An typical California employer has nearly an 18 percent chance of finding its business on the receiving end of an employment liability charge, according to a new study, which reveals that this is 42 percent above the national average.

Hiscox, the international specialist insurer, found California, the District of Columbia, Illinois, Alabama and Mississippi to be the top five riskiest areas of the U.S. for employee lawsuits in the nation. Businesses in these states and jurisdictions face a substantially higher risk of being sued by their employees compared to the national average.

Correction: An earlier of version of this story said that the chance of an employment charge in California was 50 percent. That was inaccurate. The correct figure is 17.75 percent.
According to the study, on average, a U.S.-based business with at least 10 employees has a 12.5 percent chance of having an employment liability charge filed against it. However, businesses in several states face a much higher level of exposure to litigation:

  • California, 42 percent above the national average, or 17.75 percent
  • District of Columbia, 32 percent
  • Illinois, 26 percent
  • Alabama, 25 percent
  • Mississippi, 19 percent
  • Arizona, 19 percent
  • Georgia, 18 percent

Lower-risk states for EPL charges include West Virginia, Massachusetts, Michigan, Kentucky and Washington.

“Federal level information on employee charges is generally available, but state-specific information is more difficult to aggregate,” said Bert Spunberg, senior vice president and practice leader of executive risk at Hiscox. “Understanding 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.”

State laws can have a significant impact on risk. For example, the employee-friendly nature of California law in the area of disability discrimination may contribute to the high charge frequency in the state. Discrimination cases filed at the state level in California are brought under the Fair Employment and Housing Act, which applies to a broader swath of businesses, covering any company with five employees versus a 15-employee minimum for cases brought under federal law as outlined in Title VII of the Civil Rights Act.

Mark Ogden, a managing partner at employment and labor law firm Littler Mendelson, notes that in addition to higher frequencies, the likelihood of catastrophic verdicts is also significantly higher in these states. “Unlike their federal counterparts, where compensatory and punitive damages combined are capped at $300,000, most state employment statutes impose no damages ceilings,” he was quoted as saying in Hiscox’s statement about the frequency analysis.

The Hiscox study results did not reveal differences in costs associated with the employment charges by state, focusing on frequency instead. The results are based on frequency of charge receipts, but the receipt of a claim is not limited to only those claims that result in a settlement or other meritorious resolution, Hiscox said.

The study analyzed recent employment discrimination charge receipts by state at the federal and state commission levels focusing on establishments with more than 10 employees in each state or jurisdiction. Charge frequency was determined by the number of charges divided by the number of establishments with more than 10 employees.