Bob Harris had fought for Sandra Coughlin's latest promotion and was committed to helping her succeed once she became a credit manager at All Service Inc. For two years he encouraged her, but also made it plain that he was unhappy with her progress. When he realized last winter that she couldn't adapt to her expanding responsibilities, he fired her.

Convinced that the California company had no basis for its action, Coughlin filed a suit charging Harris with sexual harassment and the company with discrimination. She also alleged that Harris told her that she would be replaced by a man.

It is still uncertain whether the case will go to trial. All Service (a pseudonym: the name of the company and its employees have been changed because of the pending litigation) plans to seek a summary judgment when the depositions are completed. But the personnel manager worries that written documentation on Sandra Coughlin's performance won't suffice to justify her firing. Much of Harris's criticism and counseling over the two years was done informally and never recorded.

Discrimination charges in the past decade have become the whiplash of the workplace. As federal and state laws and judicial rulings tend increasingly to protect workers' rights, employees are more inclined to sue their bosses. Irrespective of their sense of kinship with a company, workers are more aware of their rights today, says Lawrence Lorber, a lawyer with Breed, Abbot & Morgan in Washington, D.C., who represents management in labor disputes. He adds: "There are too many lawyers in this country -- me included -- looking for business." When employees win the target companies are rudely reminded of the futility of closing the barn door after the horse escapes. The door is closed anyway, against the rest of the stable. Businesses are now beginning to adopt strategies designed to keep them out of court in the first place, taking recent trends in labor law as a primer for rewriting their policies on hiring, promoting, and firing.

Ironically, All Service had been part of this so-called proactive (as opposed to reactive) trend, although the Sandra Coughlin case clearly showed it still had work to do. The company began revising its personnel policies three years ago. But since the charges were leveled, All Service has significantly altered its termination procedures, and now requires extensive documentation and a three-tier internal review before dismissing an employee.

The process of formalizing personnel policies isn't fun. In many small companies -- All Service included -- managers are initially put off by anything resembling the corporate bureaucracy they fled when they started their own businesses. "This is somewhat of a social place, where people know each other very well," said John Haverford, All Service's personnel manager, after Sandra Coughlin sued.

But at some point in the growth of a company, the cherished informality becomes a liability. "You can't show me an entrepreneur who has built a fast-growth business who is concerned with formal policies. He wants to sell product," says the owner of a highly successful service firm in Texas. After settling an overtime-wage dispute with a former employee, however, he stepped up his busipolicies.

"If we didn't have to bother with writing these documents, we could be doing what we're supposed to -- growing our business," complains the personnel manager of a New Jersey warehousing company. In the midst of drafting her company's first policy manual, she was caught off guard by a former employee's age discrimination charge.

When employees challenge their actions on any front -- sexual harassment, discrimination, wages -- managers in small companies are often stunned, says J. Walter Dickson, a Houston-based personnel consultant: " 'How can this be?' they ask. 'It's as though a member of my own family wants to sue me.' " Dickson, whose firm specializes in writing compensation plans and policy manuals in line with current labor laws, is among the corps of consultants, attorneys, and labor specialists around the country who are urging employers to adopt proactive measures. "By trying to be congenial, a company gives away its rights," Dickson says. "Contrary to what people think, policies and procedures don't restrict them. Rather, they make them less prone to Equal Employment Opportunity charges."

Even in America, the most litigious country on earth, the number of such suits is astonishing. In 1983, there were nearly 10,000 employment-related civil rights cases filed with U.S. District Courts. On the state level, where California leads the country in employment discrimination suits, its Department of Fair Employment and Housing conducted about 8,200 hearings last year. Although only 1% of the cases go to court, settlements typically require employers to adopt policies, award back pay, or reinstate fired workers, says Michael Vader, the department's chief deputy director. The California agency recently began hosting seminars around the state to inform workers and companies alike of their rights and responsibilities.

At All Service, the Coughlin sex-discrimination suit revealed substantial gaps in the company's policies on evaluation and termination. "We had a performance-appraisal system, but it wasn't as strong as I'd have liked. We hadn't been documenting the conversations between supervisors and subordinates," says personnel manager Haverford. Under the new policy, employees will be required to sign the evaluations. Before initiating a firing, managers will have to provide evidence to their supervisor, the personnel office, and a management committee that three times over the course of a year they have discussed the employee's poor performance with the individual.

All Service has also inserted a disclaimer in its policy manual essentially saying that workers' tenure hinges on the company's satisfaction with their performance. Taking a cue from a 1983 U.S. Supreme Court decision, Belknap v. Hale, it also avoids using the terms "probationary" or "permanent" in describing job status, as either can now be construed as an employment contract. In Belknap v. Hale, the court ruled that workers who were hired in response to an advertisement for "permanent replacements" during a strike by unionized workers, then fired when the union members returned to work, could sue the company for breach of contract.

Clearly documented review procedures are key to a court's decision on whether a company is justified in firing someone, says attorney Lorber. State and federal laws have increasingly protected workers' rights while diminishing companies' ability to fire at will. "The law is fluid enough that if a court is convinced that someone was treated in some way unfairly, it will find the employer guilty of some form of harassment," Lorber says. Having policies in place creates the perception -- and the reality -- that you've made an attempt at fair play. It protects you from frivolous charges."

Any company with more than 15 employees can be sued under Equal Employment Opportunity Commission guidelines, according to Lorber. Additionally, a formalized policy manual affords a company extra protection against union overtures, as a company is prohibited from introducing any new rules once efforts to unionize are underway, he adds. At the very least, he says, a company should adopt antidiscrimination guidelines and grievance procedures. It should introduce a performance evaluation system and progressive discipline measures to support its promotion or termination decisions.

To companies that balk at the expense of policy implementation, Lorber offers a rough price comparison: It might cost as little as $500 for an attorney to review drafts of policy manuals, while the bill for trial work could easily amount to $85,000.

All Service expects to spend nearly $10,000 in pretrial legal fees. "I'm very concerned about this case," say; Haverford. "The burden of proof is on us, and I feel that we're facing a steep uphill battle. It's almost as though we're guilty until proven innocent."