VideoEmily Grothe was floored when she heard that a former partner at her energy consulting firm was suing her and the company for, among other things, violation of the Family and Medical Leave Act and the Americans with Disabilities Act. The partner had left Natural Resource Group Inc. (NRG) under what CEO Grothe believed was a mutually agreed-upon separation.
Another company might have settled rather than let the case go to court. But Grothe rejected that option. "It's my opinion that if you haven't done anything wrong, you need to fight so you don't set up a culture of mediocrity and signal to your employees that you're afraid of litigation," says Grothe, whose company amassed $43 million in revenue last year. "There was no evidence that we had discriminated against [the former partner] in any way."
Turns out Grothe was right. A year after the claims were filed, the case was dismissed by the judge.
NRG's success came at a price — $250,000 in legal fees to be exact. Still, Grothe considers her company lucky. NRG has suffered through only one employee lawsuit in its 14 years. Larger companies like Wal-Mart and Coca-Cola face hundreds of employee lawsuits a year, and the cost can be staggering. Coca-Cola paid $192 million in a racial-discrimination settlement in 2000. Last year, Verizon Communications was informed by the Equal Employment Opportunity Commission that it must pay $49 million to settle pregnancy-discrimination claims filed against its predecessors, Nynex and Bell Atlantic.
Aside from the financial impact of these settlements, which must be disclosed to shareholders if they involve material amounts, the public-relations impact is significant. Witness Wal-Mart's recent media campaigns to burnish its image in the face of the current class-action sex-discrimination suit pending against it. Little wonder that labor and employment disputes are the top litigation concern of corporate counsels at 54 percent of U.S. corporations, according to a survey conducted by law firm Fulbright & Jaworski LLP in New York.
Preventing such suits is not easy. Most companies now mandate some form of training on ways to avoid and investigate sexual harassment, workplace discrimination, and other employment quagmires. But those efforts aren't always as effective as companies would like — and are easy to forget or misunderstand. "Employers screw up the nuances and details of the employment laws and regulations," says Jeffrey Oberman, a partner in law firm Oberman Thompson & Segal in Minneapolis. He's not advising that companies stop providing comprehensive rules-based training to human-resource specialists, but he has found that the best defense against employee lawsuits is to provide such instruction to executives, managers, and supervisors (who are the target of most factual allegations) while also creating a workplace geared toward avoiding lawsuits in the first place. "If the employees trust the employer, technical violations almost never lead to litigation," says Oberman, adding that in those situations, parties almost always work things out. And in larger, more complex organizations, where it may be harder to create that environment, says Cynthia Jamison, national director of CFO Services with Tatum LLC, it is still possible in any individual case for "a boss and an employee to get to that trust."
Look in the Mirror
There is no typical employee lawsuit. Complaints can range from discrimination (age, sex, race, religion, national origin, pregnancy) to safety and health violations to a hostile workplace, wage and hour violations, harassment, wrongful termination, and retaliation, as well as breach of fiduciary duty.
While it is easy to blame the litigious nature of our society for the proliferation of such lawsuits, experts contend that employers should first look in the mirror. Most employment-related charges come down to an interaction between an employee and a manager that has gone horribly wrong. "We promote people to managerial roles because of their operational successes or financial skills," says Robert Gilmore, an employment and labor attorney with Kohrman Jackson & Krantz PLL in Cleveland, "but those skills don't translate into good management of people."
Sometimes, says Gilmore, managers sugarcoat issues with problem employees because they fear conflict, don't want to be the bearer of bad news, or want employees to like them. When problems escalate to the point where an employee must be terminated, lack of documentation or disciplinary history can leave the company vulnerable to litigation.
Other times, managers fail to properly listen to employee complaints, act on them, or pass them along to superiors. This often happens because a manager is so overwhelmed with operational demands that he or she overlooks the seriousness of an accusation. "When a company or manager is under stress," says Gilmore, "they're trying to hit numbers and they close down communication. They don't want to hear a complaining employee. In some companies, if an employee comes forward with a problem, they cut off his head. It's really a culture issue."
But it's crucial to encourage employees to come forward with complaints — not punish them when they do — because "just being open and listening to employee complaints can give managers information about potential problems," says Ralph Dawson, a partner at Fulbright & Jaworski. Agrees Michael N. Sheetz, a partner with Nixon Peabody LLP: "The best time to resolve a case is right when it begins," and that's often at the complaint stage.
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