How to Avoid Employee Lawsuits and Reduce Litigation Costs in Tough Economic Times

How to Avoid Employee Lawsuits and Reduce Litigation Costs in Tough Economic Times

DRI In-House Counsel Magazine

Amid the explosion of employment administrative claims and lawsuits in these tough economic times, there is an increased desire by corporate counsel to properly manage costs of defending these types of claims.

There are many options that general counsel should consider when looking at strategies for reducing costs of defending employment claims and managing the litigation. This article will discuss four options as presented at the DRI Corporate Counsel Roundtable in January of 2010, and reflects ideas of four panel members who participated in a presentation on this topic. They include: Moderator, Chrys A. Martin, shareholder at Bullivant Houser Bailey ; Sean Nguyen, Attorney in the Employment Law Department at The Home Depot; Ronald G. Polly, Jr., Sr. Partner and Chair of Labor & Employment Department at Hawkins & Parnell, LLP; and Shelley Devine, Senior Deputy General Counsel at Tri-Metropolitan County Transportation District.

  1. Handling Administrative Charges Internally;
  2. Outside Counsel Unique Fee Options;
  3. Arbitration Clauses; and
  4. Defense of Employment Litigation In House.

Handling Administrative Charges Internally

With both the EEOC and DOL adding scores of investigators, and with administrative charges on the rise, companies will face more administrative claims for discrimination, harassment and wage violations. Those claims will get a more critical review by the federal and state government agencies who process such claims including more detailed investigations which will raise the cost of responding and likely increase the number of "for cause" findings by these agencies as they delve less superficially into the facts.

Many companies routinely outsource the investigation of internal or administrative agency discrimination and harassment complaints to outside counsel to handle. In a move to keep down outside counsel fees, more companies are handling such claims internally. However, the company must ensure that it has well-trained HR staff who can properly handle these investigations. They must know the law and defenses; know how to interview witnesses and uncover all the facts so that a proper defense can be developed. Staff handling these claims must be articulate communicators able to develop a detailed written position statement for the government agency. It is critical that key documents and witness statements be provided where appropriate.

If an investigation isn't thorough, an inappropriate position might be taken which backing away from later may significantly harm the employer. So for this method to work, a company must ensure its staff are well trained and obtain appropriate direction from a seasoned employment lawyer, either in house or from an outside firm. With a rise in such claims, general counsel should consider hiring an experienced employment lawyer in house or devoting resources to educating an existing lawyer on employment law issues so that this work can be properly managed from the inside.

After a thorough investigation and draft response from HR, the legal review (whether conducted by in house or outside counsel) should involve an analysis of the underlying investigation, assurance that the facts recited for the agency are accurate, that no other evidence or witnesses that support or undermine the position exist and that proper legal arguments have been made in response to the charges (timeliness, Faragher-Ellerth defenses, etc).

This method can in the long run cut costs of having either inside or outside counsel handle all administrative matters from start to finish if the company has well-trained HR staff and proper legal review.

Outside Counsel Unique Fee Options

A. Flat Fee for Handling or Review of Administrative Claims

If a company has a volume of such claims, it might be able to negotiate a flat fee arrangement with outside counsel to handle such claims either from start to finish or after investigation and draft responses by the HR department as outlined above. Firms should be able to track on average costs for handling an administrative charge and be willing to flat fee such work, especially if there is a volume to be handled. Even without a high volume, a firm may be willing to commit to a flat fee arrangement as the work is generally of a finite nature. An alternative is to have two forms of flat fee: one for the administrative process through findings and another flat fee for administrative claims that proceed via the hearings process as these are more complicated "trials" before an administrative law judge.

The expense of handling administrative claims varies widely by geography and type of agency. For example, some EEOC offices have a more aggressive stance and will take cases through the administrative hearings process more often than in other jurisdictions. Depending on the caseload, certain agencies may do cursory investigations and have a high early dismissal rate or infrequent findings of "cause". Others aggressively push for early mediation before a full-blown investigation. In house and outside counsel must be attuned to these differences in enforcement to be able to create reasonable and fair flat fee arrangements.

B. Flat Fees for Certain Types of Cases

Some companies have had good experiences with negotiating flat fees for certain types of cases on a case-by-case basis. Of course, class actions or other complex or unique cases are usually excepted out of these types of flat fee arrangements due to their unusual nature. Discrimination or harassment cases with a single plaintiff can lend themselves to a flat fee arrangement either in advance, if there is volume or as they arise if there is not sufficient volume.

Other law firms propose a range of flat fees to clients depending on the client's goal in resolving the case. For example, there might be a three-tiered proposal: one fee for a case that the company wishes to resolve immediately before any discovery; another for a case the company wishes to resolve after initial discovery (written; plaintiff's and defendant's depositions; or through summary judgment) with another flat fee if the case proceeds to trial.

More employers are becoming willing to enter into "success" fee arrangements with outside counsel that provide a kicker or incentive for the counsel to resolve the case early or for a set settlement amount. The greater the volume of cases, the easier it is for outside and inside counsel to predict defense costs and price them reasonably Without volume it is much more difficult and increases the opportunity for significant aberrations that can damage the relationship between outside and inside counsel. Therefore, many of these arrangements have some upside or downside built in to cushion the unusual situations that can arise, especially in low volume flat fee work.

C. Flat Fees per Section of Litigation

Firms are frequently more comfortable with predicting fees based on a segment of a case. Many times a client and counsel do not know in advance the particular strategy to be used in a case. For example, dividing a case into its phases:

  • Answer and motion to dismiss;
  • Written discovery;
  • Taking the plaintiff's deposition;
  • Defending the corporate representative's deposition;
  • Motion for summary judgment;
  • Expert discovery; and
  • Trial.

Outside counsel can develop meaningful flat fee proposals based on an analysis of the costs per each phase of defense. Companies, especially those without volume of cases might be better off to seek these types of segmented flat fee proposals and might find their outside counsel more receptive. These proposals still allow a company to make better economic decisions about a case. If an employer knows it will have fees capped and hope that the plaintiffs' counsel will reevaluate their case after a particular phase, it may be willing to spend an additional $20,000 to get through all depositions in hopes of getting a lower settlement by $20,000 or more. That employer can more assuredly take the step of proceeding with depositions than if it had an uncapped fee for that phase of the litigation.

D. Yearly Retainer

Some companies have used a flat fee yearly retainer for all litigation of a certain type in a state or region. Law firms have an incentive to bid on these RFP's to gain a volume of work from one client. But they have to be able to accurately predict costs of these cases and manage them well. Home Depot has had great success with such programs in employment law and other areas of litigation. For example, most employment law advice, counseling, education on new laws, administrative complaints and litigation in a region is handled by one firm for a flat fee yearly retainer. Home Depot experienced a drop in outside counsel fees upon implementing this type of program and has had minimal problems with maintaining good relations with outside counsel during the process. Home Depot does not always select the lowest bidder.

Other companies have implemented or experimented with a similar arrangement. In these types of yearly retainer arrangements there are many variations. Firm's can be paid on a monthly or quarterly basis. Hourly rates can be "shadow tracked" to determine if there are overages or underages that should result in refunds or supplemental payments.

It is relatively easy for an existing outside counsel to bid for work on this basis. They know the client's strategy in defending these cases, their employment practices, the strength of their HR staff, some prediction of the volume and type of cases based on the past practices of the company and previous administrative claims which might turn into litigation the next year. It is much harder for a firm that has not handled a company's work to accurately bid. In some of these situations employers will provide bidders with past billings from existing firms (perhaps only if the past firm is not being asked to bid) to shed light on case handling and company strategy in defending cases. Companies could provide actual case files, reports on results, etc. to enhance the bid process accuracy. Employers must assemble sufficient data about past practices, volume, costs and litigation strategy upon which to base a bid. Otherwise, the same firms will likely have the lowest bids every year, and the company will lose some of the competitiveness it hoped to create by the bid process.

Other companies who employ a long-term retainer process issue bids for 2-3 years to spread the risks and obtain more data with which to assess the success of their programs. In house counsel have observed that they now spend less time managing outside counsel as those counsel now have a huge incentive to manage their work when the billable hour is no longer king.

Arbitration Clauses

Arbitration clauses were the "darlings" of employment lawyers for many years. However, with the stringent requirements courts have placed on their use such as "split the baby results," disputes over enforcement and interpretation and the cost of paid arbitrators, arbitration is falling into more disfavor. The panelists who tackled the topic of managing costs in employment litigation all disfavored the use of arbitration clauses. They were originally thought to be a way to avoid runaway jury verdicts in employment cases and cut costs. Businesses have found that this is not always the case. Arbitration can be expensive and drag on for as long as a court case, the anecdotal reports show more "split the baby" awards and frequently arbitrators allow more expansive discovery and testimony than would occur in court. Courts and legislatures have increasingly imposed significant restrictions on the enforceability of arbitration agreements between employers and employees. To be enforceable under the Federal Arbitration Act, agreements to arbitrate must be in writing (though they need not be signed). In addition, such agreements must not be unconscionable, substantively or procedurally. Some courts have held that where an agreement to arbitrate is presented to an employee on a take it or leave it basis, without a meaningful opportunity to negotiate the terms of the agreement, it is unconscionable and unenforceable. Other courts have found arbitration clauses invalid where the key terms of the agreement are hidden amongst numerous provisions in a long form contract drafted by the employer, or where the employer uses deception or coercion to get the employee to sign. Arbitration agreements may also be invalid if they require the parties to split the costs of arbitration and the arbitration is prohibitively expensive for the employee. Requiring the losing party to pay the costs of arbitration has been upheld, however.

At least one state's legislature (Oregon) has gone so far as to make all arbitration agreements between employers and employees voidable unless the employer presents it to the employee in a written employment offer at least two weeks in advance of starting employment, or if it is entered into as part of a bona fide promotion.

The agreement to arbitrate should also be worded so as to cover as broad a range of disputes as possible. For instance, agreements to arbitrate all disputes "relating to" the employment are typically construed more broadly by the courts than agreements to arbitrate disputes "arising under" the contract.

There are costly disputes over enforcement of such clauses; they can no longer be used to avoid EEOC and other administrative claims as the employee cannot waive their right to file with those agencies. The cost of hiring paid arbitrators is increasing as they raise their hourly rates. Three-arbitrator panels are particularly expensive. Arbitrators are sometimes even more willing than a judge to allow expansive discovery and may ignore the finer rules of procedure or evidence. Many employment arbitrators are perceived to be pro-plaintiff as much, or more so, than jurors.

Employers have to then evaluate the logistical difficulty of getting all employees to sign an arbitration agreement as those buried in handbooks are likely no longer enforceable.

Thus, many have found this alternative for cost control to have backfired or simply not be very workable. Many employers have eliminated the use of arbitration clauses or waive them.

Defense of Employment Litigation In House

Large employers beset with sufficient volume of employment claims or union arbitrations may find it more economically feasible to bring the defense of such claims in house. Litigators are becoming more disenchanted with private firm practice, where hours are high and the opportunities to actually try cases are lessening. Thus, they are often willing to work in-house litigating. Companies with in-house litigators are frequently more willing to "roll the dice" and try a case as their costs are fixed due to their litigators being on a salary. Of course, the volume needs to be sufficient and may need to include a variety of cases, rather than just employment cases. However, due to the unique nature of employment cases, the trial attorney has to have sufficient expertise to properly defend these cases as well as contract or tort cases, if required. If not, highly experienced outside counsel could be consulted to provide strategy assistance to the in-house counsel in need of additional expertise, while still keeping costs reasonable.

CONCLUSION

The panelists agree as did audience members who participated in the discussion that alternative methods of handling employment cases must be considered. Employment law cases are on the rise, insurance doesn't always provide coverage, costs are increasing, the cases are complex and require expertise to defend, and the billable hour alternative must be considered to make handling these cases economically feasible. Outside counsel, HR departments and general counsel must work together cooperatively to explore alternative fee arrangements that are fair to both sides to foster the critical positive working relationship necessary to properly defend these delicate cases. They involve disruption in the workplace, often voluminous paper and electronic discovery, can involve current employees as plaintiffs and are emotional on both sides. Creativity will be key to successful implementation of alternative fee and other arrangements to properly handle these cases.

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