Wednesday, January 18, 2012

What's the Real Cost?

With the increase in Federal agency initiatives targeting employers, such as I-9 audits or independent contractor classification audits, employers face increased scrutiny. In addition, disgruntled current or former employees are free to lodge complaints with State and Federal agencies that may spark an investigation. In either case, an employer faces potential liability, as very few employers are capable of keeping up with the myriad of employment laws. In reality, most employers try to remain compliant with employment laws, but if the government looks hard enough, it is likely to find a violation or two.

What’s the cost of a claim? It might be fines for incomplete I-9s, unpaid taxes for misclassification of workers, overtime for unpaid wages or a need to change employment practices. But, the biggest cost is usually legal fees. It is a best practice to hire counsel when an employer faces a government investigation, employee claim or audit. Contacting counsel before reacting/responding to a claim is prudent, but it does create an expense. Moreover, a disgruntled employee is likely to have an attorney herself. When an employee has an attorney, that attorney will likely make a demand for some kind of monetary compensation for whatever wrong the employee alleges. The demand ordinarily includes the payment of that employee’s attorney’s fees.

Most Federal discrimination laws allow for the recovery of attorney’s fees to the “prevailing party”. In a case that goes to litigation, this can mean that the employee’s attorney will ask the court to award “reasonable attorney’s fees”. Typically, the employee’s will ask that the court award attorney’s fees in excess of $100,000. Even in cases that settle, employees expect their attorney’s fees to be paid by the employer, which again can add up to significant amounts of money even in a case that is considered suspect.

In a recent Federal employment discrimination case, a jury awarded an employee $110,000 in damages for the employer’s retaliation for her protesting unlawful employment practices. The employee asked the court for an award of attorney’s fees. Although the employee also brought two other unsuccessful claims (one for gender discrimination and one under the FMLA) that the jury rejected, the judge in that case awarded the employee $250,000 in attorney’s fees and expenses. Think about it: her attorney’s fees award more than doubled the amount of actual damages that the jury awarded to her. The judge reasoned that the winning claim (retaliation) was “intertwined” with her other discrimination claims such that she was entitled to all of her attorney’s fees.

What is the lesson learned from this illustrative case? Be proactive as an employer. Conduct regular training for both employees and management, including on topics such as harassment. In addition, conduct a self-audit of internal recordkeeping, policies and procedures, etc. If you find violations on your own, it’s cheaper and easier to correct with the assistance of counsel than when your company is facing a claim or audit. Finally, while not all claims are avoidable despite best efforts, if the company has taken proactive steps such as those mentioned above, it can mitigate its exposure and can reduce the number of claims. After all, paying someone else’s attorney’s fees doesn’t exactly help the bottom line.

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