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Wednesday, November 2, 2011

Do you know what an employment lawsuit costs?

My manifesto—the Employer’s Bill of Rights—continues to generate links (thanks Kris Dunn and Walter Olson) and comments. One commenter asked the following:

Most employment cases would take less than a week to try? If Defendants simply tried all these frivolous cases instead of spending 18 mos. paying lawyers to do discovery only to settle later wouldn’t these cases dry up?

The reason why businesses fear terminating employees is because wrongful termination lawsuits are so expensive to litigate. According to a recent article at (h/t: i-Sight Blog), a company should expect to spend between $50,000 and $250,000 dollars defending a lawsuit brought by an ex-employee. In my experience, that number is pretty accurate.

I believe that every lawsuit should settle. The two key considerations are when and for how much.

The only way to survive as an employer, though, is to draw a reasonable line in the sand on settlement value for a case and stick to it. If you are dead in the water, then you are better off settling early and not spending hundreds of thousands of dollars paying your lawyers to fight a lost cause. At the other extreme, though, if the employee’s case is meritless (or frivolous, depending on your viewpoint), then why do want to spend a dime towards settlement? Settling those cases will only paint your business as an easy mark, spurring copycat claims by other employees. For this latter category of claims, this only settlement is a voluntary dismissal, or, at most, a nuisance value.

The responsibility to fairly value cases, though, falls on both sides of the table. If the employee will not come to your line, then you must litigate, all the way through trial if necessary. Otherwise, you will lose all credibility and your corporate coffers will become an ATM machine for every terminated employee.