You Don't Have to Pay the Hidden Costs of Employment Litigation – SHRM

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​As a young lawyer in the 1980s, I thought trials were cool—high energy, high adrenaline and sometimes high stakes. By the time I retired in 2011, my opinion had changed: Employment litigation had become a grinding, resource-consuming war of attrition. Civility between opposing parties crumbled. And the HR profession suffered by encouraging defensive practices that remove humanity from HR compliance:
Just as the fear of medical malpractice litigation has led to the practice of defensive medicine, the fear of employment litigation has led to defensive HR practices that undermine positive work environments. An example is the widespread employer practice of requiring arbitration agreements as a condition of employment. This makes me think of prenuptial agreements. At the outset of the workplace "marriage," the employer says, "Here’s an agreement to minimize the potential ugliness of our divorce."

As a family lawyer friend once said to me, "The negotiation of a prenup is a pretty good guarantee of its eventual use."

And, of course, there’s employee practices liability insurance (EPLI), a lucrative insurance industry created by employer litigation fear. Does EPLI help? Brenda Rushforth, SHRM-SCP, chief human resources officer for Pomona College in Claremont, Calif., said, "One thing I’ve noticed in my 35 years in the HR world—when a plaintiff’s attorney learns that the employer has EPLI coverage, the stakes often become more costly."

It doesn’t have to be this way.

Look for Solutions, not Fights
Some years ago, I was hired as an arbitrator to decide an employment discrimination case. Judges and arbitrators tend to be passive and reactive: They wait for the parties to come before them and then react to whatever issue is placed before them.

However, for this case, I decided to be proactive. After reviewing the initial pleadings, I called in the attorneys for a meeting. I shared my initial thoughts about the issues, challenges I foresaw for both sides and potential outcomes. I told the attorneys I was less interested in judging a debate than I was in having an ongoing discussion that would help me make the best decision.

I asked them about their plans for taking discovery—how they would go about gathering documents and evidence from each side and taking depositions. I got a long list.

After reviewing the list, I said, "Maybe I’m missing something, but it strikes me that there’s an initial threshold legal issue. If I rule a certain way, this discovery won’t matter. So why don’t I rule on this issue first and potentially save your clients a huge amount of time and cost?"

The attorneys said it made economic sense to determine this issue first.

Throughout the remainder of this case, I maintained a proactive approach, telling the attorneys in advance how I perceived each side’s strengths and weaknesses, what it might take to persuade me to rule for employee or employer, and what I thought they needed to do to bring this case to an efficient resolution.

Fairly early on in the process, the parties agreed to settle the case. The attorneys later told me my proactive management of the case helped them come up with a settlement both sides could accept much more quickly, and with much less time and cost expended.

Trade Defensive Postures for Fair Resolutions
I asked several plaintiff’s attorneys, defense attorneys and judges to comment on my approach as arbitrator. They all welcomed it as a major improvement over the current system.
"Leaving employment litigation in the template [that was] made for high-stakes civil disputes is a mistake," said Judge David Nuffer of the U.S. District Court for the District of Utah. "Every lawyer knows there are stages to litigation with big gaps between them where costs continue to rise and positions get more entrenched. Early proactive discussions between judge and counsel usually results in costs saved, legal fees reduced and resolutions achieved earlier."
Stan Sewitch, vice president of Global Organization Development at WD-40 Company in San Diego, said, "I love the approach you describe. Unfortunately, the current system incents the opposite. To pressure settlement, plaintiff’s attorneys ask for volumes and volumes of information in discovery that create huge costs and a ton of work for the defendant’s staff, HR department, affected managers, etc. And typically the employer’s defense attorneys bill by the hour and are required by their firms to meet certain billable hour targets. That motivation is antithetical to early, collaborative, logical coordination between the two sides and the adjudicating party."
Mental and Emotional Labor Aren’t Worth the Payout
In addition to the defensive HR practices described above, there are the enormous legal fees, judgments and settlements paid. There are less obvious yet also enormous costs: the hours, energy, stress and anxiety expended by the parties during litigation.
On the plaintiffs’ side, more than once, I had a client say that even knowing at the outset that she’d eventually win her case, she would have walked away rather than subject herself and her family to the stress of prolonged litigation.
After winning her sexual harassment, sex discrimination and retaliation case, one plaintiff said to me, "After five years of litigation, there’s a piece of me missing that no amount of money will replace."
On the defense side, I heard similar things. After winning, rather than celebrate, the clients just wanted to go home, rest and recover.
After prevailing at trial on a sexual harassment, sex discrimination and retaliation case, a client’s CEO said to me, "Jathan, don’t get me wrong. You’re very expensive. (In those days, I billed employers by the hour.) However, you’re not nearly as expensive as I am." He was referring to the enormous cost to his business over nearly three years of intense litigation—internal labor hours expended, stress, disruption, anxiety and distraction from business objectives.
Get Started
In a previous column, I suggested that when dealing with claims, employers and HR professionals should adopt a proactive approach to early resolution. Should you ever have to deal with a claim, I encourage you to share this column with your attorney and encourage her to share it with opposing counsel. And then invite a discussion.

"My advice to the HR community is that they had better learn the dynamics of the legal profession in order to be effective in proposing an alternative, constructive and collaborative path to resolution," Sewitch said.
"As a former longtime employment litigator both in private practice and with Koch Industries," said Mark Holden, retired senior vice president and general counsel, "I agree that most employment cases can and should be resolved much more efficiently and effectively through early intervention by a skilled and experienced mediator or arbitrator. If the mediator can keep the emotions and egos of the lawyers in check, and focus on what’s best for the clients on both sides, it will make both sides more content in the long run."

Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.
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