Every employer aims to have a dedicated, skilled staff capable of performing their assigned tasks effectively while fostering long-lasting, mutually beneficial relationships with the organization. Unfortunately, this ideal isn't always achieved. Employees may not meet expectations, or their work ethic and interests may change over time. In such cases, an amicable departure is preferable. However, some employees who are terminated may file wrongful termination claims.

For example, a New Jersey public housing authority faced a wrongful termination lawsuit after terminating an employee hired through a grant program. The former employee alleged retaliation. HAI Group defended the public housing authority, which was protected against such claims through its Public Officials Liability insurance policy.

This case highlights the importance of securing general liability insurance tailored to your organization's needs. Without this coverage, the housing authority could have faced significant financial exposure, potentially costing hundreds of thousands of dollars. Additionally, it emphasizes the need to document employee case files and implement human resources training and best practices to mitigate risks and support the defense of wrongful termination claims.

Case details

The plaintiff argued that the housing authority retaliated against her for raising concerns about safety at a housing authority construction site, according to Schyler Kohl, senior claims examiner for HAI Group.

“She argued that her whistleblowing about the conditions of the construction project was a pretext for her being fired,” Kohl said.

New Jersey’s Conscientious Employee Protection Act, or CEPA, makes it unlawful for an employer to retaliate against an employee because that employee has reported an employer’s violation of the law, a rule or regulation issued under the law, or other workplace activities that are potentially harmful to the public and the environment.

The defendant housing authority, protected by HAI Group’s Public Officials Liability insurance—specifically the section on employer liability—denied the plaintiff's allegations, maintaining that her termination was due to a long history of insubordination and willful disobedience, including making “negative and disparaging comments” about her employer at a national conference organized by the U.S. Department of Housing and Urban Development.

Case outcome

The case went to trial, and a jury decided that the defendant did not violate CEPA by terminating the employee.

Key insights

If the housing authority had terminated the employee because she reported safety-related concerns that violated a law, rule, or regulation at the construction site, it would have been unlawful under CEPA. However, the plaintiff had to show it was more likely than not that:

• She believed her concerns were in violation of a law, rule, or regulation or incompatible with the clear mandate of public policy concerning public health, safety, or welfare, or the protection of the environment.
• She reported her safety concerns at the construction site.
• The defendant terminated her.
• There was a causal connection between her protected activity and the retaliation by the defendants.

Understanding the importance of liability insurance and risk management

Plaintiffs who prevail in wrongful termination cases can receive compensation for past and future lost wages and other expenses, and in some cases, reinstatement to their former positions. Additionally, defendants may be responsible for the plaintiff’s attorney fees due to fee-shifting.

“The potential for judgments in these cases is enormous,” Kohl said.

This case also stresses the importance of implementing risk management best practices, such as documenting employee files. Depending on the size of your organization, executive directors or the human resources team should maintain records of warnings, meetings, and other critical documents to use in defense against lawsuits.

“It gives you witnesses to help the defense,” Kohl explained.

For HAI Group policyholders, consulting with your account executive is crucial to ensuring protection against wrongful termination lawsuits.

You can also download HAI Group’s Employment Practices Guide for a better understanding of how to manage employment-related liabilities.

This article is for general information only. HAI Group makes no representation or warranty about the accuracy or applicability of this information for any particular use or circumstance. Your use of this information is at your own discretion and risk. HAI Group and any author or contributor identified herein assume no responsibility for your use of this information. You should consult with your attorney or subject matter advisor before adopting any risk management strategy or policy.