Avoid / Minimize the Effects of Employee Litigation

Avoid / Minimize the Effects of Employee Litigation

The cost of defending a company against an employee lawsuit can be damaging to a large company and can cripple a small business. Liability insurance can offset some of the potential cost, but employee lawsuits – and judgments that result – can still be incredibly expensive. And that cost also includes the effect on employee morale, productivity, and the overall health and operation of a business. Avoiding situations that could cause employees to file suit against your company is not only smart – it's also good business.

The best way to minimize the possibility of employee litigation is to be proactive. Make sure your employee policies and employment practices eliminate opportunities for conflict, make sure you establish practices to document interactions with employees, and resolve disputes long before litigation could occur.

Sound simple? Let's take a closer look at what you can do; here's the basic process:

  • Identify potential problem areas. Review your hiring, promotion, disciplinary, and termination processes and procedures. Consider having an attorney review your policies as well as your employee handbook (and if you don't have an employee handbook, consider creating one so you can document your employee relations procedures.) Pay special attention to any process or procedure – or lack thereof – that could lead to claims of discrimination or harassment.
  • Make necessary changes to your policies. Once you've reviewed your policies, make changes that are necessary to ensure compliance with employment law. Then document the changes you make, train employees where necessary, and make sure everyone understands the requirements and expectations going forward.
  • Take the next step; focus on prevention. Policies and practices are a great start, but don't stop there. Look for ways to set up conflict management systems, make it easier for employees to let you know if problems exist, and constantly audit your systems and practices to ensure all employees follow your guidelines.

The key is to understand all of your legal responsibilities as an employer. For example, firing or otherwise disciplining an employee who is called for jury duty or who serves in the military or reserves is illegal. It is also illegal to retaliate against employees who claim harassment or discrimination or to deny long-term employees commissions or bonuses by terminating them before those benefits are vested.

If you have questions or concerns, always seek the advice of a lawyer. You may not need to engage the lawyer to actually handle the issue, but you could benefit from experienced guidance and counsel. Especially seek input if you are in a position to seriously discipline or terminate an employee in a "protected class," like an employee over the age of fifty, a member of a minority, or an employee with a disability. Seek legal advice even if you plan to take an action that impacts a large number of people and you will apply that action evenly and fairly to all; large-scale actions (like layoffs or mandatory early retirement) can still be a source of litigation even if you apply those actions to a large group of diverse employees.


  • Be familiar with employment laws in your state. Federal laws vary from state laws. Also stay on top of changes and new legislation. If you can't stay on top of the legal situation, consult with a lawyer regularly to find out what you need to know to stay up-to-date.
  • For free advice, contact the Department of Labor. Your local Department of Labor office will provide free advice and guidance about your wage and benefits practices.
  • Have your policies and procedures reviewed by an experienced attorney. Send along all employee manuals, handbooks, and guides. Conduct a regular review to ensure your documents are up to date and reflect any changes in law.
  • Use appropriate applications for employment, employment contracts, and agreements. Document your processes, and make sure employees understand their responsibilities, including the areas of non-disclosure and non-competition.
  • Conduct regularly-scheduled performance reviews, and make them as accurate and complete as possible. It is difficult to defend firing an employee for poor performance when his or her last evaluation indicates acceptable (or better) performance.
  • Make job offers in writing, and specify the terms and conditions of employment. Providing (and keeping) written documentation helps ensure there are no misunderstandings later.

In spite of your best efforts, an employee may still file a discrimination, harassment, or employment law violation claim against you. If that occurs, take action:

  • Contact your lawyer immediately. Fully describe the situation, provide all relevant documentation, and take the action recommended. Especially ensure that you respond in a timely manner to all requests for information or to court orders.
  • Do not retaliate, and make sure other employees also do not retaliate. Employees have the right to file claims, and they are protected from retaliation as a result of filing claims. Act professionally at all times.
  • Follow the advice of your lawyer, and stick to your principles if you are in the right. Settling in order to avoid litigation may help in the short term, but it can also create a long-term problem for your company.
  • If you're wrong, settle quickly. Then fix the problem that caused the complaint: Incomplete policies, poor training, or a problem employee. Make sure the situation does not occur again in the future.

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