P&C Podcast: Proactive and Protective Strategies for Your Nonprofit

Intro (00:00):
You are listening to the Alliant Insurance Podcast dedicated to insurance and risk management solutions and trends shaping the market today.

Kristen Handel (00:09):
Hello and welcome back to the Alliant podcast series. I am Kristen Handel, and I am here from the New York City nonprofit division. I also have Michael Santocki here with me as our guest. I'm excited to introduce him as a senior attorney at law with Jackson Lewis. And we're here today to talk about some of the challenges that nonprofits face in the employment landscape. So, Michael, I'm going to turn it over to you if you want to do a quick intro about your background and then we will begin.

Michael Santocki (00:44):
Kristen, thank you. It's great to be back with Alliant. As you know, I was a former broker with Alliant for many years and it's always nice to be back with my friends and with a great broker. I am now a risk manager at Jackson Lewis, and I think after all the years of being a broker and now a risk manager, I really have a good view of the landscape that we deal with and it's given me quite a few insights into how things work. But I hope that we can provide some valuable insights and ideas for you today.

Kristen Handel (01:08):
I think we will, Michael. Your background on the insurance side and the legal side is really going to help the nonprofits, which are already facing such challenges and headwinds. What do you see as one of the largest exposures for nonprofit entities when it comes to employment?

Michael Santocki (01:27):
I think there's been a little bit of a change over the years. For a while, we could itemize the employment perils into a few things: discrimination, harassment. And I think now in certainly this post COVID era, there seems to be so many things going on and they challenge not-for-profit for the main reason that we make this assumption that I think is generally true, that nonprofits do have less resources than let's say our larger publicly traded companies. There's less capacity in the HR departments and there's less capacity for nonprofits to be fully up to speed in what they have to deal with. And just to look at a laundry list of things that we look at today, there are pay transparency laws, there are expanding privacy laws, there are surveillance issues, joint employer, rising union activity, use of AI. AI is something brand new. We never spoke about that before. There's expanding laws for protecting pregnant mothers. There's DEI, there's ESG, there's new laws with non-competes, there's pay equity. And of course, one of the last things, and I think we'll speak to this in detail, there's remote work and how do not-for-profits deal with the landscape of remote work.

Kristen Handel (02:30):
And Michael, I feel that from the broker perspective, we see, as you mentioned, a lot of these nonprofits, they're running lean, so they have those restrictions on manpower within their organizations and they do read and keep up with all these changes, but how do they protect themselves from potential issues? We see a lot that our teams work with our clients on is the loss control aspect. So, that whole risk management piece, really helping the organization from the top down understand the exposures and then putting those written procedures into place. So, speaking to working from home, remote work is prevalent in all states, all jurisdictions. How do you see that changing the nonprofit employment landscape from a risk management perspective, from an employment perspective, from all factors when it comes to protecting the nonprofit organization but also the employee. How are you seeing that affect your clients?

Michael Santocki (03:28):
There's advantages and where not-for-profits will gain an advantage is they can hire talent in different locations. There's some wonderful opportunities with remote work. There's a broader reach of hiring people. For example, if there's a New York based, not-for-profit, they may be able to hire people in other places to their advantage. But there are a lot of perils with remote work, and I don't think people focus on it enough. And I'll briefly go through them. So first of all, there's data security and cybersecurity issues. People are working on laptops in remote locations. It is really important for IT departments to be focused on that. And again, we make this assumption that's generally true: a not-for-profit may not have the great IT department that the larger publicly traded company has. And yet now you have multiple employees working from home and there needs to be a data cybersecurity plan in place to make sure that what they're doing doesn't jeopardize the not-for-profit.

Then there's now compliance with employment laws. A New York based, not-for-profit now may have a reach in five different states if their employees are working in Connecticut, in New Jersey, wherever. We've had some employees that are working in Brazil for example, with remote work. So, there has to be some acknowledgement and research done with whatever the applicable employment law is in the jurisdiction where the employee will work. That also applies to workers' compensation. Another thing, and I think we do this really well at the firm, is employees’ wellbeing. If someone's not in the office every day, we may not be in as much touch with their particular situation. And I think it's important that the not-for-profit be able to reach out to the employees. You know, they may have an employee that they never even see and that's a challenge. It's not the same as seeing somebody five days a week every day. I think it's really important to focus on employee wellbeing, and also productivity and performance. There are perils with employees working from home. There's a lot of advantages especially for not-for-profits being able to recruit talent, but there are a lot of perils and also a lot of legal aspects ranging from workers' compensation to jurisdictional issues. And they all have to be taken into account. Also, communication if you have team meetings, how are you dealing with nine members in the office and then there's somebody remote in Chicago or something. All those things need to be factored into remote work and it's not as simple as just the decision to engage in remote work. I think you have to really have things in place to address the various things from the legal to the employment wellbeing to the collaboration and communication that are so important to make a not-for-profit work well.

Kristen Handel (05:53):
I agree. Have you seen an increase in cross-state workers' compensation claims with the work-from-home culture that we have now?

Michael Santocki (06:01):
Yes. There are a lot of workers' compensation issues and we've had to address them and in some cases we've had to adjust our policy accordingly. But you have to be proactive to do that. And I think if someone makes the mistake of just saying, “It's okay to have these remote workers,” but not address all these issues we're discussing, that's where a potential peril comes in. So yes, it's really important to talk to the broker that you're engaged with to make sure that your workers' compensation has addressed all the places that your employees are going to be working from.

Kristen Handel (06:28):
I know the Allstate's coverage has become critical and making sure you're with a national carrier. I agree with that. It’s definitely an interesting time and you can see the change in how the employment challenges have continued to rise. Michael, has the enhanced focus on DEI created any legal challenges for nonprofits?

Michael Santocki (06:49):
I think so. Everyone has a different perception of what DEI should entail. So, just because there's a greater focus on DEI doesn't mean that it's solving problems. I think DEI can create more discrimination claims that will arise as this gets to the forefront and some people feel that they're not served by DEI. The other thing a lot of not-for-profits have to be aware of is affirmative action compliance. And if there are affirmative action plans that they have to develop, they have to make sure that those are compliant. One thing we do for a lot of clients is to audit those affirmative action plans, but that is certainly something that not-for-profits have to be aware of as they inaugurate and go through with a DEI program.

Kristen Handel (07:28):
What are your thoughts around pay disparity? How have you been focusing on this, making sure that there's no large discrepancies?

Michael Santocki (07:36):
I think it's an extremely challenging issue. There's always been the idea, like for cyber we do so much preventative stuff in the IT world, but in the labor and employment world I don't see nonprofits or private companies for that matter really focusing a lot on the preventative. And one of the things we offer and really like to do is advice and counsel work where we engage with a client and we do preventative work, we look at their handbooks, can do audits on pay equity. There's lots of stress tests that we can do before the claim comes in that I think would be really beneficial to clients and we would love to help in that regard. But I think the only way to mitigate the pay equity and pay transparency issue is to really do an audit and to make sure that you're focused on kicking the tires so to speak. Because I think there are potential problems everywhere and if we don't do anything about it, that lawsuit will come and those are challenging lawsuits. There's burden shifting in those lawsuits, and they can be very difficult to win.

Kristen Handel (08:29):
So, doing the audit helps you put yourself in a proactive position versus a defensive position when a claim comes in, is that correct?

Michael Santocki (08:38):
Absolutely. I think it helps tremendously. It probably could also help in lowering your insurance costs as well. But there are several areas where we have the ability to do an audit and I think it would be very helpful for clients to know that their policies, their procedures, their handbooks are up to speed and especially I think in the not-for-profit space where there might be less focus on HR and resources available to them. And yet there is this expectation that HR has everything buttoned up. But how does an HR person know that everything has to be done right when there may not be anybody above them that is dictating to them what changes are coming down the pike. And I'll also emphasize, a lot of not-for-profits are in major cities. Those major cities have their own employment laws, and you really have to focus on federal, state and local laws because it's not a single source of law that comes down to the not-for-profits. And again, especially in places like New York where there are robust laws coming down from the New York City point of view, you really have to be up to speed on all sources of law.

Kristen Handel (09:35):
And a number of local and regional nonprofits receive funding from federal, state and local. So, I would think that would become even more of a focus area for them. So, how are you working with your clients in the nonprofit space now that COVID has settled and we still have some of the areas that we've spoken about. So, the proactive measures, are you sending out email communications? Are you scheduling meetings to review their handbook? What is your first line of defense? What do you recommend is a starting point for a nonprofit that maybe hasn't done much in this space?

Michael Santocki (10:12):
I think people should look at Jackson Lewis less as a source of litigation defense and a source of preventative cure. And what I would suggest is if I was a not-for-profit, I would contact Jackson Lewis and we could assist you in that regard and really speak to the areas of exposure that you have. Everybody's different, but just in speaking to some of these pay transparency, remote work and all these things, a brief discussion could at least open the door to what the next step would be and what further testing and audits need to be done. But believe it or not, they're not nearly as expensive as you would think, and a lot of things can really be cured with preventative work as opposed to waiting for that lawsuit to come. I think it all starts with what I would call a consultation with one of our advice and counsel attorneys, not a litigator, but we have people that their sole job is this preventative type work. They don't litigate, they simply help entities not-for-profits, make sure that all policies and procedures are up to speed and won't come back to haunt them. It will cost you a lot more in a claim if something is lacking as opposed to not.

Kristen Handel (11:14):
And how about on the cyber space? We spoke about the challenges of the remote workforce and a big aspect of this is that cyber concern. What do we do to help the nonprofit from a procedure perspective minimize that employment concern?

Michael Santocki (11:30):
Two things. One, there's the data security issue. I think there has to be clear policies as to what employees are going to do remotely. It has to be spelled out for them what they can and can't do with sensitive data while they're out of the office. And the second thing is the cybersecurity and making sure that employees are aware of phishing threats, malware, because I think there's a difference between training, which we do and then the real-life moment where you get a phishing email and you're busy at your desk doing 20 things and you simply hit the wrong button. So, we send out fake emails to employees that are fake but intended to hit the button if you know that it's fake and then it says congratulations. But we get a lot of these from time to time and they look real. I think it's a really helpful training exercise to have the employee then look at that and hit the button and say I've identified a phishing or a malware threat. But we are doing that and probably at least once a week I get a bad email and I know I hit the phishing, I did hit it on a real email once but that was okay. IT called me and said no, that was legitimate. But I think the training and the exercises are really important in this space.

Kristen Handel (12:33):
That makes sense. Now do you see employment claims rise? If there was a situation where procedures weren't followed from a cyber perspective and there was a major breach, do you see employment issues surrounding that if that employee was terminated?

Michael Santocki (12:48):
I certainly think that one thing leads to another and all of a sudden you have a small incident become a huge mess. Right? If you take an action against an employee for being negligent on the cyber front, that could easily give rise to an employment claim. So, I think there are tie-ins to cyber, especially with remote work. But I think there are tie-ins to having sound cyber policies, sound data security policies and then sound labor and employment policies. And if you don't, certainly there could be a domino effect of one bad scenario getting much worse.

Kristen Handel (13:18):
And how do you feel about another employment concern of nonprofits, which is the auto exposure. You may be driving your clients and clients can range from the elderly to small children; in some spaces you can also just be running errands. There's a wide variety of exposure there. Now I've been in the industry for 20 some years and auto has always been a driver of multiple, auto losses, third party losses, but also now employment losses. So, is this another area where you are seeing claims arise from termination issues? How do we protect clients in this space and can you offer any comments around now that it's a remote workforce and that auto exposure has changed a tad? Do you have any thoughts on that? How do we protect our clients?

Michael Santocki (14:08):
I think there has to be very clear policies in the handbook. We just updated our handbook a month or two ago and the thought occurred to me that if Jackson Lewis just did an update with a thousand labor lawyers, is everybody else, did they also do the updates? In other words, there are things we are updating which makes me believe that we're ahead of the curve. Everybody needs to be focused on these updates. But yes, I think there's got to be clear policies for what's going to be tolerated and what's reasonable when somebody's working remotely or anywhere.

Kristen Handel (14:34):
And do you still recommend a matrix that outlines, A, I have to acknowledge that you might be pulling my motor vehicle record every six months. And B, that there is a clear metric around the offense and what it means for your employment? Is that still best practice?

Michael Santocki (14:53):
I think it's really important, especially as auto insurance carriers may have certain requirements or methods that will provide better pricing. But if there are those dictates coming from the carriers, it's important to outline it clearly to the employees who will be driving.

Kristen Handel (15:05):
That's what we've recommended as well. Now Michael, as we close on our discussion, do you have any thoughts on how the insurance world is addressing all of the challenges that we've discussed here?

Michael Santocki (15:18):
As we enter a world with far more exposure, the carrier may not be your friend. The carrier's hope is to reduce their exposure by paying less claims, so one thing the carriers have done in the employment practice space is one they've raised retentions the deductibles. It's not uncommon to see a six-figure deductible, which in many ways is going to take away that single plaintiff claim. So, the idea that you have insurance for everything is not necessarily true and carriers are also carving out specific exposure areas. Most carriers are now excluding BIPA claims and privacy type claims. So, there are hurdles with insurance now as the exposures grow, coverage may be less. And I think, if a not-for-profit were to say to me, “What do I do now? Now that you're telling me insurance is less, what do I do?” And I really think there's two things that I would do if I was with a not-for-profit. One, the selection of broker is extremely important. And I say this not to serve Alliant, but Alliant has a dedicated employment practices group. They have a dedicated cyber group. Those are groups with a lot of people with different expertise levels. It is really crucial to place your policies where there are dedicated practice areas with expertise and you're not dealing with say a small broker that it may be using a wholesaler to place insurance and there is no local expertise.

I'm a client of Alliant and I use Alliant all the time and when I need to speak to an expert, I get an expert immediately. That's so important for a not-for-profit especially because they may not have those experts in their IT or in their HR. So, issue one, you must have a broker that knows their specific space, has the experts, has the not-for-profit sensibilities; it's imperative to go to one of those brokers. And then the second thing I would do is I would speak to the broker and try and get some discussion with a law firm like a Jackson Lewis. We'll be happy to offer preferred rates and anything we can do to help the not-for-profit community. But it's really important for not-for-profits to think of labor law firms, not just as litigators but as sources to prevent future claims or to mitigate those claims. And there's a lot we can do for not a lot of money. So, I think if I have a real takeaway here it is, there's stuff coming from all sides. There are things you really have to know that not-for-profits may not have the resources to fully take command of. And where there is a source of light in this discussion, it is with having a really truly qualified broker. Your next-door neighbor or your friend may not be enough. And then to also consider engaging a law firm to take preventative action in the employment space like they do in the cyber space rather than wait for the lawsuits to come.

Kristen Handel (17:42):
I think that makes sense. The wage and hour and BIPA, if you want to expand on that a little; that's a hot topic now for a variety of industries.

Michael Santocki (17:51):
It is. And those are areas, wage and hour has a little bit of defense cost cover in some cases, but there's not going to be any coverage for any solutions that you have to pay for. And the same goes for BIPA. Different states are enacting various laws like this. The BIPA I think is the Illinois law. The penalties are harsh, and the carriers are saying we're not going to cover that. So, they are putting exclusions for that. You just raised two areas where there's a lot of exposure, frankly there's probably a fair amount of uncertainty in the law. I think it's not unreasonable for someone to say, “I'm trying to follow the law, but I don't really understand what all the wage hour law is.” I mean there is a lot of vagueness in the wage hour space, and I think engaging with experts is going to be the way to mitigate this exposure because I have coverage on my insurance policy, may not ring true especially on these two exposures.

Kristen Handel (18:36):
Is there anything preventative around those two that you recommend?

Michael Santocki (18:40):
I think sitting down with a labor law firm to make sure that you're not collecting private information. Is it necessary to what you do? In many cases it isn't. I think we've reduced some of the things that we used to collect just because it's a potential exposure and it's not necessary to our practice. So, I think that there are things you can do to lessen your exposure to these changing laws.

Kristen Handel (19:03):
Anything before we close, we've talked a lot about cyber, we've talked a lot about policies and procedures. In the old days as I like to call it, everything used to be paper, and a lot of our employment files were paper. And is there still an exposure around that from even a cyber perspective or a HIPAA perspective? What are you recommending as a law firm to protect nonprofits and minimize that exposure? What do you recommend there? Old files, paper files, socials, employment applications.

Michael Santocki (19:35):
Yeah, and even if you go outside of paper, it's still in the system, right? Everybody keeps records, everybody has records. I would say to mitigate those that you don't need, reduce putting them on every document. There are so many documents where you don't need the person's social security number on it. And again, that's something that I would consider a consultative approach too. We recently had to do some work on our files with respect to what we have to keep for e-discovery, and that's another issue that not-for-profits may have to deal with. But if there's a lawsuit and there's e-discovery, do you have those records? It's not okay to throw stuff away. There's a real mix of keeping things that you have to keep and seeking to get rid of things that can only potentially increase your exposure to these privacy and HIPAA laws.

Michael Santocki (20:15):
But the solution is not simply discarding everything because you may have to keep a lot of these things. And the other thing I would just quickly add, if you outsource stuff to a storage facility or something like that, are you asking those companies what kind of insurance they have? What kind of policy limits they have? It's really important when you engage in contracts to make sure that those vendors are adequately insured. I do this all day long and sometimes you do have to reject an otherwise qualified vendor, but a cyber-related company should not be carrying a $1M cyber policy. It's also important to know when you could be an additional insured and when you can't. I think it is important for those who deal with the contracts to make sure that the vendors they're doing business with have the proper resources to defend you if you are involved in a claim as a result of their negligence.

Kristen Handel (21:01):
And it goes back to the insured contract that you have with them and the indemnification language. So, all of that is critical from the insurance perspective and the legal perspective as well.

Michael Santocki (21:12):
And correct me if I'm wrong, but Alliant helps clients with that and Alliant has the experts that can do that. Again, it goes to what I really emphasize is make sure your broker has the resources to assist you. They don't cost more. They have resources to help not-for-profits.

Kristen Handel (21:27):
True. Well Michael, it was a pleasure speaking with you today. I appreciate your time and I look forward to further conversations. I know that you are a trusted partner with a lot of our clients, and I appreciate the work you do for us all.

Michael Santocki (21:41):
Thank you, Kristen. It was a pleasure to be back with Alliant again. Thank you.

Kristen Handel (21:44):
Great. Thank you everyone for listening.