May 3, 2016

Litigation: A Lose-Lose Situation

“We treat our employees with respect.  We don’t need an employee handbook.”

“We’re an at-will employer.  We don’t need a written warning in the file before we terminate.”

“The At-Will acknowledgement is just going to scare off good employees.  We don’t need it.”

“Arbitration Agreements?  Isn’t that just an invitation to sue?”


Famous Last Words

These are all things I’ve heard said at one time or another.  These statements are usually uttered by owners and managers who have never been sued by an employee or a class of employees.  They don’t appreciate the likelihood or have a respect for the true cost of litigation.  File under “Famous Last Words.”

What these bosses don’t understand is that the employee handbook, the at-will acknowledgement, the written warning, the arbitration agreement and a plethora of other litigation avoidance measures are just a form of insurance—litigation insurance.  And cheap insurance at that.  A few hundred bucks for the Personnel Procedures Manual and an employee handbook is nothing compared to the alternative.

We don’t think twice about buying car insurance.  We check the tire pressure and treads, buckle up, and check the mirrors before we hit the road.  And we hope that the air bags go off in the event of a serious collision.  We do these things not because we expect anything to go wrong, but we don’t want to be uninsured, unbuckled, or otherwise unprepared in the unlikely event a major loss hits.  In fact, unless we’re reckless, most of us do everything we can to avoid a catastrophe behind the wheel.

It’s the same way with these employment-related safety features.  You just don’t want to be caught without them in the likely event you are sued.  That’s right, I said ‘likely.’  A recent study found that companies based in California face a 40 percent higher chance of facing an employee lawsuit than the national average.  According to the 2015 Hiscox Guide to Employee Lawsuits, U.S.-based companies have at least an 11.7 percent chance of having an employment charge filed against them.  And the number is low since it does not factor in wage and hour lawsuits; the study only measured data on employment charge activity from the Equal Employment Opportunity Commission (EEOC) and its state counterparts.


Heads I Win, Tails You Lose

How much does it cost to be sued?  The same study found that the average cost of defense and settlement was $125,000.  In California, $100,000 won’t even cover your attorney fees through summary judgment, a tough standard to meet.  To get to that point, it will take a couple dozen hours of staff time to investigate the facts and meet with your attorney, and another 100 hours compiling documents.  Dozens more hours will be spent having your employees prepare for depositions, and even more hours to sit through them.  Your attorneys will spend 50 or more hours drafting the motion for summary judgment, responding to the employee’s attorney’s opposition papers, and appearing at the hearing.  After all that, if you’re lucky the court will find there is “no triable issue of material fact,” (i.e., the case can be decided as a matter of law without the need for a trial) and dismiss the case against your company.  You pay your lawyer their six-figure fee and thank them for a job well done.  You won’t collect your attorneys’ fees; companies cannot typically be awarded attorneys’ fees even if they prevail in a lawsuit against their employees.  That’s the best case scenario.  Even if you win, you lose.

The more common scenario is that the motion for summary judgment is denied – courts are loathe to deny a plaintiff his or her day in court.  More time and money is spent gearing up for trial.  But because the outcome of a trial is always uncertain, the vast majority of litigants settle their claims before trial.  So the only true winners are the lawyers for both sides.


Better than Court

Some car accidents are unavoidable.  You can get rear-ended sitting at a red light.  You can get T-boned safely driving through an intersection.  A car can spin out in the rain and careen into you.  Sometimes these things are just inevitable.  The same is true for employment litigation.  You could be doing everything right and suddenly you’re looking at a major claim.

Hopefully you have good car insurance in the first case, and employment practices liability insurance (EPLI) in the other.  While EPLI generally won’t help in a wage and hour case, it will surely come in handy in the inevitable discrimination case.  In a wage and hour claim, hopefully you have good employment policies (on meal and rest periods, and non-productive time, for example) and a good arbitration agreement.  Generally speaking, you would rather have your case heard before a mutually agreeable arbitrator than a jury of unknowns.  While these provisions may not result in litigation avoidance, they can sure help bring the cost down from catastrophic loss to a minor peril.