And no wonder. In all-out litigation, defense costs run anywhere from $20,000 to $200,000, depending on the length and complexity of the case. Fees like that can dwarf settlement costs.
"My rule of thumb is that the blackmail value of a Title VII case prior to the 1991 amendments was $2,000 to $5,000 for a quick settlement," says Lynn Laughlin. "Now it's more like $20,000. It can cost employers between $5,000 and $20,000 just to defend themselves through the charge-filing stage, where claims are brought before the EEOC or a state agency. That's before a formal lawsuit is filed. To hire a good defense lawyer, it will generally cost about $5,000 just to open a file."
Then there's the nuisance factor. Suppose you are a business owner who has been wrongly accused of discrimination. You are so angry, and feel so betrayed, that you decide to fight. Damn the costs, the principle of the thing is too important. You will quickly face a blizzard of legal paperwork -- discovery requests, interrogatories, notices of deposition.
All that takes time and money. Then your lawyers may do position statements, motions, pretrial statements, courtroom exhibits, jury instructions, and maybe a trial brief. You may have to hire an expert witness and pay that person, too.
"You incur a heavy expense and loss of productive use of your staff," says Pittsburgh lawyer Laura Candris. "Not only is your reputation damaged, but you're not there to run your business. That's why clients refer to these things as legalized blackmail. The cost of achieving justice is so high and burdensome that the rational thing to do is settle and move on."
Finally, even if you're willing to endure all that, you may end up in court months or years later, only to face a hostile jury. How's that for a bargain?
Bill Buckingham knows firsthand how demoralizing an employment lawsuit can be. He is president of Buckingham Computer Services Inc., a $3-million, 41-employee computer consultancy in Midland, Mich. He and his company were sued for wrongful discharge and sexual harassment after firing a woman for inadequate performance. "I'll get even," Buckingham says she told him as she left.
"Her comment was that I had touched her on the back, which I had," Buckingham explains. "We're a pretty close-knit company, and there was no question that I had patted people on the back. Nothing sexual. I'd tell people that they were looking sharp today, ask if that was a new dress, stuff like that. That's basically what the suit was based on. And it was really tough on me because I didn't feel I was that kind of person."
The woman's lawyer at first demanded a settlement of more than $100,000. That would have wiped out a year's profit. Thinking the charge was absurd, Buckingham decided to fight.
But after 18 months and $25,000 in legal fees, he finally opted to settle. The amount he paid is confidential, but it was far less than the cost of taking the case to court, he says. "She demanded a jury trial, and that's what scared the heck out of me. You can be found guilty even if you're innocent. Part of the reason I took this as far as I did, however, was that if I hadn't, any other employee here could try the same thing. It comes down to blackmail."
There are, of course, economic consequences to the employee-rights revolution.
The Rand study of the effects of wrongful-termination liability found that after a state adopts the most liberal tort versions of the covenant of good faith and fair dealing, its aggregate employment drops by 2% to 5%. The horror stories in the headlines and the threat of suits, the authors said, are affecting companies' personnel practices in ways that boost the costs of doing business, make workers more expensive, and decrease the incentive to add people to the permanent payroll.
That squares with what employers told us. "People are not hiring as much," says Ron Cohen, president of Cohen & Co., an accounting firm in Cleveland, and president of National Small Business United. "They are using a lot of temporaries. They're working people overtime. These legal issues are so serious that employers are avoiding the potential things that create the problems, and those things are, essentially, hiring employees. There is just too much baggage that comes with them."
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Lawyer-Proofing Your Company
While there's no ironclad way to lawyer-proof a company, smart companies are implementing comprehensive preventive strategies.
A good example is the Community Bank of Homestead, in the Hurricane Andrew-devastated area south of Miami. Twelve years ago the independent, then 75-employee bank brought in an experienced human-resources professional named Marlene Porter to set up its personnel department. Before that, the bank had few formal personnel policies. Porter has designed a soup-to-nuts program that has successfully kept the bank out of court despite the fact that, during her tenure, roughly 200 employees have been let go. The total number of Community Bank employees is now 160. The areas Porter addressed are smart ones for any company to think about in the context of potential employee lawsuits:
Screening. Porter's first step was to ensure that Community Bank was hiring the right people and then positioning them in the jobs most appropriate for their skills.
Under her new system, the first step for a prospective employee is filling out an application, which includes a release form giving the bank the right to check the individual's background and conduct a test for use of illegal drugs. If the bank is interested in the person, an appointment for an interview is set. Before any interviewing starts, however, the job hopeful completes a two-page "personality test" that measures such things as attention to detail, patience, and competitiveness. The point of such a rigorous screening, though there are no guarantees, is to spot potential employees whose skills, temperament, or work style will be a bad fit -- before they are hired.
