Two and a half years ago I asked, How much does it cost to defend an employment lawsuit? My answer:
The reality is that defending a discrimination or other employment lawsuit is expensive. Defending a case through discovery and a ruling on a motion for summary judgment can cost an employer between $75,000 and $125,000.
Oh, how I love to be right.
Last month, insurance carrier Hiscox published its annual guide to employee lawsuits [pdf]. What does Hiscox report on the cost of defending of discrimination lawsuit, from its study of its own claim history?
A representative study of 446 closed claims reported by small-to-medium-sized enterprises (SMEs) with fewer than 500 employees showed that 19% of employment charges resulted in defense and settlement costs averaging a total of $125,000.
Looks like my $75,000 – $125,000 estimate is right on the money (at least for small to mid-sized companies).
What can you do to mitigate this risk of lawsuits by (ex-)employees, and the high costs that go along with them? Hiscox offers six great proactive ideas to think about for your workplace:
Independent contractors. Be careful when designating independent contractors. There are variations among states and areas of law as to the test for an independent contractor. It is possible for a worker to be considered an independent contractor for some purposes and an employee for others.
Preventing discrimination and harassment. Every employment decision to hire, fire, promote or demote, has to be motivated by legitimate, business-related concerns. Be consistent in your treatment of all employees.
Conduct harassment training. Some states mandate this, but others consider voluntary training by employers to be a potential defense to liability.
Leaves of absence and accommodation for disabilities. A medical condition can trigger federal and state leave and disability laws, which vary, as well as workers’ compensation laws. Make it a policy to recognize events or discussions that create an obligation to discuss accommodations or a possible leave of absence.
Employee performance. Ensure that all supervisors and managers are aware of the procedure for addressing unacceptable employee performance. Communicate to the employee about what they are doing (or not doing) that is unacceptable, and make sure they understand what constitutes acceptable performance. Document all communications. Conduct factual, honest performance evaluations. Develop and maintain a procedure for corrective action plans.
Termination. To minimize litigation around termination, avoid surprises. Make sure that all guidelines have been followed for addressing unsatisfactory performance, particularly the corrective action plan. Prior to termination, assess the risk for litigation: is the employee a member of a protected class, involved in protected labor activities, or a potential whistleblower? Is the employee under an express or implied-in-face employment contract? Gather and review the documentation that supports the termination and interview relevant players.
Any employee, current or former, can sue at any time for any reasons. These six proactive measures cannot guarantee against lawsuits. Nothing can. What they can do, however, is put you in the best position to successfully, and cost effectively, defend against such lawsuits when they are filed.