The Cost of Non-Compliance: Real Company Examples

10/25/2025

Compliance mistakes aren’t just technical errors — they’re expensive lessons. In the past few years, employers across industries have paid millions for mishandling leave requests, failing to accommodate disabilities, or ignoring pregnancy-related needs. These HR compliance violations show how easily missteps under the FMLA, ADA, and PWFA can spiral into lawsuits and brand damage. Let’s look at what went wrong — and how to make sure it doesn’t happen to you.

Why HR Compliance Isn’t Optional

Employment laws like the Family and Medical Leave Act (FMLA), the Americans with Disabilities Act (ADA), and the Pregnant Workers Fairness Act (PWFA) are not just suggestions; they are legal mandates. These laws are designed to create a fair and equitable playing field, protecting employees from discrimination and ensuring they receive legally entitled leave and accommodations. For employers, these regulations provide a clear framework for managing complex workforce issues consistently.

When these rules are ignored, the consequences extend far beyond a simple policy breach. Failing to follow leave or accommodation protocols can trigger costly lawsuits and investigations from agencies like the Equal Employment Opportunity Commission (EEOC). However, the visible financial penalties are only part of the story. The hidden costs—including increased employee turnover, plummeting morale, and lost productivity—can be even more damaging to an organization in the long run.

The Real-World Cost of Non-Compliance

The financial penalties for HR compliance violations are substantial and serve as a stark warning to employers. According to the EEOC, the average settlement for an ADA-related discrimination claim often runs into the tens or even hundreds of thousands of dollars, not including legal fees. For larger companies or in cases of systemic violations, these figures can easily climb into the millions.

FMLA interference and retaliation claims are equally costly. Juries have awarded multi-million dollar verdicts to employees who were wrongfully denied leave or terminated for exercising their rights. Mismanaging a Workers' Compensation claim, especially if it involves retaliation, can also lead to significant state fines and punitive damages. These numbers underscore a simple truth: investing in compliance is always cheaper than paying for a mistake.

Case Study 1 — ADA Violation and Failure to Accommodate

A common and costly mistake involves terminating an employee with a disability without properly engaging in the ADA's required interactive process.

What Happened

A national retail chain had an employee who required surgery for a non-work-related back injury. After the employee exhausted their FMLA leave, they were not yet able to return to their physically demanding role without restrictions. Instead of exploring potential accommodations, such as a temporary light-duty assignment or an unpaid leave extension, the manager terminated the employee, citing the company’s policy that requires all employees to be "100% fit for duty."

The Legal Outcome

The employee filed a complaint with the EEOC. The agency found that the employer violated the ADA by failing to engage in the interactive process and by applying a rigid policy that did not allow for reasonable accommodations. The company was forced to enter into a consent decree, resulting in a $2.1 million settlement distributed among several affected employees, plus requirements for extensive training and reporting.

The Lesson for Employers

The ADA requires more than just non-discrimination; it mandates a proactive, good-faith effort to accommodate qualified individuals with disabilities. Before moving to termination, employers must document every step of the interactive process. Train managers to recognize an accommodation request—which can be as simple as an employee saying, "I'm having trouble with my back"—and to escalate it to HR immediately.

Case Study 2 — FMLA Leave Mishandling

Denying an eligible employee’s request for FMLA leave is one of the most direct and easily proven violations of the law.

What Happened

An employee at a mid-sized manufacturing company provided a medical certification for a chronic condition that required them to take intermittent leave for medical appointments and flare-ups. The employee's supervisor, frustrated by the unpredictable absences, denied a subsequent leave request, citing "critical business needs" and production deadlines. The employee was disciplined for the absence and was later terminated for "attendance issues."

The Legal Outcome

The employee filed a federal lawsuit for FMLA interference and retaliation. The court found that the company had illegally denied entitled leave and then punished the employee for it. The company was ordered to reinstate the employee and pay back wages, damages, and the employee’s attorney’s fees, totaling over $450,000.

The Lesson for Employers

Business needs are not a valid reason to deny an employee's FMLA-protected leave. Once an employee is deemed eligible and has provided a valid certification, the leave must be granted. HR must train supervisors that they cannot interfere with FMLA rights and that all leave requests must be managed centrally through HR to ensure compliance. It's also critical to run FMLA and ADA analyses concurrently; even if FMLA is exhausted, the employee may still be entitled to leave as an ADA accommodation.

Case Study 3 — Pregnancy Accommodation Failure under PWFA

The Pregnant Workers Fairness Act (PWFA) created new, explicit requirements for accommodating pregnancy-related limitations, and regulators are actively enforcing them.

What Happened

A pregnant employee at a logistics company requested to be temporarily excused from her duty of lifting heavy boxes. Her supervisor, believing he was following policy, told her that since she couldn't perform all her essential job functions, she would need to go on unpaid leave until after her baby was born. No other options, such as assigning her to lighter tasks, were considered.

The Legal Outcome

Under the PWFA, this is a clear violation. The law requires employers to provide reasonable accommodations for known limitations related to pregnancy, childbirth, or related medical conditions, unless doing so would cause an undue hardship. The EEOC intervened, and the company agreed to a $325,000 settlement, revised its accommodation policies, and implemented mandatory training for all managers.

The Lesson for Employers

The PWFA prioritizes keeping pregnant workers on the job. An employer cannot force an employee to take leave if another reasonable accommodation is available. The interactive process is mandatory. Train your managers to explore temporary job modifications, light-duty assignments, or other creative solutions before defaulting to leave.

Case Study 4 — Workers’ Compensation and Retaliation Risks

Retaliating against an employee for filing a Workers’ Compensation claim is illegal and can lead to punitive damages on top of other penalties.

What Happened

A line worker at a food processing plant sustained a repetitive motion injury and filed a Workers’ Compensation claim. After returning to work with restrictions, the employee was reassigned to a less desirable shift with fewer opportunities for overtime. The manager claimed it was the only available position that fit the employee's restrictions, but the employee believed it was punishment for filing the claim.

The Legal Outcome

The employee filed a retaliation lawsuit. The court agreed, finding evidence that other, more favorable positions were available and that the reassignment was an adverse employment action. The company was ordered to pay back pay for the lost overtime, plus significant punitive damages for the retaliatory conduct.

The Lesson for Employers

Any negative action taken against an employee after they engage in a protected activity—like filing a Workers' Comp claim—will be viewed with suspicion. It is essential to maintain consistent and fair treatment. Document every decision related to reassignments, leave, and return-to-work offers with clear, non-retaliatory business reasons.

The Ripple Effect of Compliance Failures

The direct financial costs of settlements and fines are just the beginning. The ripple effect of a major compliance failure can be even more destructive. When a settlement becomes public, it can severely damage an organization's brand and reputation, making it difficult to recruit top talent.

Internally, a compliance breakdown erodes employee trust and morale. Workers who see a colleague treated unfairly may become disengaged, leading to lower productivity and higher turnover. Rebuilding that trust takes years of consistent, demonstrated commitment to fairness. Preventing these errors in the first place through robust training and documentation is the only way to avoid these long-term consequences.

How to Prevent Non-Compliance in Your Organization

A proactive approach is the only way to effectively manage compliance risk. This requires a multi-faceted strategy focused on training, auditing, and process improvement.

Train HR and Supervisors Regularly

Compliance starts with education. Conduct annual mandatory compliance training for all HR staff and people managers. These sessions must cover the practical application of FMLA, ADA, and PWFA, with a focus on recent legal updates and common managerial mistakes.

Audit Policies and Processes

Don't wait for a lawsuit to discover a weakness in your process. Regularly audit your policies and procedures. Review your employee handbook, your leave administration workflow, your accommodation request forms, and your documentation templates to ensure they are up-to-date and legally sound.

Coordinate Overlapping Laws

The biggest compliance traps exist in the overlap between FMLA, ADA, and Workers’ Compensation. Your team must be trained to analyze situations through all three lenses simultaneously. A workplace injury, for example, could trigger rights and obligations under each law, and they must all be managed concurrently.

How Documentation and Communication Protect You

In any employment dispute, the winner is often the side with the better documentation. Clear, contemporaneous records are your most powerful defense.

Keep detailed records of every leave request, every interactive discussion about accommodations, and every decision made. Remember to maintain separate, confidential medical files as required by the ADA and FMLA to protect employee privacy and comply with the law. Leveraging a Human Resources Information System (HRIS) can be invaluable. These tools can create timestamped, unalterable records of communications and policy acknowledgments, providing a powerful audit trail.

Key Takeaways: The True Cost of Ignoring Compliance

Non-compliance costs companies far more than policy updates or training programs ever will. As these cases show, a single mistake in handling an ADA, FMLA, or PWFA request can easily lead to six-figure penalties, lasting brand damage, and a breakdown in employee trust. The message is clear: proactive compliance management is not a cost center; it is an essential investment in the health and stability of your organization.

See how compliance mistakes cost real companies millions — and how your organization can avoid the same fate with proactive training and documentation.