Biggest Risk to Employers? Frivolous Suits? No. The (Expensive) Certainty of Being “Right”

As someone who represents individuals (who usually have limited resources) against companies (who usually have considerable resources), it is difficult to hear talk from the business sector about how companies are supposedly harmed by “frivolous” lawsuits, and how there is a supposed need for “tort reform.”

It is true that some employees file meritless suits, but the reality is that most would-be frivolous suits by individuals never see the light of day. This is just a matter of financial reality.

The Reality: Most Would-Be Frivolous Claims Fizzle Out Due to Financial Forces and Attorney Screening

Some individuals (employees, consumers, etc.) will file lawsuits without an attorney (“pro se”), but those suits usually lose their wheels early on, via a relatively early dismissal or withdrawal, when the legal costs are not yet huge.  For most legal claims, an individual needs an attorney for a decent chance to win.

Affording an attorney- especially one who charges on an hourly basis- is a big hurdle.

Most individuals cannot afford to spend tens of thousands of dollars of hourly legal fees on a frivolous lawsuit, or on any lawsuit for that matter. So nearly all would-be frivolous employee lawsuits fizzle out at a very early stage, when the individual realizes he or she can’t afford hourly legal fees.

Now, it’s true that some individual-litigants do not have to pay hourly legal fees, because many plaintiffs’ attorneys (including myself) will work on less expensive fee arrangements that employees can afford, such as contingency, pay-only-if-you-win, arrangements. However, plaintiffs’ attorneys are not fond of offering contingency arrangements for legal cases that are frivolous- if the case is frivolous, it won’t be won, and contingency attorneys don’t get paid for cases that don’t win. Thus, plaintiffs’ attorneys are financially- motivated (as well as morally-motivated, for most of us) to closely scrutinize the merits of potential lawsuits by individuals, and to discourage the pursuit of frivolous claims.

As a result of these various forces, most lawsuits that wind up being filed by individuals are not frivolous, and involve legitimate disputes. In most employment lawsuits, there are a variety of material facts that support the Plaintiff-employee’s claims, and a variety of material facts that support the Defendant-employer’s claims. For most lawsuits filed, there is significant risk to each side that they could lose.

The Reality: Employers Repeatedly Choose to Pay Too Much To Defend Non-Frivolous Litigation

I repeatedly see employers misunderstand or ignore the fact that they are faced with a non-frivolous claim, and that they face risk of losing the case. More notably, employers face the certainty that they will have to pay considerable legal expense to defend the case, regardless how “frivolous” they want to think it is.

Employers usually go ahead and spend large legal defense fees because, in my observation, they are motivated by a strong feeling that they are “right” and “didn’t do anything wrong.”

Don’t get me wrong: this feeling is understandable. No one wants to be accused of being “discriminatory” or otherwise violating employment law. Being sued is personal, and one feels the need to defend their honor.

What I don’t understand is that employers don’t get over these notions of needing to be proved “right.” Contrary to popular belief, civil litigation is, in the end, not about being proved “right.” Rather, what civil litigation is truly about is the transfer of property, usually money. If a party “loses,” then that loss results in monies lost. If a party “wins,” then that win is defined in monies earned or saved. But a win does not include any glowing moment of vindication, or any apology or recognition by your opposition that you were truly “right”- rather, the parties keep on believing what they always believed, and one side thinks the legal decision-maker got the decision wrong.

Many employer-litigants don’t realize- until they pay too much in legal fees and expenses, or until they lose a legal decision- that the issue that matters most is not that they think they are “right.” The issue is what a legal decision-maker decides is right, and how much money is associated with the decision-maker’s decision. The legal decision-maker could agree or disagree with the employer (no matter how impassioned the employer’s belief they are right), and what the decision-maker says is right, is right.

Bottom line: there is risk the decision maker won’t see things the way the employer does, will decide against the employer, and that decision (and the monies paid on the way to that decision) often cost the employer a lot of money.

While there is much talk about “tort reform” and the like, there is very little talk about employer’s #1 employment law problem, which is this:

Employers routinely ignore the financial certainties and risks, and spend much more money than they need to, in order to defend non-frivolous legal cases. Routinely, employers pay their defense attorneys far more money than it would have taken to settle and resolve the matter.

A Common Example of Employer Over-Spending: Employers’ Prolonged Defenses of Non-Frivolous WI ERD Discrimination Complaints

Here is a common scenario. A Wisconsin employee has worked for an employer for several years, and the employee has a decent work record and no disciplinary record. The employee has serious medical issues arise (e.g. cancer, knee surgery, multiple sclerosis diagnosis). A few months after these issues arise, the employer decides to discipline and fire the employee. The employer abruptly claims the employee “falsified” documents.

After being terminated, the employee is out of work 4-5 months, and picks up a new job that pays roughly the same as the terminated job.

During the time out of work, the employee lost $15,000 in wages that he would have made had the terminating employer not fired him.

The employee and his attorney file a disability discrimination complaint at the WI Equal Rights Division (ERD).

The complaint is legitimately arguable. The ERD could either: (1) believe the employee, i.e. believe that he was fired based on his medical issues, and based on disability discrimination; or (2) believe the employer’s account, i.e. believe that the employee actually did “falsify” documents, and that is the actual reason why he was fired.

Again, the employee stands to gain (and the employer stands to pay) about $15,000 if the employee wins the ERD hearing.

Here’s another important fact in this common example: for the employer to defend the discrimination complaint to the point of an ERD hearing, the employer will pay somewhere (this is my educated estimate) between $20,000 and $30,000 for legal fees. The employer will have to pay such legal fees, win or lose.

So… from a financial perspective, it would seem that the reasonable course of action would be for the employer to seek an early settlement with the employee that paid the employee about $15,000 (or hopefully, from the employer’s perspective, something a bit less), since the employer is probably going to pay over $20,000 to defend the complaint. Why extend the matter, and pay more in legal fees than what the employee is demanding?

Also, if the employer eventually LOSES the complaint, in addition to its substantial legal fees incurred over time, it will have to pay the employee’s $15,000, and the employee’s attorneys’ fees (probably another $20k +).

Ultimately, the employer’s choice is something like this: (1) settle the matter early, and pay about $15,000 total to the employee and for employer-attorney fees for settlement; or (2) pursue the matter to a hearing, and pay $20,000+ in legal defense fees, AND face the risk of paying $15,000+ to the employee for his lost back pay and legal fees.

Financially, choice (1) is a no-brainer.

In reality, employers often choose choice (2), and do so routinely.

Routinely, in situations just like this, I see employers pay far more money to their attorneys than what they could have paid to their opponent to settle early. (And in most of the cases, later in proceedings, most employers wind up paying a reasonable settlement to their opponent anyway).

Why do employers make such financially-harmful decisions?

From what I’ve observed, it’s because of their burning need to be “right.” Such employers let their righteousness or anger override their rationality, and they turn a blind eye to the legal and financial risks they face (e.g. “there’s no way the judge could disagree with me because I’m right goddamn it!”).

And to those of you who are employers in employment disputes and feel you are “right”: I am not saying you are not right. Some of you are.

However, I will say this: some of you certainly are not.

I have opposed employers for whom there was plain proof they had done egregious things. Bosses who sent sexual text-messages to subordinates.  Owners who submitted wage documentation to the government that is false and fraudulent on its face. Managers who were tape-recorded saying legally-actionable things that the managers later denied saying (not knowing about the recordings contradicting them).

And no matter how obvious the wrongdoing, or how good the employee-litigant’s proof is, each and every single employer I have ever opposed has had one thing in common: they have all denied that they violated the law. They have all said (and thought) that they were in the “right.”

That sense of certitude is particularly misplaced for those employer’ whose wrongs are obvious and supported by the employee’s evidence.

However, more common (and just as problematic) are those many employers who feel a burning sense of certitude when they have some legitimate arguments in their favor. Those employers who are not faced with a smoking-gun text message are more apt to over-estimate their odds, and to reinforce their certitude. They assess their 50/50 odds as 100%, because that’s what they want to believe. They are “right.”

If you are in an employment dispute, and you are consumed by the need to prove yourself “right,” you are going to cost yourself a lot of needless money. If you pay your attorney by the hour, your attorney is going to be the biggest winner, whether or not you win the legal decision.

If you are an employer and find yourself in employment dispute, instead of indulging yourself in thoughts of being proven “right” or “vindicated” or other wasteful and expensive concepts, you should do this:

(1) Look at the certain costs you will have to pay, even if you win.

(2) Look honestly at the risk you could lose. Don’t rely on your own assumptions- we all want to think that we’re right and that it’s obvious. Rather, look to independent parties for their truthful assessments, e.g. a blunt friend who will look at both parties’ stories and tell you a truthful assessment of strengths and weaknesses, or a candid defense attorney who is more interested in solving your problem than puffing you up. What do they say? Are you listening to them?

(3) Look at your opponent’s financial demand (set aside the bad things they are saying about you), and see if it makes sense to pay that demand, as compared to paying the certain costs (and undertaking the risks) that will be involved going forward. If you are certain to pay far more to pursue your defense than what your opponent demands- and you want to defend yourself just for the privilege of being proved “right”- then you will likely wind up disappointed.

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5 Comments

Filed under Philosophy - Employee Rights

5 responses to “Biggest Risk to Employers? Frivolous Suits? No. The (Expensive) Certainty of Being “Right”

  1. Adam

    So, every employee who demands 15-20k when terminated should be handed a check?

    Then whats to stop them? Bring another suit a month later…then another…Gee, it will cost me 20k to defend this again…here’s another check.

    This is why many employers silently won’t hire certain people to begin with.

  2. Adam:

    Thanks for writing. It’s nice to get a dissenting view.

    There is logical appeal to what you say. Many employers say as you do that it is worth paying more money in the short-term, to avoid precedent of paying a big settlement and encouraging more lawsuits (and more money paid) in the long-term.

    In response, the first thing I’ll say is please know my post was NOT intended to suggest employers should pay settlements to every employee who demands one. The post is strictly about how employers deal with those employees who have meritorious (non-frivolous) lawsuits. In other words, I am saying employers should consider paying reasonable settlements to those employees who demand a settlement AND who have a legitimately arguable lawsuit supported by witnesses and documentation. This type of non-frivolous lawsuit could be won by either side, thus the importance of both sides getting over the feeling of “being right,” and deciding on a fair financial resolution.

    The second response I have to the employer-avoiding-precedent argument is that most employers don’t get sued enough for precedent to be relevant. If a small or medium- sized employer is sued, that is usually an uncommon occurrence, unlikely to happen to them more than a few times. (If it happens more than that, then to avoid further precedent it’s time to look in the mirror!). Most employers simply don’t encounter enough lawsuits or settlements that they could develop any sort of trend or reputation. Most of their employees will have no idea the employer ever got sued (particularly as time passes), much less know about the settling employee’s legal merits or settlement amount. Nearly all settlements have required terms of confidentiality, which further restricts word from getting out about settlement precedent.

    It’s true there are large employers who get sued several times each year, and in their case there ARE trends and precedents set.

    However, many of the same limitations above (e.g. settlement confidentiality) apply to large employers, and there are only a few large employers I know of who have developed a litigation reputation one way or the other. A few of them think they are playing hardball by refusing to settle non-frivolous cases, believing they are avoiding precedent of high settlements and avoiding future lawsuits. In my observation, these employers don’t get sued any less as a result of their hardball. I personally recommend my clients pursue lawsuits based on their case merits, costs, and potential legal award. The employer’s reputed hardball/precedent-avoiding approach doesn’t discourage or encourage litigation.

    Thanks again for your comment, and again I appreciate the chance to hear views different than my own.

    Mike

  3. Dawn Meyer

    Here’s a thought, what if the employers avoided the lawsuits by actually following the law? When employers receive legitimate complaints…. don’t deny, brush it off, retaliate or ignore complaints. Claiming the complaints are frivolous don’t make it so. I like the “look in the mirror” comment. There comes a time when the employer must correct thier own illegal behavior, as hard as it is to admit.

  4. what if it’s a sexual harassment case with nothing but a she said type of evidence from the plaintiff. there’s only 3 people in the office, no text msgs or phones calls ever occurred between the plaintiff and the big boss after office hrs. all emails are shared by the 3 people and the text message system too. there’s no sexual harassment policy because they’re just 3 people. based on the plaintiff, she couldn’t report to the immediate supervisor because she fears supervisor will just fire her or that supervisor is close to the big boss. the big boss has a great family and never had a criminal record or complaint. she has no evidence whatsoever but just her words that it’s pervasive and happened in a span of a year. she claims touching and groping and sexual comments when the other employee is not around. and it’s a small business with about $250-400K/yr before expenses and payroll and yet they are demanding $250K (down from half a million) to settle. would you still give in? how can a small business protect themselves from such frivolous lawsuit when all it takes to get sued is a made up story that is nonverifiable, an ability to cry at the drop of a hat and the encouragement of an interested lawyer?

    another client even had cameras installed and still got a lawsuit. he was forced to close and sell his business coz he got tired of it.

    • Thanks for commenting. Every case has two sides. The truth is the truth. If the boss did nothing wrong in reality, then indeed it’s unfortunate he and the company are being sued. If the boss did what was alleged, then the suit is meritorious. The credibility of each person’s testimony and statements will (or at least should) be analyzed for credibility, how logical and consistent it is, etc. If the plaintiff’s attorney is seeking $250k from an employer this size, chances are that is an early (not final) offer that would be substantially reduced in negotiations, or it may be a young attorney who doesn’t know better than to stick with an impossible figure as a final offer (which would also be unfortunate and unfair to the employer). I don’t know all the facts, but I agree the employer’s concerns (and employee’s) should be examined closely, and early as possible. Has mediation been considered? A good mediator could assess (early in the process, with less litigation costs accrued) the credibility of each witness’s version of events, and could give a reality check to one or both parties in terms of their assessments of risk and financial expectations. I can only speak for myself as a plaintiff’s attorney in that my employee-clients and I am almost always willing to engage in mediation, and to take to heart a mediator’s assessment of any flaws in our case or evidence. But in my experience, only a small minority of employers and their counsel agree to mediation overtures, maybe 10% or so. Usually the employer refuses out of the belief with 100% certainty they are right, no matter what proof I have (which is usually much better and more extensive than he-said-she-said testimony). Thus, my personal frustration with employers not discussing resolution of cases, early in the process, that present legitimate risk to them.

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