What Steps Should be Taken to Protect a Business From Employee Lawsuits?

To protect your company from employee lawsuits, I recommend obtaining an employment practices liability insurance policy (EPLI). This policy should provide some coverage for employee claims against the company.

I also recommend placing a litigation hold on business records pertaining to the employee’s threat. A litigation hold means that you’re ensuring that all of your corporate records pertaining to the situation are preserved and not destroyed. If the employee actually sues the company, all of your communications are discoverable in any subsequent lawsuit. I recommend communicating by telephone as opposed to email or any other written communication because you’ll have more confidentiality and less exposure to the company if you’re talking about the employee matter on phone calls. The phone discussion transcript generally cannot be printed and used as an exhibit against you at a deposition or in trial.

If there’s a threat of a lawsuit, you company should be in close contact with legal counsel to assess your legal exposure. Once legal counsel is involved, those written communications with your legal team should fall within the scope of attorney-client privilege. This helps to ensure that the other side is not privy to your discussions about the matter. If an employee is about to be terminated, I recommend consulting with legal counsel in advance of the termination to make sure that you are appropriately assessing any and all legal risks and ensuring that the termination is properly documented and carried out.

If an employee threatens to sue your company, and after this threat you discipline that employee, the company’s actions in disciplining the employee could create more legal exposure through a retaliation claim. The employee could then have a new legal claim against you, saying, “I told you that I was being discriminated against and then you fired me right after. That means you retaliated against me for raising this issue.” You want to be very careful once an employee communicates that they’re going to sue you. Often our corporate clients contact us when they have already decided to terminate an employee, and then that employee threatens to sue the company. The timing there is very important. If you’ve already made the decision to terminate, just because somebody then threatens to sue you does not mean that you now cannot fire this person. It’s helpful to get legal counsel involved because you don’t want to be in a situation where you can’t run your company efficiently and have the best possible employees working for you.

Companies should consult with legal counsel to understand whether the employee actually has a viable cause of action, or if it’s just an empty threat. Is it a valid threat? And if it’s not a valid threat, at least you’ll rest easier knowing that they don’t have a legal leg to stand on. It’s important to have that peace of mind.

Many times, an employee will say, “I’m going to sue you because you discriminated against me based on my race or my age.” After this threat, your company should consult with legal counsel to ensure that the company is actually subject to race discrimination and age discrimination laws. The federal Age Discrimination in Employment Act (ADEA) only applies if you have 20 or more employees. You also want to conduct a legal review in case other state and local laws apply to your company.

For example, we recently had a case where an employee threatened legal action based on gender discrimination, but because this nonprofit only had a handful of employees, the federal, state and local laws on gender discrimination were not applicable to our client. There was effectively no way the employee could bring a viable gender discrimination claim against our nonprofit client.

Knowing whether a claim is valid is a very powerful tool when somebody threatens to sue. You always want to make sure that when somebody is coming after your company and demanding money, that you assess the legal value of any asserted claims. Having experienced employment and litigation counsel involved can save you thousands of dollars.

Another very common lawsuit against companies is one for overtime wages under the Fair Labor Standards Act (FLSA). FLSA lawsuits are attractive to employees, because if they win, they can get recovery of their attorneys’ fees and potentially punitive damages that are used to punish the company. If it’s a purposeful violation of the FLSA, the lawsuit can look back at a 3-year period.

If an employee threatens to bring a wage lawsuit against your company, you want to get legal counsel involved as quickly as possible, because the employee can take that case straight to federal court which shows up in the public record. Then even an invalid lawsuit can cause extreme harm to your reputation and business. This is particularly true for our government contractor clients; they don’t want to have active litigation for their company because it can harm their ability to do business with the federal government.

For more information on Protecting Businesses from Employee Lawsuits, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (703) 896-7704 or emailing our firm at katie@lipplawfirm.com.