How to Avoid Lawsuits

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Many new laws have improved working conditions for employees and at the same time have led to an increase in employment-related litigation. Companies must learn to treat employees fairly and protect themselves at the same time.

OVERVIEW [top]

Employers used to get away with treating workers any way they wished, including firing them at any time for no reason with little fear of legal reprisal. Over the last several years, however, the courts have helped create substantial changes to the employment-at-will doctrine (the notion that you are employed by the good graces of your employer), and Congress has passed specific laws protecting employees' rights, including occupational health and safety, civil rights and workers' privacy.

These laws were created to prevent abuses of employees by employers. How can you make sure disgruntled employees don't use these same laws against you?

In this Quick-Read you will find:

  • When it's best to use a lawyer to extricate yourself from a potentially harmful situation with an employee.
  • When it's wise to settle.
  • When it's in a company's interest to go to court.

You may also want to see the Quick-Reads "Don't Litigate: Mediate" and "Using Alternative Dispute Resolution."

SOLUTION [top]

Most states have made it illegal to fire workers who are called to serve on a jury, vote or serve in the military. Likewise, many courts have ruled that statements in company handbooks and employment publications constitute implied contracts that employers are bound to honor. Other states recognize the obligation of companies to deal in fairness and good faith with longtime workers. Companies are prohibited from retaliating against whistle blowers and from denying individuals economic benefits, such as pending commissions and bonuses or pensions that are about to vest.

While this leads to a better working environment for employees, it has also led to an increase in employment-related litigation together with an increase in the average size of compensation awarded by juries to wronged workers. No company, regardless of its size or industry, is immune from this growing trend. How can employers protect their businesses while still dealing fairly with employees?

  • When in doubt, seek a lawyer's advice. Even if you decide not to use a lawyer to formally handle a potentially serious matter, always confer with one whenever there is even the slightest risk. Don't be penny wise and pound foolish. For example, whenever you receive a complaint from a worker for alleged sexual harassment or unfair treatment, seek legal advice at once. If you wish to fire a worker who belongs in a protected category, such as a woman, someone over 40, an African-American or other minority, a religious observer or someone with a known disability, obtain a formal legal opinion, particularly in situations that appear headed for confrontation and possible litigation.

    Confer with counsel regarding an issue that poses complicated legal questions. Large-scale terminations or layoffs should always be planned with counsel before implementation. The same is true for mandatory retirement programs that the company wishes to implement. Early consultations with counsel can reduce your legal risks in such situations and allow you to develop defenses against subsequent litigation.

  • Acting appropriately will minimize claims. Treating all employees equally and terminating employees properly with an eye to minimizing discomfort and embarrassment can reduce lawsuits. Once the decision to terminate has been made, companies must be careful about how the news is broken to the employee. Avoid holding back final accrued wages, salary, vacation and other payments previously earned and due. The last thing your company needs is a lawyer's demand letter or a Department of Labor inquiry.

  • Don't settle when your company is in the right, the law is on your side or you risk creating a poor corporate image. Well-managed companies avoid buckling under pressure. You don't want to give the impression that the company pays off every dubious claim because disgruntled employees and ex-employees may take advantage. Although your company may be required to spend some extra money in legal fees to defend frivolous claims, generally your company will be better off for taking such a stance.

  • Settle quickly when your company is in the wrong, when settling will allow you to avoid poor publicity or when you can settle cheaply. The following true case illustrates this concept.

REAL-LIFE EXAMPLE [top]

One of my clients consulted with me over a potentially devastating and embarrassing situation. A 21-year-old African-American male worked in this client's warehouse. The employee was always clowning around. His supervisor, tired of such antics, told the worker to stay at his desk and complete his work. After the worker continued to shuffle about, the supervisor jokingly took a chain and lock, wrapped it around his ankle and fastened it to his desk. The young man remained chained to his desk in this fashion for about 20 minutes. While the workers got a good laugh, including the employee himself, all humor fled when the company received a call from the employee's mother threatening to report the incident to local newspaper and television reporters and to file an expensive lawsuit.

After interviewing all of the key witnesses, I advised the company to settle the matter quickly. I drafted an apology, and my client paid $5,000 in exchange for a promise of confidentiality and, most importantly, a comprehensive General Release.

DO IT [top]

  1. Know the law in your state. It is essential that your human resource or personnel director be familiar with both national and state laws pertaining to employment, as well as how up-to-the-minute changes in these laws impact your business.

  2. To this end, contact the nearest office of the Department of Labor to be sure your company complies with all appropriate benefits and wages laws (http://www.dol.gov/osbp/sbrefa/main.htm). A DOL representative will be happy to provide you with advice, free of charge.

  3. Attend training and personnel seminars dealing with employer-employee relations. Many companies, including the American Management Association and the Practicing Law Institute, conduct yearly comprehensive seminars for human relation specialists. Some companies and law firms may even offer these seminars on site at your company.

  4. Invite a labor lawyer or law firm to review your company's current policies, procedures and practices. Pay special attention to your employee manuals and handbooks. Because of changes in the law, language in these important handbooks may have to be revised or deleted altogether.

  5. Avoid litigation through proper planning and execution. The time to defend against an employee lawsuit begins before you hire.

  6. Consider the use of employment applications, contracts and releases. Your company's goal is to create an effective paper trail wherever possible.

  7. Regulate statements that recruiters, interviewers and other intake personnel make to new or prospective employees, so your company is not forced to honor promises these people make.

  8. Prepare periodic employee performance reviews. Never inflate them.

  9. Treat all workers equally and consistently to avoid charges of discrimination and unfair treatment.

RESOURCES [top]

Books

Employer's Legal Handbook by Fred S. Steingold and Barbara Kate Repa (Nolo Press, 1999).

Personnel Law, 4th edition, by Kenneth L. Sovereign (Prentice Hall, 1998).


Internet Sites

Employer-Employee.com

U.S. National Labor Relations Board

Alexander Hamilton Institute Employment Law Resource Center

"Permatemps Contretemps," by Ron Lieber. Fast Company (August 2000): 198-208+.

"Explore the Benefits of Alternative Dispute Resolution," by Martin Payson. Human Resource Management News (May 1999). Inc.com.


Article Contributors:

Writer: Steven Mitchell Sack

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