Curbing Runaway Discrimination and Harassment Costs

By Alan Rupe

Aug. 7, 2007

Employers, general counsels and human resource professionals who have been through litigation know the cardinal rule of employment law: “Winning isn’t everything. You still owe attorneys’ fees.”

    An employer called upon to defend a charge of discrimination before a human rights agency such as the federal Equal Employment Opportunity Commission or a state equivalent will pay attorneys’ fees ranging from $2,500 to upwards of $10,000 for preparation of a response. Defense of a lawsuit will cost even more—typically $35,000 to $100,000, depending on the number of plaintiffs, types of claims, number of witnesses and exhibits involved and, of course, the adversarial level of the opposing party. Your lawyer will expect to be paid, win or lose.

    Adding insult to injury, federal courts have begun to allow the EEOC to continue pursuit of discrimination claims for employees who have already settled their claims through mediation or arbitration. One federal court compelled a Michigan company to pay the EEOC $500,000 after a group of former employees settled their claims for race discrimination.

    Faced with the prospect of endless rounds of attorneys, attorneys’ fees, costs, employee downtime and emotional disruption, employers, general counsels and HR professionals have become resourceful in developing ways to reduce or even avoid employee claims and the subsequent expenses. Strong, closely enforced anti-harassment policies, statute-of-limitation waivers, employment agreements requiring mandatory arbitration of employment disputes and “anti-discrimination bonds” are all tools used by employers to curtail the runaway costs of discrimination and harassment. The most useful tool of all may soon come into play as well. More about that later.

    Sexual Harassment Policy and Training: With the 1998 decisions in Burlington Industries Inc. v. Ellerth and Faragher v. City of Boca Raton, the U.S. Supreme Court provided employers with a road map to reduce liability for harassment. Implementation of a strictly enforced anti-harassment policy with adequate complaint procedures allows employers to avoid liability altogether. And the big-ticket item, punitive damages, can be avoided completely in those cases where employers make good-faith efforts to prevent discrimination through education and training. According to the court, “[T]he purposes underlying Title VII are … advanced where employers are encouraged to … educate their own personnel on Title VII’s prohibitions.”

    At least three state legislatures have answered the Supreme Court’s call: Connecticut, Maine and California have statutorily mandated training on the prevention of sexual harassment, requiring a minimum amount of training for supervisors. In Maine, all employees are required to have such training.

    When compared with the price tag for defending a sexual harassment claim or lawsuit, a simple dollars-and-cents analysis of the cost of developing a policy and training employees makes this decision a no-brainer.

    Statute-of-Limitation Waivers: Limiting the time in which an employee may file a discrimination claim is not a new idea, but such an agreement, carefully crafted, can be the impetus for either a quick resolution of a complaint or ultimate dismissal of a plaintiff’s case because of the shortened statute of limitations. In this case, time is money, and early resolution or dismissal almost always reduces time and expense for an employer.

    Mandatory Arbitration: Mandatory arbitration of employment disputes can also be extremely effective at reducing both time and costs of litigation. The EEOC has mediated more than 50,000 cases since 1999, and more than 6,500 of those mediations resulted in non-monetary settlement.

    Most employers are subject to the Federal Arbitration Act. The U.S. Supreme Court has held that employment arbitration agreements are enforceable under that law, and that courts can compel arbitration. Some state courts (Colorado is one example) have chosen to follow the federal court lead and often resolve employee disputes in favor of arbitration.

    Another benefit of employment arbitration agreements is that in some states, employees are not required to sign the agreement in order for it to become binding. In one recent case, a New Mexico federal court held that despite the fact that the employee never signed nor objected to the employer’s arbitration agreement, the employee’s continued appearance at work after the agreement’s effective date constituted her assent to the terms of the agreement.

    Benefits arising from the implementation of mandatory arbitration agreements include the employer’s ability to manage discrimination issues internally, in less time and with lower cost. However, before implementing a mandatory arbitration agreement, employers should check both federal and state law to ensure that such an agreement will be beneficial, given the employer’s geographical location and the type of work performed.

    Anti-Discrimination Bond: This idea, suggested by Anne Marie Knott, assistant professor at the Olin School of Business, Washington University at St. Louis, has the possibility of reducing employment litigation. According to Knott’s concept, the employee has the option of contributing to an individual savings account much like a 401(k). If the employee sues the employer, the employee forfeits the funds in the account as an offset to the expenses incurred by the employer in the subsequent litigation.

    This seems to be a classic instance of putting your money where your mouth is and underscores the creative measures businesses seem to be willing to take to reduce what they perceive as unnecessary expenses. No comment or legal opinion from me, however, on the legality or advisability of this action.

    Recovery of Attorneys’ Fees: Here’s what would really make a difference for employers: Allow them to recover attorneys’ fees and expenses when they win. Given the Supreme Court’s recent undeniable swing to the strict construction of federal laws, it may be time for a review of two federal statutes: 42 U.S.C. § 1988 and its Title VII counterpart, 42 U.S.C. § 2000e-5(k). These two statutes provide that in federal civil rights actions, “the court, in its discretion, may allow the prevailing party, other than the United States, a reasonable attorney’s fee as part of the costs.”

    The 1978 U.S. Supreme Court, in the case of Christianburg Garment Co. v. EEOC, made a distinction between a prevailing defendant and a plaintiff. The court did not apply the plain reading of the statute (“prevailing party gets fees”), but determined that a prevailing defendant could recover attorneys’ fees only “upon a finding that the plaintiff’s action was frivolous, unreasonable or without foundation, even though not brought in subjective bad faith.”

    The 2007 Supreme Court, however, may likely differ. Consider the two very different outcomes of two recent employment law decisions.

    In Burlington Northern & Santa Fe RR v. White, the court seemed purely “pro-employee,” looking at the statute itself to define an adverse employment action. The court ignored previous court rulings interpreting that same statute and instead relied on its plain language.

    But in the same term, the Supreme Court flipped 180 degrees from its pro-employee decision and gave us the pro-employer case of Ledbetter v. Goodyear Tire & Rubber Co. Again, the court ignored past interpretations of the statute, and made its determination regarding the statute of limitations for filing a charge of discrimination on the strictly construed language of the statute.

    As Burlington and Ledbetter illustrate, it appears as if the current Supreme Court will look at the plain meaning of employment statutes rather than other earlier court decisions interpreting the text. In Ledbetter, the court concluded that “[u]ltimately, experience teaches that strict adherence to the procedural requirements specified by the Legislature is the best guarantee of evenhanded administration of the law.”

    The federal statutes, 42 U.S.C. § 1988 and 42 U.S.C. § 2000e-5(k), make no distinction as to whether the “prevailing party” is plaintiff or defendant, and courts have ignored both statutes’ plain language with regard to the award of attorneys’ fees. Now may be the time for this issue to be addressed by the nation’s highest court. With the prospect of paying fees and costs to the company it just sued, plaintiffs’ attorneys may be a little more reluctant to file a lawsuit when the facts and law are not clear, and employees may be more inclined to take advantage of other methods of dispute resolution such as internal grievance procedures or arbitration.

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