Legal Updates

Tips For Avoiding Employee Lawsuits

September 2024 by Anthony L. DeProspo, Jr.

The costs for an employer to defend an employee lawsuit can run into the hundreds of thousands of dollars. Jury verdicts in employment cases are at an all-time high. Even where cases are settled before trial, significant litigation costs are likely to be incurred.

Lawsuits also are extremely disruptive to day-to-day business operations. Employees will be tasked with collecting and assembling relevant documents – which can be voluminous. Some employees will have their depositions taken, necessitating numerous hours of preparation. Senior leadership will spend a substantial amount of time working with the organization’s legal team assisting in formulating a defense strategy. If the case proceeds to trial, key personnel will be required to attend and testify at the trial, necessitating even more preparation time.

There also is potential reputational damage for an employer. Lawsuits are a matter of public record. Most states (and all of the federal courts) use online court docketing systems that are available to the general public. In worst-case scenarios, cases attract negative media coverage.

In light of these concerns, it is vital for all employers to be aware of risk factors for workplace-related litigation and proactive steps they can take to minimize those risks.

Common Employee Lawsuits

There are many different types of legal claims an employee can bring. Some of the most common include the following:

Overtime Violations. Misclassifying an employee as exempt from overtime pay violates the Fair Labor Standards Act (“FLSA”) and can lead to severe penalties. The same holds true for employees misclassified as independent contractors.

Wage-and-Hour Claims. State laws often impose harsh penalties for violations of wage-and-hour laws. Massachusetts, in particular, has strict requirements regarding the payment of wages, including accrued vacation time and final pay upon termination of employment. Employers that violate the Massachusetts wage laws can find themselves responsible for paying an employee three times the amount of wages due, in addition to attorneys’ fees incurred by the employee.

Discrimination. Employees frequently file discrimination claims when they believe they were unfairly targeted or subjected to an adverse employment decision based upon their membership in a “protected class.” Protected classes under the law include race, national origin, disability, age, gender, sexual orientation, family or veteran status, and various other categories, depending on the jurisdiction involved. Applying employment policies inconsistently between employees in different categories can expose an employer to a discrimination lawsuit.

Harassment/Hostile Work Environment. Sexual harassment is the best-known type of harassment charge, but employees also can assert harassment claims based on race, age, disability, or other protected categories. Additionally, employees who believe they have been verbally or emotionally abused by supervisors or co-workers often take legal action – so-called "workplace bullying" claims – even where it is not clear that the conduct was based on a protected characteristic.

Retaliation. Adverse actions such as demoting an employee after he or she has made a claim of harassment (or other discrimination) can expose an employer to liability for unlawful retaliation, even if the underlying claim turns out to lack merit. Employers are similarly prohibited from retaliating against employees for engaging in other types of protected conduct – e.g., taking family or medical leave, filing a workers’ compensation claim, or serving on a jury. Some laws explicitly set forth a presumption of retaliation if an adverse employment decision is made within a set period of time following protected conduct.

Protect Yourself Against Employee Lawsuits

While the risks of employment-related litigation can never be eliminated entirely, steps can be taken to safeguard your organization and help reduce those risks. These steps can help an employer follow best practices and put it in the best position possible to defend against potential employment claims.

Stay Up To Date With Federal, State and Local Laws. Employers should be thoroughly aware of their legal obligations relating to issues such as misclassification of employees, minimum wage and overtime requirements, and paid break periods. Similarly, employers should familiarize themselves with state and federal leave laws (such as the Family and Medical Leave Act), keep careful records as to employees’ accrual and use of paid time off, and understand vacation and wage payout requirements upon termination of employment.

Educate Managers. Educating front-line managers is a critical element of litigation prevention. Supervisors should be trained in recognizing and appropriately handling issues such sexual harassment, workplace bullying, and workplace safety. Front-line managers deal with day-to-day employee issues that, if not handled properly, can easily become lawsuits. Effective, regular training on these topics pays for itself many times over.

Conduct Effective Investigations. When workplace misconduct is reported, it is important that an employer promptly conduct an investigation to determine if the allegations have merit and, if so, take appropriate remedial action. A proper workplace investigation can minimize litigation risks by showing the complaining employee that the employer is taking the matter seriously. A thorough and appropriate response may also strengthen the employer’s legal defenses if the matter ends up in litigation.

Implement Regular Performance Evaluations. An employee’s performance evaluations are often the key documents in employment litigation – for instance, when an employee is terminated for poor performance but claims that the decision was actually motivated by discrimination. Regular, effective performance evaluations can be critical to defeating such claims. Evaluations should be timely and comprehensive, cite specific facts and examples, and provide discrete goals for improvement. Supervisors must avoid the temptation to steer clear of negative feedback. Terminating an employee based on unsatisfactory performance can raise serious liability risks if the employee was not given fair notice of his or her performance shortcomings.

Be Consistent. Lawsuits are often born when employees believe they are being treated differently from their peers, in areas such as promotions, pay, time off, leaves of absence, and discipline. Employers should strive to apply workplace policies as consistently as possible, with the aid of a carefully drafted (and regularly updated) employee handbook.

Document Thoroughly. An employer should document every significant interaction with an employee, from the initial interview to separation from employment, particularly in connection with conduct or performance problems. One of the most effective means of discouraging litigation is to ensure that an employee facing termination for performance reasons has previous warnings in their file, as this tends to show that performance was the actual reason for the termination decision, as opposed to discrimination or retaliation.

Consider Severance Agreements. No discussion of litigation risk management would be complete without addressing the use of severance agreements. A severance agreement is a contract that an employer may ask an employee to sign when they are terminated, providing for the employee to receive severance pay in exchange for a release of claims against the employer. The amount of severance pay offered depends on the circumstances, including the employee’s length of service and the reason for the termination. Perceived litigation risks may make a more generous severance package advisable.

* * *

Schwartz Hannum’s experienced employment attorneys can assist your organization in recognizing and minimizing employment litigation risks. Please feel free to reach out to us if we can help with these issues.