Business Law: Costly Employee Lawsuits

By Nina L. Kaufman, Esq

Whether it's the slow economy or the plethora of employment laws, statistics show that employee litigation is on the rise. And whether the employee ultimately wins the case or not, the employer always loses.

Businesses are getting battered for a range of complaints including sex, race, and religious discrimination, harassment, and wage quarrels. By some counts, since 1999, one in four private companies have been sued by a current or former employee (according to a recent Chubb Group survey). While the larger companies tend to get hit with the larger settlements and verdicts (e.g., Morgan Stanley recently settled a sex discrimination complaint for $54 million), the price tag is still steep and small business is ill equipped to shoulder the burden. Based on our own litigation experience, clients have been faced with fees and expenses of up to $25,000.00 to defend employee suits before they even reach the point of going to trial. And that can occur with claims that are specious, at best.

So what can small businesses do to minimize, if not avoid, the hit?

* Have a written employment policy manual. Putting your employment policies in writing helps in two ways: (1) it makes you standardize your polices so that you don't deviate from employee to employee (evidence that savvy, disgruntled employees will latch onto to support their claims); and (2) it lets the employee know what to expect. Also, you can set out a grievance procedure for employees to follow.

* Get insurance. Don't stick your head in the sand saying, "I'm a great boss; who would ever want to sue me?" The insurance industry has recently introduced a wide range of products, such as employment practices policies, to help business owners.

* Choose appropriate deductibles. Consider not just whether to have insurance, but how much, and what your deductible should be, especially when it comes to attorneys' fees and litigation costs. A qualified insurance broker can help you make that decision. Call us if you need a referral.

* Don't sit on problems, hoping they will resolve themselves. Difficult employees (who may then trump up a claim against you) should be dealt with right away, before their attitude poisons your workplace. Once you get a whiff of a potential claim (and definitely once you have been sued), inform your insurance carrier and consult your attorney immediately. Don't let shame or fear paralyze you into inaction. Your insurance policy and your attorney are there to help you under these very circumstances.

© 2004-2009 The Legal Edge LLC. Nina L. Kaufman, Esq. is an award-winning business attorney, author, and speaker. Under her Ask The Business Lawyer umbrella, Nina offers easy-to-understand business law resources that protect small businesses and save them money. To learn more, and receive our FREE "LexAppeal" ezine, visit http://www.GreatBusinessLawTips.com  or contact Contact Us. This article is for your general information only. Be sure to consult with an attorney regarding your particular situation to make sure you get the specific advice you need.

Nina Kaufman, Esq. Award Winning Business Lawyer, Author & Speaker