Defending Unfounded and Negative Value Employment Claims in Oregon

by Joel Christiansen

“Suing solely to extract a settlement offer is rational, of course, only if there is some likelihood that the plaintiff will indeed receive such an offer.” Bebchuck, Lucian Arye, Suing Solely to Extract A Settlement Offer, Vol. 17, p. 437, U. Chicago Journal of Legal Studies, (June 1988)

Smaller firms, with lower overhead and technology-proficient attorneys who are willing to work smart with a sharp focus on efficiency can change the cost benefit analysis such that defense of meritless claims can become a viable business decision. This can disrupt the business-as-usual settlement of dubious cases that traditionally results from a cost-benefit analysis using inflated defense budgets.

The best overall outcomes in employment cases occur where the parties act reasonably and work together to resolve their disputes informally. This is hands down the best way to keep costs low and create solutions that work for everyone. Unfounded and negative value employment lawsuits are no exception to this rule.

The Prevalence of Unfounded Employment Claims

“You agonized over the decision but knew it was right. Imagine your surprise when you received a letter in the mail today accusing you and your company of […] discrimination!” Sherwyn, D., & Wagner, P. E., Addressing Employee Lawsuits, in M. C. Sturman, J. B. Corgel, & R. Verma (Eds.), The Cornell School of Hotel Administration on Hospitality: Cutting Edge Thinking and Practice, pp. 417-429 (2011).

“Negative value” legal claims refer to those where “the expected value to [the potential plaintiff] of going to trial is negative.” Id. This includes cases where (1) the plaintiff is likely to lose, and (2) the costs of litigation outweigh the best potential outcome. Unfounded claims simply refer to those not supported by fact or legally deficient for some other reason. Even in cases where the expected value of litigation is negative, this “might not deter the plaintiff from suing: the plaintiff might sue — hoping to extract a settlement offer from the defendant, and planning to drop the case if such an offer is not received.” Id.

Data summarizing the outcome of employment-related disputes is relatively sparse. Because the majority of employment disputes are resolved informally and often on confidential terms, there are relatively few statistics available. However, where data does exist, it seems to suggest that employees are fighting long odds whenever they assert legal claims against an employer.

One large dataset — EEOC claim data — provides an interesting look at a large sample of employee civil rights claims spanning several years and how those claims were resolved. Of 92,641 resolutions in EEOC’s 2015 Fiscal Year, the Commission found reasonable cause in only 3.5% of all cases. The largest categories of disposition are: (1) no reasonable cause findings (65.2%); (2) administrative closures (16.7%); and (3) settlements (8.9%).

The EEOC dataset is not comprehensive. Most notably, the EEOC data does not include informal settlements such as severance packages and other informal agreements in response to attorney demands or direct negotiations with employees. It also excludes cases where employees decline to pursue formal legal claims against an employer. EEOC data does not include claims filed with other government agencies like the United States Department of Labor or employment-related state agencies. The EEOC dataset also omits other matters that proceed via other formal channels, such as arbitration or litigation in state or federal courts.

Statistics from other forums are similarly disfavorable to employees. One study of 3,945 arbitration cases administered by the American Arbitration Association (AAA) found that:

(1) the employee win rate amongst the cases was 21.4%, which is lower than employee win rates reported in employment litigation trials; [and] (2) in cases won by employees, the median award amount was $36,500 and the mean was $109,858, both of which are substantially lower than award amounts reported in employment litigation

Colvin, A. J. S., An Empirical Study of Employment Arbitration: Case Outcomes and Processes, Journal of Empirical Legal Studies, 8(1), 1-23 (2011).

Cornell Law School professors Kevin Clermont and Stewart Schwab have repeatedly published articles outlining the long odds that employment discrimination plaintiffs face in federal court.

“Results in the federal courts disfavor employment discrimination plaintiffs, who are now forswearing use of those courts. […] Jobs cases proceed and terminate less favorably for plaintiffs than other kinds of cases. Plaintiffs who appeal their losses or face appeal of their victories again fare remarkably poorly in the circuit courts.

Clermont, Kevin M. and Schwab, Stewart J., Employment Discrimination Plaintiffs in Federal Court: From Bad to Worse?, Harvard Law & Policy Review, Vol. 3, No. 1 (2009); See also Clermont, Kevin M. and Schwab, Stewart J., How Employment Discrimination Plaintiffs Fare in Federal Court, The Journal of Empirical Legal Studies, Volume 1, Issue 2, 429–458 (2004).

Unfounded Employment Claims are Costly

The costs of unfounded and negative value lawsuits are significant. Employment cases often implicate long-term relationships and therefore tend to be inherently fact-intensive. Employment cases have a reputation for being legally complex due in large part to an alphabet soup of overlapping federal, state, and local employment laws, rules, and regulations (e.g., FLSA, ADEA, FMLA, ADA, OSHA, ERISA, Title VII, etc.). Estimates of the average cost of defending an employment lawsuit through trial frequently exceed $100,000.00. Employers willing to creatively defend employment claims are the ones most likely to achieve significant cost savings.

Employers that lose or settle employment claims may also pay damages, penalties, fines, interest, costs, and employee attorney fees. This exposure can change seemingly small claims into high liability situations for employers. See e.g. Cain v. Almeco USA, Inc., 1:12-CV-3296-TWT, 2014 WL 2158413 (N.D. Ga May 23, 2014) (Awarding $173,300.50 in plaintiff’s attorney fees in a $6,000 FLSA action); Muniz v. United Parcel Serv., Inc., 738 F.3d 214, 218 (9th Cir. 2013)(“The sole issue on appeal is whether the district court abused its discretion in awarding Muniz $697,971.80 where the jury awarded her only $27,280”)

In addition to attorney fees, settlement/verdict payments, and other litigation costs, employment litigation has potential to create significant disruption and stress on any business. Unwanted media attention, workplace rumors, and perceptions related to litigation itself can dramatically increase actual costs for employers. Despite these costs, employers that successfully defend unfounded and negative value suits have much to gain, including credibility, loyalty, and improved business practices.

Aside from costs to employers, unfounded employment lawsuits may actually also have a negative impact on the resolution of positive value employee cases:

In comparison to the situation that would obtain if there were no [negative value] suits, the presence of NEV suits (a) lowers the settlement amounts for which [positive value] suits are settled, and (b) increases the proportion of [positive value] suits that are not settled but rather go to trial.

Bebchuck, Lucian Arye, Suing Solely to Extract A Settlement Offer, supra.

How Employment Claims Arise

Employment claims arise differently from other types of civil cases. Liability in an employment case tends to be a complex issue due to the intertwined factual and legal nuances inherent in any employee/employer relationship. Employers have a wide range of human resources and management practices and every employee is a unique individual. Workplaces implicate a variety of social and cultural issues. Written records, including electronically stored information, can be voluminous. As a result, employment claims may arise in several ways.

Employment claims arise via: (1) written notice from an employee, plaintiff’s lawyer, or someone else; (2) charge or complaint with a government agency; or (3) service of process (e.g., court papers such as a summons and complaint).

While this article focuses primarily on unfounded and negative value claims, there is no question that some employment claims arise for the very reason they were intended: because an employer broke the law. Employers that violate the law may be liable to an employee. An employer may also be subject to fines or other action. Employees have the right to in good faith oppose and report unlawful employment practices and other unlawful activities. However, even if an employer broke the law, it still has the right to disagree with the basis for or extent of liability.

Employees assert unfounded and negative value claims against employers for a variety of reasons. Employees sometimes fail to recognize why their claims will be unsuccessful. This could be due to a misunderstanding about how the law works. It could also be due to misunderstanding about how or why an employer made a decision. Many employees feel a sense of injustice or unfairness following a termination and some of those employees may be predisposed to believe that they were “wrongfully” treated.

Another issue that causes issues related to unfounded and negative value claims is the presence of attorney fee-shifting provisions found in many Oregon civil rights and wage and hour statutes. See e.g., ORS 659A.885, ORS 652.200, and ORS 653.055. Fee shifting statutes can dramatically change a plaintiff’s “expected value” calculation and increase the likelihood that a plaintiff (or his/her lawyer) will recognize an employment-related claim as having a positive value and therefore attempt to pursue it against an employer.

Defending an Unfounded Lawsuit

Defendants in unfounded or negative value employment lawsuits have a strong incentive to reduce and stabilize defense costs. In many cases, settlement costs of employment cases are directly linked to defense costs. Therefore, it follows that reductions in defense costs will directly result in reduced settlement costs. Defense costs will always vary on a case by case basis according to a variety of factors (e.g., type of case, parties involved, expert witness needs, geographic location of the litigation, etc.). However, in my experience, excessive defense costs are often unnecessary and counterproductive to all parties involved in many employment litigation matters.

It is not uncommon for insurance companies and large corporations to report spending well into the hundreds of thousands of dollars to defend employee lawsuits:

[O]ne in five [employers] will face employment charges with an average cost to defend of $125,000, which includes expenses such as attorney’s fees and settlement costs. *** The median judgment for cases that go to trial is approximately $200,000 for employment lawsuits adjudicated by the courts, while one-in-four cases resulted in a judgment of $500,000 or more

According a report published by the National Center for State Courts, the median cost of defending an employment through trial, not including payment of damages or plaintiff attorneys fees is $88,000, which represents 374 hours of attorney time at a rate of approximately $235/hour. In addition to attorney fees, litigation costs often increase due to expert witness fees, travel costs, pre-litigation activities (e.g., negotiation, arbitration, mediation, government agency proceedings), and remedial measures, such as updating policies and practices.

Spending large amounts of money defending unfounded or negative value employment claims usually only makes pragmatic sense for insurers and large corporations because they are able to spread litigation costs over a larger case portfolio. Insurance companies and large corporations tend to be inherently conservative and hire larger defense firms by default. Employers and their in-house counsel are increasingly relying upon creative litigation strategies and alternative defense billing arrangements to manage the costs of defending unfounded and negative value claims. Employers and general counsel unwilling to explore creative options for defending these cases will continue being forced into settling negative claims at significant costs.

Employment Defense Counsel in Collaboration With Human Resources Counsel

“The best-laid schemes o’ mice an’ men gang aft agley” Robert Burns, Tae a Moose.

Regardless how hard an employer tries, the prospect of defending an employment claim remains a reality of modern business in Oregon. Some claim that up to 75% of all litigation against corporations is employment-related. Well laid human resources plans may reduce the number and severity of employment litigation. However, employees remain free to assert legal claims against employers therefore having to defend a claim remains a potentiality for every Oregon employer.

There is a distinction between seeking employment and human resources general counsel or consulting type services (onetime or ongoing) and seeking representation in defending an actual legal proceeding (actual or threatened). The former involves assistance with crafting and implementing employer plans, policies, practices, and contracts to avoid employment-related legal liability. It also often includes counsel involving resolution of lower level incidents. Employment defense, on the other hand, involves responding to a specific employment-related legal claim, government notice, or court paperwork.

Conclusion

This article is not legal advice. If you have questions about defending an unfounded or negative value employment claim you should seek legal advice from an Oregon employment lawyer before signing. The attorneys at Vogele & Christiansen are experienced and happy to help subject to availability on a case-by-case basis.