician.
12. Transitional assignments should never continue indefinitely for any employee, especially once an employee has been released back to regular duty by their physician. Look at non-medical issues that may be behind any delay in an employee being able to return to their permanent job within the time their doctor recommended.

When a return-to-work program is properly designed, it can help you retain your valued employees and help them continue to earn a living. Even though an employee with a medical restriction probably won’t be functioning at their full potential, they can still make valuable contributions to your business.

It might be hard to fathom any type of audit being beneficial, but premium audits are actually just as important to you as they are to your insurance carrier. When you were first issued your policy, the carrier looked at the estimated sales figures or payroll data that you provided to them. They calculated your premiums based on this information. Now that you have real numbers under your belt and an actual experience, the information can be reassessed to determine the correct premium amount.

Depending on how your business operates and the size of your policy, there are several different methods your insurance carrier can use to conduct your premium audit, including:

1. Mail – your carrier will mail you an audit form and the instructions to complete the form. Once completed, you will return the form by mail to your carrier.
2. Phone – your carrier will hire an independent audit company to conduct your audit over the phone.
3. Physical – your carrier will usually conduct the audit at your business, but it could be conducted at an alternative location, such as your certified public accountant (CPA’s) office.

Regardless of the method, the audit will typically include your disbursements and payroll journals, ledgers, tax and Social Security reports, state unemployment forms, and other accounting records being inspected. As you can see, an enormous amount of data will be inspected. You can use the following tips to help you prepare for your audit, help it run smoothly, and end positively.

Before the Audit

• You should try to get an idea of what the auditor will be reviewing by looking at the auditor’s work sheets and past audit billing statements.
• Determine which of your employees would be best suited to work with the auditor. Look for someone that’s both knowledgeable about the accounting records that will be used in the audit and about what work is done by various employees and departments.
• Assemble all the accounting records that will be used during the audit.
• Ensure that you have certificates of insurance on hand for all subcontractors you’ve used. Don’t forget to make sure that your documentation shows all the contractors have their own general liability insurance and workers’ compensation.
• Check that your payroll documents include a breakdown of wages according to class code, department, and employee.

The Day of the Audit

• To make sure you have all the applicable records easily available to the auditor, you might request the audit be conducted at your business.
• Don’t be afraid to ask the auditor to explain any points that aren’t perfectly clear to you.
• Request a hard copy of what the auditor finds.

After the Audit

• Carefully assess the audit billing statement, comparing it to your original policy.
• Don’t agree to pay any additional premium dollars until after you’ve made a list of all changes and discussed any problematic areas with the auditor.

All too many employers find themselves enmeshed in complex and costly litigation because they’ve made simple, avoidable errors while terminating one of their employees. Even if you’ve done everything by the book, there will never be a guaranteed way to avoid such lawsuits.

That said, making sure that you do everything properly and avoid some simple mistakes can drastically increase your chances of winning any resulting lawsuit. Don’t let these common termination mistakes get you in hot water:

1. Not Documenting Sufficiently. The basis you use to terminate an employee could appear superficial or groundless if you don’t have adequate documentation along the road to their termination. All problems with an employee’s performance, attendance, and so forth should be documented, including any details and supportive evidence. Regarding misconduct issues, the documentation process on the alleged incident should be accompanied by an unbiased, comprehensive investigation.

When disciplinary actions are necessary, the enforcer should compose a description of the incident, including what disciplinary actions are being taken. With a witness present, the employee should be asked to sign the paperwork. Should he/she refuse to sign it, this refusal should be noted on the paperwork.

Place your documentation in chronological order to show a clear pattern and solid foundation for terminating an employee.

2. Not Ensuring Performance Evaluations Are Accurate. Supervisors must be taught and encouraged to be fair, honest, and accurate during performance evaluations. Many wrongful termination lawsuits have been based around performance evaluations. Performance evaluations that aren’t congruent with all the other indicators of an employee’s performance are often the result of superiors giving unmerited positive appraisals to avoid confrontation. When an employee has appraisals stating their performance was adequate, but are then terminated by their employer for alleged poor performance, it can spur them to consider litigation.

3. Not Spelling Out Human Resource Procedures and Policies. All terminations should be in accordance with state and federal laws. It’s vital that your termination procedures and polices give those with the power to terminate adequate guidance and direction on complying with such laws.

Having an employee handbook that concisely and adequately describes performance and misconduct issues and consequences will also add to your credibility during litigation.

4. Not Giving an Employee Notice of Termination. Not all states require an employer to give notice of termination to an employee. However, most legal experts advise it anyway for a number of reasons. For example, giving notice can help keep an incensed employee from redirecting the reason for their termination to other non-related issues, such as discrimination.

Remember that the burden of proving an employee should have known that their actions would cause their termination is on you, the employer, if you opt not to provide employees with notice of termination. Such a situation can easily be avoided by providing an employee with a notice that clearly states a repeat of the infraction, or even an alike infraction, will result in their termination.

5. Not Providing Just Cause. An at-will employee can be terminated at any time. However, don’t assume that you can terminate any employee you wish for any reason you wish and be protected by your state’s at-will employment. The majority of your employees will likely fall under one of the protected classes, such as sex, age, race, disability, or religion. Therefore, it’s best to base all terminations on a just cause, meaning the reasoning behind the decision to terminate was based on legitimate proof or fact.

Business owners who lease property for their businesses must be aware that every lease is unique. Any lease you sign can affect your insurance needs drastically. The best suggestion is to have the lease carefully reviewed by your legal representative and insurance broker before signing on the dotted line.

Insurance Considerations and Commercial Property Leases

Key insurance factors to consider include:

• Obligations and rights of tenants and lessors regarding disputes will vary from state to state.
• Confirm that the person signing on behalf of the lessor has the authority to sign the lease. Otherwise, the lease could be void should the owner suddenly sell the property.
• Ensure that the premises will conform fully to required building codes or any other statutory requirements, and that the lessor will absorb all costs to make it so. The same should also apply to any equipment or machinery already contained within the premises which is to be used by the tenant under the terms of the lease. The costs of any required repairs or alterations should also apply to contaminated property such as the removal of asbestos.
• Incorporate an ‘all risk’ property insurance policy for the full replacement value of the tenant’s equipment, inventory, fixtures, performed alterations, belongings and supplies in the event of a loss.
• Obtain an ‘all risk’ installation floater for any repairs or alterations that have been agreed upon between the lessor and the tenant.
• Consider purchasing an (ISO) Insurance Services Office Endorsed Commercial General Liability coverage or Comprehensive General Liability policy which should contain Broad Form Contractual Liability coverage, Fire Legal Liability coverage, and Premises Medical Payments coverage.
• Purchase Business Interruption insurance to cover all required expenses, including rental costs and fixed costs which might result due to the destruction or damage of the lessor’s property, for at least nine months.
• Include additional insureds such as employees, the lessor and their agents as your insurance coverage applies to personal and bodily injury.
• Include coverage for plate glass, earthquake and water damage. Coverage should also include fire and vandalism.

Insurance requirements as they relate to leasing business property can be complicated. This is true especially as your insurance needs relate to the agreed upon terms of the lease itself. Your rights and obligations pertaining to a lease should be reviewed and negotiated by someone qualified, just as your business insurance needs are best reviewed with the assistance of one of our insurance brokers.

When your insurance company issued your Workers Compensation policy, you paid an estimated premium for the term of the policy. This rate was based on the nature of your business and your estimated payroll. However, once your policy expires, the insurance company conducts a premium audit to gather data about your actual costs for the applicable policy term. If there is any shortfall, you are responsible for the difference between the original estimate and actual premium.

Naturally, you want to keep the difference between the estimated and actual rate as low as possible. Consider the following list of tips:

• Have all necessary records available for the auditor.
• Break down your payroll by classification code so that the auditor doesn’t have to classify any unexplained payroll. Leaving the decision up to the auditor could result in having the payroll placed in the highest classification.
• Separate overtime wages from regular wages. This allows the auditor to discount the overtime wages back to regular wages.
• Exclude tips, severance pay, meal and travel advances and bonuses paid for inventions, because none of these are included in Workers Compensation premium calculations.
• Divide uninsured subcontractor billings into material and labor costs since you are only required to pay premiums for labor. If you don’t have an actual split, figure on 50% for each. One important exception to this is for heavy equipment operators who are employed as subcontractors. In this case, use a third of their total billings as reportable labor costs.
• Don’t include short- or long-term disability payments in the data given to the auditor because these are excluded from premium calculations.
• Be sure to cap all covered officers’ payroll at the maximum for your state.
• Exclude wages paid to employees who are on active military duty because their wages aren’t included in premium calculations.
• Present the auditor with all Certificates of Insurance for covered subcontractors so you aren’t charged for them.
• Classify all employees in the lower-rated payroll classifications if you aren’t sure about where they should be classified. However, you should never deliberately misclassify an employee.
• Be sure you make the auditor aware of all employees who do only clerical work and are physically located away from the shop floor. These employees qualify to be classified in the lower rated clerical codes. If your clerical staff isn’t physically separate from the shop, you should consider changing their work location.

Norma is an assistant manager at a video store. After feeling very sick for a couple of days, she goes to the doctor and is diagnosed with strep throat. Since her employer provides sick time benefits, she calls the store manager and tells him she cannot work that day. He dismisses her illness as “just a sore throat” and orders her to report for work. She complies, but the strep infection takes most of a week to go away because she could not rest. On the third day, she calls in sick again, despite the manager’s obvious displeasure. Six weeks later, the manager terminates her employment, citing declining sales as the reason. Norma believes otherwise and files a complaint with the U.S. Equal Employment Opportunity Commission.

Since the great recession began in late 2007, complaints like this have become common. The EEOC reported that it received almost 100,000 job bias complaints in 2010, a new record. More than a third of them were from employees who felt their employers retaliated against them; another third were race discrimination claims. Why is this happening? Employment law experts believe the recession has a lot to do with it, as dismissed employees have had trouble finding new jobs. They also believe the EEOC has stepped up enforcement of anti-discrimination laws. However, they also point to internal problems with employers.

Some employers might perform only those activities that they believe will give them an effective legal defense should an employee sue. They write anti-discrimination and anti-retaliation policies into their employee handbooks, make supervisors attend training once a year, and then call it a day. However, these things by themselves might not be effective. Policies do no good if managers do not enforce them. Training that does not address trends such as discrimination and retaliation complaints will not stop them from happening. In addition, if managers do not monitor whether this training changes supervisors’ behavior, supervisors might conclude that the company is not serious about it.

Employment Practices Liability insurance covers an employer’s legal liability for wrongful acts against employees, including discrimination and retaliation. Insurance underwriters will look at an employer’s policies and training practices, but they will also consider its claim history. Underwriters will be wary of insuring employers with a record of frequent complaints against them. If they offer coverage at all, they will charge higher premiums to account for the perceived higher risk.

To prevent claims and keep insurance premiums low, employers should consider these measures: * Study financial results to determine how much these types of claims have cost or might cost in the future in terms of settlements, legal costs, time more profitably spent on other matters, workplace morale, insurance costs and other areas.

• Ensure that you have strong policies in place against discrimination and retaliation.
• Require supervisors and managers to attend training to prevent these kinds of claims. Include in the content of the training discussions of what is and is not permissible when it comes to discrimination and retaliation. Make it clear that performance evaluations will include incidents of discriminatory behavior.
• Create a workplace culture that does not tolerate illegal activities of any kind. Senior managers should conduct themselves in ways that model the behaviors they want to see from subordinates.

Experts say that recessions always breed increased discrimination complaints against employers. However, that does not have to be the case with every employer. Effective training costs money, but that cost is far less than the cost of insurance deductibles, higher premiums, demoralized workforces, and damaged reputations. Discrimination and retaliation claims hurt a business’s bottom line. Preventing them makes both economic and moral sense.

The ISO Commercial General Liability Coverage Form can seem like a map that starts you out on a main road, takes you smack into a dead end, but offers you a right turn that you can take if you meet certain conditions. It begins with a broad promise and a hint that the promise isn’t quite that broad, then continues with a list of items that narrow that promise. However, some of those items contain a few words that actually make the promise a bit broader again. Somewhere in that twisting road lies the answer to whether the insurance will cover your business’s legal liability for an accident.

The form actually has three coverages, but the one most business owners are concerned with is Coverage A, Bodily Injury and Property Damage. The first part of Coverage A is the Insuring Agreement, which states that the insurance company will cover the insured person or organization’s legal liability for bodily injury or property damage to others. A key phrase, however, is that the company will pay amounts for occurrences “to which this insurance applies.” How do you know when the insurance applies? That’s where the list comes in.

Right after the Insuring Agreement is a section labeled Exclusions. This section begins with the sentence, “This insurance does not apply to: … ” and goes on to list 17 categories of occurrences. The insurance does not apply to any occurrences that fall within the meanings of those categories. The categories include things like pollution; injuries to the insured’s employees; ownership and use of motor vehicles, aircraft and watercraft; causing or contributing to a person’s intoxication; damage to property the insured owns or possesses; and loss of electronic data. While these items narrow the insurance coverage considerably, some of them contain clauses that add a little coverage back in. For example, while the insurance does not apply to property damage arising from a contractor’s completed work, the exclusion gives back coverage if the property damage arose from work a subcontractor performed on the contractor’s behalf.

In a claim situation, different burdens of proof apply to either the insurance company or the insured organization, depending on what each one is claiming. The insured has the burden of proving that an accident falls within the Insuring Agreement. To do this, the insured must show that an “occurrence” that took place during the policy term caused bodily injury or property damage to someone else. If the insured cannot prove any one of these elements, the policy will not cover the loss. The policy defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Therefore, the insured must prove that an accident (a piece of lumber falls and strikes another contractor’s employee on the back) occurred during the policy term and caused bodily injury or property damage.

Once the insured meets that burden, the insurance company now has the burden of proving that one of the exclusions applies. For example, it must prove that damage to an HVAC system the insured installed arose out of some defect in the system. If it cannot, then the insurance applies to the loss and the company must pay for the damage. If it can, then the burden shifts back to the insured to show that an exception to the exclusion applies. If the insured can show that a subcontractor installed the defective components that malfunctioned and damaged the HVAC system, then the exception to the exclusion applies and the insurance company must pay the claim.

Contractors should work with insurance agents who are knowledgeable about the CGL policy and can answer complex coverage questions. This policy can provide millions of dollars in protection for a business, so it is important for the business owner to understand it.