Avoiding Employee Lawsuits

By Hannah Wallace February 28, 2006

You can fireproof your new office building, insure everything inside, hire security and take every measure possible to make sure the least amount of money leaks out. But there's one way that even the best companies are hit: by getting sued.

"It's a fact of business life," says Mike Maseda, Tampa area president of ADP TotalSource, a professional employer organization. "Even the best-run companies are vulnerable to employment-related lawsuits and the damage awards that can result."

Over the past few years, Maseda says, business owners have started to face a very different legal climate. The number of employment statutes has soared, and laws are broad and complex and sometimes open to multiple interpretations. Neither employers nor employees have a good understanding of these laws, leading to an increased number of terminated or displaced employees alleging discrimination, he says.

In fact, Maseda says, experts estimate that workplace litigation today comprises nearly 75 percent of all disputes against businesses. A 2004 survey of small businesses conducted by the National Federation of Independent Businesses found that nearly half of those polled were "very concerned" or "somewhat concerned" about the potential for being sued.

Maseda's statistics are sobering: In 2004, the U.S. Chamber Institute for Legal Reform reported that small businesses incur more than $88 billion annually in litigation expenses. Also in 2004, the Equal Employment Opportunity Commission collected $420 million from employers found in violation of discrimination laws, with $168 million from litigation and $252 million from pre-litigation settlement and fines.

The bulk of the lawsuits involve violation of the Fair Labor Standards Act, retaliation and sexual harassment. Maseda says a recent survey indicates that 15 percent of all workers perceived that they had been subjected to some sort of discriminatory or unfair treatment.

"According to the U.S. Equal Employment Opportunity Commission's preliminary statistics for the last fiscal year, which covers October 2004 through September 2005, 75,428 charges of employment discrimination were filed with the agency nationwide," says Maseda. "Meanwhile, the EEOC received 13,136 cases charging sexual harassment during their fiscal year 2004, with settlements exceeding $37 million."

In such a litigious climate, what's the best way for employers to make sure they don't face a summons any time soon? As with most issues, says Maseda, communication and education are key.

"The key to preventing employment-related problems is an informed workforce," says Maseda, whose company teaches employers how to prevent harassment in the workplace, how to terminate employees properly and how to maintain OSHA records and manage on-site safety. "Properly training employees about compliance issues can help businesses prevent and mitigate employment-related lawsuits. When both managers and employees understand their rights and responsibilities, the potential for legal action is greatly reduced."

How to create such an informed workplace? One way is by insisting on those training modules and seminars that seem to keep cropping up in today's workplace. Maseda suggests that employees are provided with up-to-date knowledge about complex laws such as the Americans with Disabilities Act and the Family and Medical Leave Act, as well as comprehensive information about company policies on workplace conduct and expectations. Companies such as ADP can teach employers how to document terminations and how to fire someone in a way that retains the departing employee's dignity and the good reputation of the company.

"Any employee who is discharged should be offered constructive feedback," says Maseda. "Also, the employer should make sure the company is consistently following through with the appropriate discipline for each action that is described in the company policies."

Despite a complicated world of new regulations and technology, the solution to reducing litigation can sometimes boil down to a simple, old-fashioned concept: decency.

"An important step is to create a corporate culture of employee respect and sensitivity," says Maseda. "Employees should be treated with dignity and consistency by management."

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