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.
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,
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
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:
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 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,
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
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.
Bullivant Houser Bailey PC is an Oregon Professional
Corporation. These materials, prepared by Bullivant attorneys,
are for general informational purposes only and are not for the purpose of
providing legal advice or legal opinions on specific facts or circumstances.
Internet subscribers and online readers should not act upon this information
without seeking professional advice.
All copyrightable text and graphics, the selection, arrangement,
and presentation of all materials are copyright © 1996-2010, Bullivant Houser
Bailey PC. All rights reserved.