Litigation is extremely expensive. Win or lose, the costs of dealing with a lawsuit, both with respect to money spent and the strain on running a business, is a tremendous challenge. Cynicism regarding the litigation process has existed for centuries; as was aptly put by Voltaire, a philosopher during the French Enlightenment, “I was never ruined but twice: once when I lost a lawsuit, and once when I won one.” It is not often that an eighteenth-century French philosopher can be quoted for modern-day pragmatic business advice, but surprisingly little has changed on the impact litigation, win or lose, can have on a party. With this in mind, the goal for any business owner should be to mitigate the risks of lawsuits as much as possible, because winning a lawsuit may prove to be a pyrrhic victory.
The risks of litigation are especially critical for employers because many of the laws that protect employees include provisions that are designed to punish employers and incentivize employees to bring claims. For example, the Fair Labor Standards Act (“FLSA”), which is the federal law that requires minimum wage and overtime payments are made to non-exempt employees, contains a provision that allows an aggrieved employee to recover twice the amount of the alleged unpaid wage. This same law also permits an employee to recover his or her attorney’s fees from the employer. So, under this law, not only are there penalties that significantly increase exposure beyond the actual economic damages, but the fee-shifting provision means that, if an employer tries unsuccessfully to defend such a claim, the employer will have succeeded only in increasing its liability by raising the employee’s attorney’s fees. In addition to the thousands of dollars and hundreds of executive man-hours, it will cost to litigate a matter to trial, employers are effectively penalized for mounting a defense that ultimately does not prevail. This is just one example of an entire system that, in almost every instance, is designed to incentivize compliance with the laws that protect employees through draconian penalties that increase the cost of non-compliance for employers.
While there is no magic cure-all to eliminate these challenges, and litigation is sometimes simply the cost of running a business, it should be no surprise that the best litigation strategy is to avoid litigation. There are steps employers can and should take to mitigate the risk of a lawsuit. These steps include things like ensuring existing employment policies are written in compliance with applicable law and then, when a problem arises, the carefully considered policies are followed. A good first step in this process is a regular review and update of an employee handbook. This goal can also be achieved through regular training sessions for employees; while an executive or a human resources manager may understand the law and the appropriate policy, managers are often on the front lines of responding to aggrieved employees and often do not have the benefit of training or a complete understanding of the governing rules. Similarly, it is important for employers to conduct audits of payroll practices to ensure that employees are properly classified as exempt or non-exempt under the FLSA, non-exempt employees are correctly tracking their time, and all employees are being paid appropriately. Also, should discrete problems arise, legal counsel may be able to implement strategies to diffuse the conflict without the need for costly litigation.
Given the high costs associated with litigation generally, as well as the increased costs and risks of employment litigation, employers should proactively develop a plan to reduce the risk of lawsuits and to mitigate the exposure of discrete problems. Like stretching before exercising, such steps are necessary to prevent a bigger problem down the road.