Some companies deserve to be sued by an employee for wrongful termination, but a disturbing number of companies are victims of frivolous lawsuits initiated by employees eager to jump on the litigation bandwagon. Three CEOs who have felt the sting of wrongful termination lawsuits tell what they learned from the experience.

  • Don't settle automatically. Many companies handle wrongful termination suits the easy way. Guilty or not, they settle out of court. But Stephen Swinson, president of the technology division of Trigen Energy Corp., thinks that strategy can be disastrous. "You send a message to employees that all they have to do is write a threatening letter and they'll get a check," says Swinson, whose company is based in Kansas City, Mo. "Provided you're right, you have to go through with the litigation." Trigen was sued in the mid-1990s by an employee who was fired for poor performance but claimed he was terminated for reporting a labor law violation. Although Swinson might have spared himself considerable headaches by settling, he went to court, instead. The case, which Trigen won, took six months and cost $10,000 in lawyers' fees. But, says Swinson, "it was absolutely worth it because of the message it sent."
  • Create written policies. Six years ago George Woelper, president of Lincoln Tile Co., in Marietta, Ga., which had 1998 revenues of $6.5 million, fired an employee for insubordination after the company had given him repeated oral and written warnings. Claiming that he had been terminated without cause, the employee filed a complaint with the state Department of Labor and demanded that the company pay him full unemployment benefits. "We thought we had a simple case," says Woelper. But to his dismay, the DOL agreed with the employee, a decision that cost the company $10,000 in legal fees and higher insurance premiums. The rationale? The DOL noted that Lincoln Tile had no formal written policy citing insubordination as just cause for termination. It does now. Woelper requires all employees to sign a document that spells out the penalties for bad behavior such as drug use, tardiness, and, yes, insubordination. He feels confident that the agreement, which employees helped create, will shield him against future litigation. "We haven't had a problem since," Woelper says.
  • Stay alert. The CEO of a small California electronics manufacturer, who asked not to be identified, has spent $100,000 defending against a suit from a senior manager who quit, apparently over some organizational changes. The former manager then sued the company for wrongful termination. The CEO says the manager was "an excellent performer but caused a lot of trouble among employees with harsh, rude behavior." The CEO now realizes that he valued the manager's technical expertise so much that he ignored his predilection for troublemaking. "When we first saw the difficulties he had interacting with people, I should have asked employees to document their complaints in writing, and I should have issued a written warning," he says. From now on, he will.