A New Problem on the Horizon: Negligent Retention

Feb 23, 2010

By Mel Kleiman, President, Humetrics

Through a special arrangement,
presented here for discussion is a summary of a current article from
the Kleiman HRExchange blog.

From a legal standpoint, most employers take
pains to avoid hiring the wrong person: negligent hiring. Now, with turnover
down because employees are staying in jobs (even ones they don’t like)
just for the job security, the bigger problem could be negligent retention.

Negligent hiring occurs when an employer
places an unfit person in an employment situation that entails an unreasonable
risk of harm to others. Negligent retention is closely related, but these
actions allege negligence after an employee is hired rather than at the time
of hire. This happens when you keep employees on board who you know you shouldn’t
— people who don’t like their jobs and who would normally leave if times were
better, but who just stick around.

By keeping these employees on the payroll, you risk being sued by your other
employees or your customers if that dissatisfied hanger-on does something or
causes something to happen that in some way harms them.

The fastest growing area
of lawsuits in this country effecting retailers is related to employment
law. According to Jury Verdicts Research 2007:

  • Employee lawsuits have risen
    400 percent in the past 20 years to the currently level of 6.5 claims
    per 1,000 employees annually.
  • In any employment case filed
    in federal court, there is a 16 percent chance the award will exceed
    $1 million and a 67 percent chance that the award will exceed $100,000
    (not including attorney fees).
  • The average compensatory
    award in all federal court employment cases was $493,534 and reflects
    a 45 percent increase since 2000. (A compensatory award does not include
    punitive damages or attorney fees.)
  • In State courts, compensatory
    awards are up 39 percent while wrongful termination claims are up 260
  • If an employment lawsuit
    goes to trial, plaintiffs are more likely to win 67 percent of cases
    in State court and 63 percent in federal court.
  • The cost to settle an employment
    lawsuit has grown significantly over the last five years, from an average
    of $130,476 in 2001 to $310,845 in 2006.

These general statistics are sobering and are cause for
concern to all organizations. Compounding these are recent changes in Federal
and State laws that affect almost all organizations. There are a number of
safeguards and procedures that management should have in place:

  • Making sure you have a structured interviewing and
    performance appraisal process;
  • Making sure all of your managers have had
    adequate interview training and training on how to deal with difficult
  • Making sure you check references and document
    the answers you get;
  • Checking for criminal records;
  • Drug testing prior to hiring and random testing after hiring;
  • Taking corrective action or investigating
    any complaint against a present employee;
  • Making sure an employee who does something
    to jeopardize another employee or customer is removed from the payroll.

Discussion Questions:
How should retailers manage negligent hiring and negligent retention
situations given the threat of lawsuits? What ways are there to get
rid of underperforming employees without resorting to complications
that can accompany firing?

Please practice The RetailWire Golden Rule when submitting your comments.

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14 Comments on "A New Problem on the Horizon: Negligent Retention"

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Bob Phibbs
12 years 11 months ago

I am so sick of hearing we can’t fire them because they’ll sue. Oftentimes it is due to such articles as this with (to me) unbelievable costs used as evidence for an “average” legal case. This cripples most owners into doing nothing. It is worsened by weak people managing incompetent employees. In a recent poll I conducted, fewer than 30% of respondents had written up an underperforming employee even once. Write them up for attitude, average sales, tardiness, whatever, but get them out. There are plenty of great people out there if you refuse to settle, onboard them correctly and set boundaries.

David Livingston
12 years 11 months ago

Our employment laws need to be changed. If an employee does not have a contract, an employer should be able to fire an employee for any reason or no reason at all. I no longer have employees. I only hire independent contractors who I can terminate without cause at anytime. Dump W2 employees and go with 1099 contractors. I also find their attitude towards work is much better. They know if they don’t give me 100% all the time, they will be fired.

Roger Saunders
12 years 11 months ago

Continuous FEEDBACK.

If companies are going to be in the ‘People Business’, and nearly every retailer falls into this category, as they need people to work with their customers. Retailers need to commit to having policies in place, make certain people understand them, train associates, talk them into and out of position each day, and provide the positive and corrective communication that is expected and needed.

Is it easy? If it was, we wouldn’t be facing as many silly lawsuits in the workplace. It’s hard to do. But, it’s the right thing to do for the associates, customers, fellow associates, and the bottom line in monitoring frivolous lawsuits.

Warren Thayer
12 years 11 months ago

This is a good article, and this is a big problem. Documenting everything is very important, with witnesses ideally, and then giving the offender prompt written notice of the offending behavior and its specific potential consequences, ideally once again with a witness in the room, and having the offender sign something saying he/she has received it and understands it (not necessarily agrees with it, but understands it). You’ll probably get sued anyway, and you’ll probably lose. There are people who make a living out of suing their employers, and, unfortunately, even with witnesses saying otherwise, they somehow seem to gain traction in the court system. The cards are all stacked against the employer. Don’t expect that being right, and acting properly and with good ethics, is any sort of protection. The best thing would be working with your representative in Congress to get some of our absurd laws changed. That, and taking the potential for trouble very, very seriously.

Ryan Mathews
12 years 11 months ago

The long-term solution is to get the law changed.

In the interim, Warren is right, documentation is the key.

That said, like in most problems there is a soft–perhaps more difficult issue–to address. It is tough for some managers to fire people, especially in this economy. Sometimes it’s easier to avoid confrontation.

Managers must learn that their responsibility is to the customer, the company and the other workers–three constituencies that can be badly hurt by retaining the wrong workers.

Bill Emerson
Bill Emerson
12 years 11 months ago

With unemployment (the real number) stuck at around 17% with no end in sight, there are a lot of scared and desperate people out there. Nothing appeals to a trial lawyer more than fear and desperation and they are cashing in, abetted by judges that should be throwing the bulk of these cases out.

I think David is ahead of the curve in talking about independent contractors. Not only can bad apples be fired at will, there are no payroll taxes, health care, or other benefits to consider. If the Health Care bill passes, look for more and more employers to begin to take this option, particularly with new hires.

In the end, it will be the majority of employees that will suffer. I think Shakespeare had the right idea in King Henry VI – “First thing we do, let’s kill all the lawyers.” That works on a variety of topics.

Doron Levy
Doron Levy
12 years 11 months ago

Every manager needs a CYA file (Email me if you are unfamiliar with this important retail acronym). Most corporate retail organizations have strict procedures for documenting performance (good or bad). The key to winning a termination suit is detailed notes on everything. When I was managing in the field, I went way beyond what my company required. I would always jot down dates, times and circumstances if I noticed poor performance and then throw it into the associates file. Those notes combined with any official verbal and written warnings is what managers need to protect themselves when dealing with poor performance. Make sure the files are up to date as well with all required forms signed.

The biggest excuse I used to get is: “I never understood what was expected of me.” A load if I ever heard one but judges and magistrates love the sob story so make sure you have detailed and up-to-date files on your employees. Your star associates will appreciate it as well at review time.

Mel Kleiman
Mel Kleiman
12 years 11 months ago
I have found the responses to my article so far quite interesting. The article was not written to scare retailers into thinking they could not do anything when they have hired the wrong person or more importantly, when someone they have hired has for some reason beyond their control gone bad. The article was written to say yes, you can do something and here are a couple of my suggestions. 1. Train every hiring manager how to Hire Tough. The most important decision every manager makes every day is who they allow in the door to take care of their customers and their business. 2. Learn to fail fast. If you hire the wrong person get rid of them fast. The best time to get rid of a new employee is the first time you think about doing it. The longer you keep them the more you own them. 3. Tell new employees why you hire them but more importantly, tell them why you fire them. If you would like a copy of an employee… Read more »
Brian Anderson
12 years 11 months ago

While I appreciate the post, the fact of the matter is this: negligent hiring and under-performance is a recurring challenge. It may be more prevalent in a downturn economy, lost job, need money, law suit.

Hiring the right people, training them effectively and following up with consistent coaching. Key points:

1. Hire smart

2. Train consistently

3. Consistent coaching

4. All performance issues need to be clearly documented. Document everything

5. Use Progressive discipline–consistently

In the end it’s always about relationships when dealing with people–anyone in management, leadership, HR needs to be clear, be consistent, and be relational.

By and large, those who lead effectively, build relationships, set clear expectations, and hold people accountable to goals and objectives have little to no EEOC issues. In my two decades of leading thousands of employees, I never had one issue with lawsuits. I followed the model above.

Mel Kleiman
Mel Kleiman
12 years 11 months ago

The problem with independent contractors is that the government does not want you to have any of them and unless you make sure they are truly independent, you are going to get hit with lots of penalties.

Jean Forney
12 years 11 months ago
I recently fired an “independent contractor” and it doesn’t work as easy as all that. I have had to fill out 2 separate questionnaires/forms that asked very specific questions about this person’s job responsibilities, how they were paid (by the job, hourly, weekly salary) etc… At the end of the day regardless of the “1099”; she was deemed “employee status” and eligible to collect unemployment with my company as first employer responsible and now that she has been labeled “employee” it has opened up a host of other possibilities including discrimination National Origin which is a quick payout here in FL. I am in the talent acquisition field and I know better than some there isn’t a way to be 100% accurate in knowing if the person you are hiring is going to be everything you expected. What I can tell you is how surprised I am at the number of companies that don’t check into credit, criminal record, or education as well as those that don’t even check references–the hiring is 100% assessment based… Read more »
Daniel Bolger
Daniel Bolger
12 years 11 months ago

Failure to use appropriate progressive discipline and to fire employees violating federally regulations is a greater risk than keeping them on. Following the excellent comments previously submitted will minimize the risks. As a small company owner, I have used a checklist so the I’s are dotted and the T’s are crossed. Then I review the facts with my HR legal counsel in a conversation that has never exceeded 15 minutes. This approach has worked very well. In many instances, using independent contractors simply is not an option.

Craig Sundstrom
12 years 11 months ago

Do you wear a crash helmet when you walk down the street, or do you just take the chance that space debris won’t fall on your head? Much the same response, I think, can be offered to some people’s ideas on avoiding lawsuits. Yes, of course sound policies should be in place – in every aspect of business, not just employment – but tailoring your entire business strategy to avoid isolated theoretical problems is counterproductive…just like people who drive to avoid the risk of a plane crash, and open themselves up to even bigger risks. (And one “best practice” is to always seek competent advice. Though RW may be an excellent forum for discussing retail in general, I hardly think it’s where one should turn to for legal advice.)

Ralph Jacobson
12 years 11 months ago

Huge number of conflicting issues here: 1) The hiring process: Few people know how to truly execute an effective hiring interview. Most hiring managers talk too much during the interview. Then, many discount potential adverse characteristics that surface during the interview. Remember, people don’t change. If there’s something that rubs you the wrong way, DON’T HIRE THEM. 2) Contractors vs. employees: You can fire employees just as easily as you can contractors with the most common employment contract: “At-Will Employment.” HOWEVER, contractors will have less loyalty to you if a better offer comes along… and contractors are ALWAYS looking for better offers, as opposed to permanent employees, and 3) In the retail world we have unions which change the game completely. The best case scenario is to work the unions to modify future contracts to support productive employees.


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