The Extreme Cost of Defending Employment Lawsuits and Advice on How to Avoid Them

The Extreme Cost of Defending Employment Lawsuits and Advice on How to Avoid Them

One question we get from a lot of clients and insurance companies is, “How much does it cost to defend an employment lawsuit?”  After talking about the extreme business interruption litigation can cause – think about all the time your employees have to use tracking down records, preparing and sitting for depositions, and appearing as witnesses at trial – we usually set a range of anywhere from $65,000 to well over $100,000 as the cost of defense.  Of course, many factors impact the cost estimate, such as whether the plaintiff has a lawyer or is proceeding pro se, the number of claims made, and the overall complexity of the case.

Now we have, based on a report issued by Hiscox Insurance, some hard numbers on the cost of employment matters:  “A representative study of 446 closed claims reported by small- to medium-sized enterprises (SMEs) with fewer than 500 employees showed that 19% of employment charges resulted in defense and settlement costs averaging a total of $125,000.”  That’s no small amount. 

Hiscox then goes on to blow up some of the common myths (my employees would never sue me and no jury would ever find against my company, for example) and offer some advice on preventing claims:

  1. Develop a job application that meets the most stringent guidelines of where you operate;
  2. Have an employee handbook with key EEO policies, and be sure to provide orientation to new employees on your policies;
  3. Be very wary of calling someone an independent contractor instead of an employee;
  4. Be consistent in your treatment of employees, and be sure you have legitimate reasons for any employment action;
  5. Conduct training on your policies, including harassment training;
  6. Be in tune with the ADA and the FMLA, and be able to recognize a request for an accommodation or leave time;
  7. Document performance problems and conduct “factual, honest performance evaluations”; and
  8. Make sure you follow all of your guidelines (we’re going to ask you if you have read your relevant handbook policies) when taking some type of disciplinary action.

All-in-all, good advice. 

by Stuart Jackson (with credit given to Jon Hyman of the Ohio Employer’s Law Blog, which first mentioned this study)