April 13, 2024

Small Business Advice

More employees are suing employers

Jerry Osteryoung | 8/27/2012

"Best efforts will not substitute for knowledge." ~ W. Edwards Deming

In the last three to four years, HR lawsuits have been on the rise, and unfortunately, there does not seem to be any end in sight. The U.S. Department of Labor reports the number of lawsuits related to the Fair Labor Standards Act, alone, increased 35 percent in three years. And this is only one small area that an employer can be sued.

It has become so easy for employees to sue their employers as there are so many lawyers willing and able to take cases on a contingency basis. That is, the employee pays nothing in terms of legal fees, and the lawyer gets a percentage of the final settlement. As a result, lawsuits like these have truly become the bane of the entrepreneur’s existence.

Without question, employees need to be protected, but I think the pendulum has swung too far the other way. Contingency lawyers have made it easier than ever for an employee to file a lawsuit, and juries have notoriously bent over backwards in favor of the employee to the detriment of the employer.

I am certainly not arguing that employers never violate labor laws, but in most cases, it happens unintentionally. More often than not, violations are the result of a dumb decision made by a manager who lacks the necessary training or knowledge.

These days, many of these lawsuits involve employees who have been laid off and have had difficulty finding a new job. They sue their employers as much to hurt their employer as to obtain additional cash flow.

Oftentimes, these suits catch employers by surprise since, even if they terminate an employee for a business reason, every separated employee can claim discrimination on the basis of a protected class such as race, gender or sexual orientation.

Complicating matters further, employees involved in lawsuits frequently fabricate facts or engage in what Bill Krizner, a local employment attorney, calls “selective memory syndrome.” I once saw a CEO follow the script devised by his HR department word for word only to have the terminated employee sue on the basis that this material was never discussed.

Employers want to fight unwarranted lawsuits, but the cost of going to court versus settling just does not make good business sense. These suits can cost an employer as much as $150,000 in legal fees alone, and that is just to bring the matter to trial. Any judgment awarded would be in addition to that figure. Sometimes I hear entrepreneurs say that if they bring a case to court, the plaintiff’s law firm will not pursue other claims against them, but this just is not true.

We know we cannot stop these suits, and even upstanding firms with good processes in place can end up being sued. Employers who can afford it purchase Employment Practices Liability Insurance (EPLI) to protect their businesses. However, as this measure can cost in excess of $10,000, only 25 percent of small businesses can afford to carry EPLI.

With or without insurance, employers can take steps to decrease the probability that they will be sued and, in the event they are sued, better position themselves to prevail during litigation. These steps, according to Krizner, are as follows:

  1. Your employee handbook must contain broad and multi-tiered complaint procedures so employees have sufficient recourse when they feel victimized by harassing or discriminating behavior.
  2. Provide annual employment law training to all of your supervisors and require them to sign acknowledgments.
  3. Educate your employees at the time of hire – during orientation, for instance – about the avenues open to them should they have a problem and need to complain.
  4. Most critically, take prompt remedial action when someone complains. In other words, do something about it within 48 hours or less of receiving the complaint. It is best to seek legal advice when such a complaint occurs.

Now go out and make sure you do everything you can do to avoid being sued and make certain you have taken these vital steps to protect yourself and your business in the event it does happen.

You can do this!

Other small business advice columns from Dr. Osteryoung are here. Note: Articles older than 30 days require registration (it's quick and free).

Jerry Osteryoung is a consultant to businesses - he has directly assisted over 3,000 firms. He is the Jim Moran Professor of Entrepreneurship (Emeritus) and Professor of Finance (Emeritus) at Florida State University. He was the founding Executive Director of The Jim Moran Institute and served in that position from 1995 through 2008. His newest book co-authored with Tim O'Brien, "If You Have Employees, You Really Need This Book," is an Amazon.com bestseller. He can be reached by e-mail at jerry.osteryoung@gmail.com.

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