The New Malpractice

Courts are lending a sympathetic ear to the increasing number of employees who are suing managers for everything from age discrimination to operating in bad faith.

Tweet

Diana L. Holland, a young secretary from Los Angeles, is suing her former employer, Lifecare Services Inc., a manufacturer of medical respirators, for $2 million.

The suit claims that Lifecare Services refused to take action against one of Holland's former co-workers who allegedly harassed her by repeatedly slamming a door that was near her desk, making obscene suggestions, and trying to force her out of the company. Holland eventually left.

Gerald Knudson, the attorney for the Boulder, Colo.-based company, regards it as "a specious case." "The company did investigate it and found that the complaint was unfounded," he explains. But Lifecare, a small, closely held business with annual sales of less than $10 million, is still saddled with the expense and inconvenience of a lawsuit. And Joseph Posner, Holland's attorney, doesn't regard the charges -- "wrongful discharge, breach of the covenant of good faith and fair dealing, intentional infliction of emotional distress, and employment discrimination" -- as specious. His specialty is suing employers, and he does it quite successfully.

Posner, a Los Angeles tort lawyer who now deals primarily with employment issues, enjoys a lively and lucrative practice based on what have come to be called "management malpractice" suits. Now, because of recent developments in the law, disgruntled employees not only have access to unions and federal and state agencies, but they can also seek relief in the courts, asking juries to right wrongs and to award stiff compensatory and punitive damages. Management malpractice promises to do to business what medical malpractice has done to physicians.

Since 1975, the number of lawsuits initiated against companies by current or former employees has increased from 10 to 20 times, according to David W. Ewing, managing editor of Harvard Business Review and author of Do It My Way Or You're Fired.

If Posner's practice is any indication, the figures are conservative. "I've got over 40 of these cases in litigation right now, and I just finished dictating six close-out letters -- letters indicating that I don't want to take a case," says Posner.

The suits may involve firings in which sex, race, age, national origin, physical handicap, or union activities has played a part. But, increasingly, they allege "unjust dismissal" -- a termination that violates a contractual or implied "covenant of good faith and fair dealing" between employer and employee.

No business, regardless of its size or type, seems safe. Posner's clients have sued restaurants, hospitals, banks, a liquor wholesaler, a stockbrokerage, a magazine publisher, aerospace companies, and manufacturers of pillows, medical equipment, and toys seeking damages ranging from $15,000 to $2 million. Of 29 termination suits resolved in California during the past few years, 26 resulted in findings for the employees, he notes, and the average award was "up in the six figures."

The proliferation of suits and major awards stems from a number of developments: society's growing litigiousness; increased awareness of legal remedies; court decisions that have extended an employee's rights and access to damages, including punitive damages; juries with an antibusiness bias; imaginative extensions of the law by tort attorneys, and a new attitude that, in the words of business writer Peter F. Drucker, regards "the job as property right."

Drucker notes that the United States is following the lead of European countries, which have made it more and more difficult, and more and more expensive, for companies to dismiss employees. All 10 countries of the European Community, as well as Sweden and Norway, prohibit the "unfair dismissal" of workers who have completed their probationary period. When termination does occur, significant severance pay (six months' salary) or redundancy payments (payments made when, through no fault of his or her own, an employee's job becomes unnecessary) are exacted. That hasn't occurred here, but the notion that a job is an important "right" that a person should enjoy as long as he or she performs satisfactorily is being established by litigation.

"There is virtually no aspect of employment decision-making -- from hiring someone, through appraisals, promotions, and retention -- that doesn't have legal ramifications and potential liability for the employer," observes James Sharf, an industrial psychologist with the Washington, D.C., corporate consulting firm of Richardson, Bellows, Henry & Co.

Historically, aggrieved employees have sought satisfaction through unions or federal and state agencies: A welder fired after engaging in organizing activity could file a complaint with the National Labor Relations Board; a black computer programmer constantly passed over for promotions could approach the Equal Employment Opportunity Commission. Remedies generally were limited to reinstatements, back pay and benefits, or other compensatory damages. What has happened, however, is that the worker's rights to his or her job and to damages have expanded -- a nonunion employee who sabotages an assembly line to protest hazardous working conditions may be involved in "protected" activity; a "whistle-blower" cannot be fired if his or her act touches on "public policy" (for example, a federal employee disclosing cost overruns). The most significant departure from the past is the notion that workers may forgo the NLRB or EEOC in favor of a private-sector lawsuit.

 1 | 2  NEXT