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“My employee just sued me!” If you are reading this, you are probably the owner, CEO, manager or boss at a company and just had the person that gathers the mail or faxes run into your office with a notice of claims that one of your employees is suing or threatening to sue you for race discrimination, sexual harassment, failure to accommodate a disability or maybe a violation of the FMLA. It could be a group of employees claiming overtime pay violations under the Fair Labor Standards Act (“FLSA”). If you have never been sued before, this can cause your head to spin a bit.

Let’s start with the premise that you are searching for legal advice and not moral guidance. The first thing you should do is report the claim to your insurance provider to see if you are covered and will provide you, at the very least a defense. If you are not covered by insurance, hire experienced employment attorneys. Getting advice from knowledgeable employment discrimination and wrongful termination attorneys is critical, but keep in mind that these attorneys make money on an hourly basis and are incentivized to prolong the litigation process.

The most important thing to understand is that at some point, this case will likely settle. How likely, every study that has been done demonstrates that about 97 percent of employment cases will settle. The big question is when. Indeed, when hiring employment defense counsel, ask the attorneys how many cases that they handle during the course of a year and how many cases that they took to jury in the same time period.

With that in mind, every case has some common factors to consider in deciding when to settle, which include:

  • The Risk You Will Lose. I don’t care if you think that the employee is a lying piece of scum and that you have 100 witnesses and thousands of pages of document evidence, there is always a risk of loss – by both sides. (Best Law Read: Can My Employer Discredit My Claims By Using Alleged Criminal Activity Of Which I Was Never Convicted?). There is no perfect case because the system is not perfect, and you will face judges and jurors who are not perfect. (Best Law Read: According To Judges, Are Bumblebees Considered Fish?; Judges Disagree Whether Elephant Is Person). I’ve never met a competent attorney that has ever guaranteed a win in Court. If you meet such a lawyer, make sure to get that promise in writing for your forthcoming malpractice claim against him or her. (Or better yet just hire a new attorney).
  • Your Damage Exposure. This is important. In fact, this is critical to understand. (Best Law Read: Can I Get Punitive Damages For Wrongful Termination?; What Damages Can I Get For Wage Violations And Retaliation Under FLSA?; What Kind Of Damages Can You Get For Wrongful Termination And Discrimination?; Top Race Discrimination Lawyer Reply: Can I Get Emotional Distress Damages?). Why is this critical? How are you supposed to decide if you want to spend a small fortune on defending a case if you cannot weight the cost versus the exposure. A common tactic among some employment defense attorneys is to defer answering this question “until we learn more in discovery,” and by that point, some defense attorneys hope the employers feel entrenched in the fight. Figure this out early.
  • Your Cost Of Defense. According to insurance studies and a prominent employment defense attorney, the average cost to defend an employment case through trial will run about $175,000 to $250,000 but can run into the millions. (Best Law Read: What Is The Cost To Defend An Employment Lawsuit?; Paying A Lot To Defend A Wrongful Termination Claim Does Not Mean You’ll Win). And this is before the cost of an appeal, which could tack on another $70,000 or so. So, win or lose, this an automatic financial hole.
  • Arbitration Agreements. Many employers and employment law defense attorneys will sing the praises of binding arbitration agreements as loudly as they possibly can. Yes, binding arbitrations provide the benefit of minimizing the risk of explosive verdicts, can limit discovery, and include confidentiality. However, there is a downside for employers in going to arbitration – a very large, financial one. In order to force employees into arbitration, employers must agree to cover nearly all of the cost of the arbitration process, which includes the fees charged by the arbitrator. Arbitrators are a group of retired judges and older attorneys with billable rates between $600 and $800 per hour on average. Through an arbitration hearing, employers should expect to pay arbitration cost between $150,000 and $200,000. This is another automatic financial hole.
  • Your Exposure For The Employee’s Legal Fees. Many employment laws provide a one-way fee shifting mechanism, which allows the employees to recovery their attorneys’ fees should they prevail. Employers cannot recover their attorneys’ fees except in very rare cases. This means that if your employee wins a nominal amount at trial, say $10,000, the employer will likely be on the hook for to pay the attorneys’ fees to opposing counsel, tacking on another $150,000 to $200,000. And if the employer loses on appeal, the employer has to then pay opposing counsels’ appellate fees as well.
  • Opening Other Claims. Employers initially possess most of the information in the form of records, statements, and electronic records. Letting the case get into discovery not only levels the playing field by forcing the employer to share all of the information with the employee and the opposing attorney, but it also opens up the employer up to other claims. Specifically, the vast majority of wage claims for FLSA violations grow out of other claims when plaintiff lawyers start digging into financial documents and records. Instead of having one claim by one employee, you could be facing a collective action by a large number of employees worth millions of dollars based on a payroll error. (Best Law Read: Does Standby Time Count For Overtime Pay Calculations?; Is My Manager Personally Liable For Overtime Violations?; How Many Claims Can I Sue My Employer For At One Time? A Lot; No Wage Violation Is Too Small To Pursue).
  • Time. How much is time worth? While you will turn the legal stuff over to a lawyer, the company will still need to spend time gathering and organizing documents and electronic records; preparing for and attending depositions; and appearing in Court for pretrials, mediation, and at least a week in trial.
  • Witnesses. Remember that long line of witnesses that you are certain you have to defeat this case? There are several problems with them. First off, being a witness is not their job; and, as a result, chances are they will not be wholly consistent between the statement they gave to HR, their deposition, and trial testimony, which may be three to four years apart. Sometimes, that type of inconsistency from one witness will sink a case. Now, do you really think that everyone in that long line of witnesses is going to be exactly consistent with everyone else? Historically, that is very unlikely. What is more likely is that at least one of your employees or soon to be former employees will get pissed at the company in the next two to four years before trial and be very eager to provide information or testimony unfavorable to the company.
  • Confidentiality And Precedent. In exchange for settling, an employer can extract some very key non-monetary terms from the employee. First and foremost, settlements can be designated as confidential and employers can require that the employee not discuss the facts of the case, including on social media (except as required to disclose by law). On the other hand, employees can openly share all aspects of their ongoing case and verdicts become a matter of public record. Now, many employment defense attorneys will preach that settling claims instead of spending to defend them sets a bad precedent and paints a target on the employer’s back. Quite frankly, you are capable of deciding on your own which will generate more claims: (a) a former employee facing liquidated damages for saying anything about the employer; or (b) an angry former employee with access to social media to encourage other employees to sue.
  • No Rehire Provision. Of course, you never want to rehire the ex-employee who just sued you. However, all employment laws, including Title VII of the Civil Rights Act of 1964, Americans with Disabilities Act (“ADA”), FMLA, and FLSA have anti-retaliation provisions. Refusing to hire an employee that has sued you – even if the lawsuit remains ongoing – will likely get you tagged with a claim for retaliation under these laws. (Best Law Read: Retaliation Is Still Easier To Prove Than Discrimination; Why Retaliation Is The Easiest Employment Claim). Now, in exchange for settling, employers can permissibly demand that the employee never apply for a job again. That is worth a lot and cannot be obtained at trial. Indeed, even if the employer wins at trial, the employee can turn around and sue again if that employee is rejected from a reapplication.
  • Demand. Before making any decision, it is really important to figure out what the employee wants. While this seems pretty obvious, many employers and their attorneys never really ask until everyone’s heels are dug in and tens of thousands of dollars have been spent. Obviously, if an employee is unreasonably seeking millions of dollars, you have no choice but to push forward. But what if you find out that there is a realistic chance that the case could be settled for $50,000, $20,000, or maybe even $10,000? When you find out what it will really take to settle a case early, you have the opportunity to decide how to logically proceed. Does it make sense to spend $400,000 for the chance to deny an employee a $20,000 recovery? Are you really going to feel vindicated at trial if the jury only awards the employee $8,000 instead of $20,000 knowing what it cost to save that amount?
  • Principle. Largely before the first couple billing cycles, many employers stand on principle. “Principle” may be the favorite word of defense counsel because what they hear is open checkbook. There is this old story of a partner at employment defense firm who bought his nine-year-old daughter a thoroughbred but refused to let the girl name the horse. He bent down on one knee and explained to his little girl, “this horse’s name is Principle because that is what bought this horse, and any time you get to ride Principle, ride it as hard as you can, just like your Daddy.”

A recent case decided by the United States Court of Appeals for the Second Circuit, Holick v. Cellular Sales of New York, LLC, No. 21-948-CV, 2022 WL 4088001, at *1 (2d Cir. Sept. 7, 2022), provides a good example. In this case, the employer successfully beat three FLSA claims – unsuccessful unfair wage deduction, unpaid compensable work, and untimely commissions. These were the primary claims and knocked out the overwhelming majority of the damages sought. The only claims remaining were much smaller minimum wage and overtime claims. Following a bench trial, the district court granted judgment in favor of all the employees in the total amount of $11,121 for unpaid minimum wages and overtime, plus liquidated damages (which doubled the award), and prejudgment interest. All in all, an amazing result for the employer on the merits.

Now the other shoe falls. The employees sought $961,450 in attorney’s fees as well as costs of $46,065. There was no dispute that the employer had spent about the same amount in defending the action. The district court reduced the request by roughly 40 percent and granted the employees’ $576,870.30. The United States Court of Appeals for the Second Circuit affirmed the fee award – which means that both the employer’s and employees’ appellate fees are going to be to be tacked on to the employer’s tab.

So, who won here? If you answered the attorneys on both sides of the table, you are finally starting to understand.

Disclaimer:

Spitz, The Employee’s Law Firm does not represent employers in any fashion. Spitz only represents employees. This employment law website is an advertisement. The materials available at the top of this page and at this employment law website are for informational purposes only and not for the purpose of providing legal advice. Use and access to this employment law website or any of the links contained within the site do not create an attorney-client relationship. The legal opinions expressed at or through this site are the opinions of the individual lawyer and may not reflect the opinions of The Spitz Law Firm, Brian Spitz, or any individual attorney.