In Defense of Litigation

By Jathan Janove May 1, 2006
LIKE SAVE PRINT
Reuse Permissions

HR Magazine, May 2006Cool heads, teamwork and optimism all contribute to successfully rafting the white waters of a lawsuit.

Notice comes in from your registered agent: Process Has Been Served!

Your company is now facing a lawsuit by a disgruntled former employee, alleging discrimination, wrongful discharge, harassment and retaliation. The voyage has begun.

As the HR professional responsible for dealing with this claim, you naturally ask (after first reaching for the headache pills and antacid): Now what?

This article attempts to answer that question by giving you a checklist of issues, considerations and suggestions to help you navigate the churning waters of employment litigation. So, let’s buckle up those life preservers and shove off.

Take a Proactive Stance

After receiving notice of a lawsuit, employers and their HR representatives often treat the matter like an obnoxious odor from which it’s best to keep a safe distance. After all, they reason, that’s why we hire lawyers let them deal with it.

Such thinking is understandable but counterproductive. Coordination among the employers outside and inside representatives is necessary to build a strong and cost-effective defense.

Although your lawyers must assume responsibility for the tasks and deadlines of the litigation, your assistance will be critical. This means addressing the issues described below, devoting the necessary time to the case, gathering and securing information, keeping defense counsel apprised of relevant business developments, and giving helpful feedback at the various tricky rapids the litigants will encounter before a case is resolved.

Claim defense should be a priority for HR, and it deserves senior executive support, including the resources to give it the necessary time and energy.

Check Your Insurance

One of the first things to do is check for available insurance. Many employers have employment practices liability insurance. Depending on the nature of the claim, however, employers workers compensation, general liability, officers and directors, or umbrella policies also may provide coverage. Given the propensity of many plaintiffs to file kitchen sink complaints, sometimes one or more of their claims (defamation, for example) will trigger coverage that otherwise would be unavailable.

Once you have identified possible coverages, read the policies notice provisions carefully. Your company may lose protection if it fails to comply with them promptly. Also take note of other important policy provisions such as:

  • Counsel selection clauses that may require you to use attorneys selected by the insurance company.

  • Retention or deductibility provisions that may influence your strategy and approach to early settlement.

  • Settlement authority provisions hammer clauses that give the insurance company a great deal of leverage in settling a case on terms that might not be desirable for the employer.

  • Lists of exclusions for types of claims that aren’t covered.

Enlist the assistance of your broker in this process that's one of the things you pay for when buying insurance.

It’s important to work closely with the insurance company’s representative handling the claim. Some HR professionals may disagree with me, but insurance representatives are human beings too. If the employer ignores them or takes a passive approach to dealing with them, they tend to respond to litigation or settlement entirely from their own perspective, which may not correspond to the employers.

An employers mistrustful or defensive approach toward the insurance carrier can become a self-fulfilling prophecy, diminishing the carriers willingness to consider the employers needs and priorities regarding the handling of the litigation. If insured’s take a cooperative approach, insurance representatives tend to treat them more like desirable customers than like quasi-adversaries.

Communicate With Defense Counsel

In Aesop’s fable about the scorpion and the frog, the former asks the latter to ferry it across a river. The frog demurs, saying, how do I know you won’t sting me? The scorpion replies, because if I do, I will die too.

Following this logic, the frog agrees to carry the scorpion. Halfway across the stream, the scorpion stings the frog. As the frog succumbs, it asks, Why? The scorpion replies, it’s my nature to sting.

Litigation can be a lot like this. Scorpions sting. Litigators litigate. Employers end up feeling like the frog. At the conclusion of the case, they shake their heads at the monumental expense incurred, time wasted and business opportunities lost, and wonder whether it had to be this way.

Usually, you can avoid the scorpion-frog scenario and greatly reduce the sting of litigation. To accomplish this, establish clear lines of communication with defense counsel. It will be especially important in negotiating the more treacherous legs of your journey.

Specifically, this means:

  • Obtaining a budget or assessment of costs covering each stage of litigation. See to it that the budget is adjusted to reflect new developments, and that it does not indulge in every possible favorable assumption such that defense counsel can present you with a low number only to continually revise it upward like the home construction project from hell.

  • Developing a well-thought-out, as opposed to seat-of-the-pants, risk assessment that is continually updated.

  • Taking a practical approach to settlement, considering the employers overall best interests.

  • Adopting a results-oriented approach to litigation vs. one based on ego.

The focus throughout should be on putting the employer in the best position to defend the claim cost-effectively, rather than indulging in a scorched-earth defense that doesn’t weigh costs against expected benefits. It is extremely costly to fund the process of opposing counsel venting their mutual contempt via legal proceedings.

Be Thoughtful About Settlement

We all know that the vast majority of employment claims settle. Less well known is how haphazard the process of getting there can be. Some claims settle before an aggrieved employee files any formal piece of paper. Some claims don’t settle until after trial, judgment and appeal. Many claims of substantial merit settle for insubstantial amounts, while many claims of insubstantial merit settle for substantial amounts. What’s a sensible approach for HR to take?

Borrowing from Jack Benny, Timing is everything.

Except in cases where the employer has decided that it will pay nothing, the following question should guide litigation: At what point can we settle this case for the lowest overall cost, and what steps should we take to get there?

Sooner is almost always better. A $10,000 settlement reached after spending $50,000 in legal fees and consuming 100 internal labor hours is not nearly as attractive as a $20,000 settlement after $10,000 in litigation expenses and 20 labor hours.

There are exceptions, however. Sometimes plaintiffs and their attorneys will have to be taught that litigating to the end will be costly, painful and uncertain before they will ever value a claim realistically. (For further thoughts on settlement, see the Legal Trends column in the November 2004 issue of HR Magazine. And for some perhaps-surprising insights into the minds of plaintiffs attorneys, see Know Your Adversary.)

Preserve Evidence

Especially in this cyberspace age, the employer must take great pains to preserve any evidence that may be relevant to the issues in dispute. Failure to do so could prompt a judge to give the jury a spoliation instruction that says the jury may assume the lost evidence would have been unfavorable to the company.

Spoliation is a growing concern as technology penetrates deeper into business operations. More and more information is being generated and stored electronically. Several factors complicate the duty to preserve all such information:

  • Many companies have document destruction policies that call for the routine, periodic destruction of information.

  • Relevant electronic information is rarely in one centralized place, but rather is scattered among many different locations office and home computer hard drives, personal digital assistants, floppy discs, cell phones, fax machines, voice mail systems, instant message accounts.

  • Digital information is easily altered.

Thus, as soon as a legal claim is reasonably foreseeable which may be well before a lawsuit is filed take steps to preserve evidence. Notify all persons in the company’s control who may have relevant information and documents to preserve all such items. (For a closer look at the ins and outs of e-mail discovery, see the Legal Trends column in the August 2005 issue of HR Magazine.)

Communicate Carefully

Once sued, an employer must carefully manage and monitor communications about the lawsuit. As the saying goes, Loose lips sink ships.

Certain communications between attorney and client are privileged. This means that you can communicate confidentially with the company’s attorney about the lawsuit without fearing that the plaintiff will obtain the communications during pretrial discovery. But you must take steps to protect that privilege.

First, mark Privileged any written evaluations to and from counsel, and keep them in a confidential litigation file. If you prepare a chronology of events or a description of the strengths and weaknesses of the facts or witnesses, be sure to mark it Prepared at Direction of Counsel. That will alert readers that the document is privileged and should not be produced in discovery.

Second, do not share these categories of information with others, unless your lawyer is involved. Frequently, for example, counsel will participate in regular meetings with key personnel involved in the defense so all can share candid, protected communications about case management and strategy. If counsel is included in the communication, it most likely will remain protected from discovery. If counsel is not present, it is harder to preserve the privilege.

Admittedly, having your lawyer present will add to your fees, but excluding counsel from case management meetings is not the best way to economize.

My partner, Maryann Yelnosky, provides an additional caution:

Be sure that individuals who are involved in managing the litigation know that any information they obtain as a part of the litigation process must be used carefully.

For instance, if managers learn that employees are supporting the complaining plaintiff, they must be sure that information does not affect any workplace opportunities for those supportive employees. Such conduct would likely be recast as retaliation, and could further compound the company’s exposure in the current litigation or form the basis for subsequent claims.

What about disclosing the existence of the lawsuit to company employees who may end up being witnesses? There are several reasons to do so:

  • It sends the message that the company is not defensive about the allegations in the complaint.

  • It creates an opportunity for the company to demonstrate its confidence that it will win the lawsuit.

  • It informs potential witnesses of the lawsuit ideally, before the plaintiffs lawyer has had an opportunity to contact them. (Some states legal ethics rules actually prohibit opposing counsel from doing so.)

  • It provides an opportunity to tell potential witnesses that they have no obligation to talk to the plaintiffs lawyer and that you would appreciate it if they would tell you if the plaintiffs lawyer contacts them. (But you cannot require them to do so.)

You may find helpful the sample employee communication that Dave Riewald, also a partner in my firm, provides to clients for use in notifying their employees about a lawsuit (see Dear Employees:).

Remain Optimistic

Winston Churchill once observed: For myself, I am an optimist; it does not seem much use being anything else. This is perhaps the best attitude to adopt when faced with defending a lawsuit. No matter how scary it seems, life will go on. There’s no reason to become jaded, or to retreat into a foxhole the next time a workplace problem with potential legal ramifications arises.

And remember, regardless of a lawsuits merits, it opens a window into the employers claim prevention, management, and HR policies and practices. If you take the time to look through it, both your employees and your risk managers will benefit. (For more information about what I call the employment litigation post-mortem, see the Legal Trends column in the February 2004 issue of HR Magazine.)

Conclusion

In his Devils Dictionary, Ambrose Bierce defined litigant as a person about to give up his skin for the hope of retaining his bones, and litigation as a machine you go into as a pig and come out of as a sausage.

If and when the summons arrives, give yourself and your organization the best chance to retain both skin and bones by adopting a proactive, pragmatic approach to dealing with the lawsuit. Leave the sausage-making to someone else.

Jathan Janove is a partner in Bullard Smith Jernstedt Wilson, a law firm devoted to representing employers, with offices in Portland, Ore., and Salt Lake City, and is an affiliate of Worklaw Network. He is the author of Managing to Stay Out of Court: How to Avoid the 8 Deadly Sins of Mismanagement (SHRM & Berrett-Koehler, 2005).

LIKE SAVE PRINT
Reuse Permissions

MEMBERSHIP

Become a SHRM Member

Join/Renew Today

Job Finder

Find an HR Job Near You

SPONSOR OFFERS

Find the Right Vendor for Your HR Needs

SHRM’s HR Vendor Directory contains over 3,200 companies

Search & Connect