Far too often, small business owners assume that settling litigation claims – regardless of whether they are indeed substantive – is merely a cost of doing business.
Our Boston small business attorneys want you to know that is not the case. The fact is, business owners have many options available to them.
The New York Times recently profiled a good example of this with the owner/operator of a luggage company that averages somewhere around $10 million in sales annually. In the time since he founded his firm in 1990, the owner says he has dealt with three lawsuits for wrongful termination.
In the first two, he threw his hands in the air and agreed to a settlement, convinced that was the only real option.
But when the third suit was filed three years ago, the owner said he refused to simply take his lumps lying down – especially as he was more than convinced he had done absolutely nothing wrong.
The employee who had filed the lawsuit was one of 14 people – 30 percent of the firm’s staff – who had been laid off after annual sales declined nearly 40 percent. The business owner said he did what he had to do in order to keep his company operational. Additionally, the employee in question had a marked dip in performance in the months leading up to the lay off. That had led to the owner reducing the worker’s commissions by 25 percent and issuing a written warning regarding improper use of the Internet and productivity.
After the employee was laid off, he attempted for years to get a settlement from his former boss. When he wasn’t successful, he filed a lawsuit claiming that by firing him, the company had breached an implied employment contract in which it was reportedly understood that he could be fired only for a “good” reason.
Further, there was an alleged “pocket dial” incident in which the employee’s phone had accidentally dialed another sales manager, who was able to listen in as the employee ranted in a private conversation about the company and fellow employees. The sales manager called the CEO into the office to listen to the conversation, and an assistant was called in to take notes.
The employee claimed this was an invasion of privacy – and the real reason he was fired. He sought a payout of $1.2 million.
The business owner refused – particularly as he had employment liability insurance that would cover his legal expenses in such cases.
Jury selection had begun when the employee said he would accept an offer of $25,000 – something that had been on the table, though the offer had since expired. The negotiations continued until they were eventually down to $10,000. The judge at that point recommended both sides end it.
The business owner said he would – as long as both the employee and the attorney would write an apology letter, stating that the action should never have been filed and that the lawyer should take more care to vet future employment claims against small businesses.
Many small business owners such as this one have learned a great deal of valuable – albeit expensive – lessons in going through employment liability litigation. Many have learned how to limit their liability in the future.
In this case, the owner learned that settlement isn’t always the only option. Indeed, business owners should carefully weigh all avenues before simply resigning to a payout. You may actually have a stronger case than you think, particularly if you take care to do the following:
- Make sure work expectations are clearly defined. Employees need to know what they have to do to succeed in their position and they need to be frequently informed of their progress. Performance problems can be key in later litigation efforts. When an employee is fired, he or she should not be surprised by it.
- Be tactful in your termination. A lot of times, workers who are fired can feel incensed or burned. If you want to ease the blow and limit your liability, you might consider offering a severance package – with a liability release signature required in order for them to receive it. This may also have the worker walking away feeling as if he or she has been treated fairly.
- Don’t break the law. This seems fairly straightforward, but the fact is, the law is a complex and ever-changing beast. When you go to defend your actions in court, you need to show that you have been operating in accordance with the law. This includes things like posting all state and federal employment and labor materials in public areas, having an employee handbook and treating everyone the same. If you aren’t sure whether certain practices are in line with the law, consult with an experienced lawyer in your area.
- Purchase liability insurance. Adequate insurance policies are an investment, and money well spent.
The Brown Law Firm, LLC, has offices in Belmont and Boston. For a free and confidential consultation, call 617-489-0817 or contact us online.
Settling Is Not the Only Way to Resolve an Employee Lawsuit, Feb. 20, 2013, By Adriana Gardella, The New York Times
More Blog Entries:
Massachusetts Small Business Start-Ups Need Legal Advice, Feb. 20, 2013, Boston Business Lawyer Blog