8 EPL Questions for Nationwide’s Lynette Lyngaas

“Companies must ensure they provide reasonable accommodation if using AI in recruiting. They should avoid screening out potentially good candidates based on the questions asked. It’s crucial to examine who defines what a good applicant is and ensure that definition is unbiased.”
By: | June 4, 2024

As an AVP at Nationwide, Lynette Lyngaas focuses much of her effort on understanding and mitigating the risks associated with artificial intelligence in recruiting, compliance with the Pregnant Workers Fairness Act, and managing the overall risks associated with underwriting employment practices liability (EPL).

At RISKWORLD 2024, Risk & Insurance’s Dan Reynolds spoke with her about her insights into these areas and the evolving landscape of employment practices. What follows is a transcript of that conversation, edited for length and clarity.

Risk & Insurance: What risks do you see in the use of artificial intelligence in recruiting?

Lynette Lyngaas: While AI offers benefits like efficiency and time-saving for HR, there are potential problems to consider. One key question is where these algorithms are coming from, as there are numerous vendors providing them. Companies need to understand how the algorithms determine who progresses through the recruitment process and who doesn’t.

The biggest concern is the potential for bias, such as gender or race discrimination. This issue may arise in the EPL space, particularly for large companies like Fortune 500 firms. Many larger companies I’ve spoken with are unsure about using AI due to these potential problems, and the EEOC [U.S. Equal Employment Opportunity Commission] has provided limited guidance on what companies need to do when utilizing AI.

Companies must ensure they provide reasonable accommodation if using AI in recruiting. They should avoid screening out potentially good candidates based on the questions asked. It’s crucial to examine who defines what a good applicant is and ensure that definition is unbiased.

Regular audits, including bias audits, are essential. Companies must also consider the strict privacy laws in the states where they operate. If a claim arises and the algorithm was developed by a third party, it’s unclear whether that vendor would assist in defending the claim. Access to the vendor’s information and methodology is critical for defending against allegations of disparate impact or bias.

R&I: What role do you see human oversight playing in the use of AI for tasks like recruiting, given the potential risks involved?

LL: While human oversight is crucial, I don’t believe it’s feasible for an individual to review every candidate processed through an AI-powered recruiting system. The potential for mass class litigation from an employment practices liability perspective is significant.

For example, if the AI inadvertently screens out women who took time off to raise children, it could lead to a class action lawsuit. These women could claim they were unfairly denied employment opportunities.

Beyond recruiting, the use of AI in performance management and workforce analytics also raises concerns. However, workforce analytics could be beneficial in identifying patterns like high turnover rates at specific locations, which might otherwise go unnoticed by human managers. This insight could prompt the company to address underlying issues.

In summary, while AI offers many benefits, its application in areas like performance management should be approached with caution. The potential for unintended consequences and legal risks underscores the need for robust oversight and governance.

R&I: Does the Pregnant Workers’ Fairness Act present compliance concerns for employers?

LL: The Pregnant Workers Fairness Act, which went into law in December 2022, requires covered employers with 15 or more employees to provide reasonable accommodations for workers’ known limitations related to pregnancy, childbirth or related medical conditions. This includes current pregnancies, past pregnancies, potential or intended pregnancies, and a wide range of medical conditions arising from pregnancy or childbirth.

The EEOC began accepting charges and complaints under this law in 2023. However, there is limited guidance from the EEOC on the specifics of the act, which may create challenges for employers.

Employers will need to educate their frontline managers to understand the broad scope of the act and the potential accommodations that may be required. Unlike the ADA, there seems to be more onus on the company to proactively identify and provide reasonable accommodations, even if the employee does not explicitly request them.

R&I: How should employers handle situations like postpartum depression and manage employees who may need accommodations?

LL: It’s a complex issue, as employees might not always explicitly request accommodations. However, employers should be proactive in providing necessary support. For instance, if an employee is towards the end of their pregnancy, they shouldn’t be required to lift heavy objects.

To navigate this, companies must retrain their HR managers and ensure that location managers are well-informed about the new regulations. Staying updated on the specific requirements for accommodations is crucial. Generally, employers must provide accommodations unless they can prove undue hardship, which can be challenging.

R&I: What are the current trends in EPL claims, particularly regarding frequency and severity?

LL: EPL has been a frequency issue for many years, but the concern now is that severity is starting to become a problem due to unanticipated, unbelievably large “nuclear verdicts.” Several factors contribute to these verdicts, such as the influence of social media and media outlets, public desensitization to large numbers, and a general distrust of corporations.

The workforce today doesn’t have the same loyalty as in the past, and many people know someone who has been laid off or terminated. Juries, composed of these individuals, are influenced by their experiences and the disproportionate wealth distribution between CEOs and workers, which has grown significantly since the 1970s.

To mitigate the risk of nuclear verdicts, the best approach for organizations and insurance companies is to try to settle these claims before they go to trial. Going to trial should only be considered when there is a high level of confidence in winning the case.

Some trending issues in EPL claims include an increase in emotional distress awards, retaliation for seeking accommodations (such as those related to pregnancy and religion), and a growing interest from D&O underwriters in writing ancillary lines like EPL. This increased competition in the EPL market can be challenging, as it blurs the lines between specialties.

R&I: Can you share your perspective on the current state of diversity, equity and inclusion (DEI) initiatives in companies, and how the approach has evolved in recent years?

LL: Following the tragic events surrounding George Floyd, many companies significantly increased their focus on DEI initiatives. Some even set specific benchmarks and targets for representation. However, there is a growing realization that setting rigid numerical goals may not be the most effective approach.

The recent legal cases involving Students for Fair Admission, Harvard University and the University of North Carolina, while not directly related to employment, have implications for HR practices.

From the Equal Employment Opportunity Commission perspective, companies must be cautious not to violate the law by setting specific targets, such as hiring a certain number of females within a year. In fact, there have been instances of reverse discrimination claims, such as a case where a white male was awarded $10 million after claiming he was fired due to his race and gender.

The message from a recent seminar I attended was clear: Focus on hiring the best individual for the job, rather than attempting to meet numerical targets. Failing to do so could lead to legal troubles for the company.

R&I: Are there top priorities and focus areas of the EEOC that employers should be aware of and concerned about?

LL: The EEOC’s priority areas are critical for employers to pay attention to. They are focusing on addressing systemic issues, preventing workplace harassment, advancing racial justice, and preventing and remedying retaliation.

Retaliation claims are consistently high in terms of the number of charges filed because they are often added to many other allegations. For example, if an employee files a harassment or income complaint, retaliation is always a potential issue.

Another area of concern is pay equity. With the trend of posting job salaries and the younger generation’s openness to discussing their pay among themselves, employers who haven’t done their due diligence internally could potentially face issues in this area. &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected].

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