Fight or Flight? When an Employee Sues You, Should You Litigate or Settle?

Two weeks ago, the New York Times' You're the Boss Blog asked the following question:

How do you handle employee litigation?

Do you dig in your heels and fight, settle, or some combination of the two?

The NYT's blog post recounted the story of one small business owner who chose to stand his ground and assume the risk of taking an employment case to trial. As a result the employee dropped his settlement demand to a nuisance value, $10,000.

The reality, however, is that there is no easy answer to the question of how your company should respond to a lawsuit by an employee. You must weigh all of the following factors to come to the right decision for your business in each case.

• Is the plaintiff a current or former employee?
• How much can you afford to spend, and will litigation now impede your ability to fund a settlement later?
• Do you have employment practices liability insurance coverage?
• Is there a risk that a settlement will incent other employees to bring claims, or will long, protected litigation deter copycat claims?
• What is your tolerance for the distractions of litigation—responding to discovery, gathering documents, dealing with the hassles of electronic discovery, attending depositions, and attending court dates?
• Do you want to subject your managers, supervisors, and other employees to depositions?
• What is the reputation of the plaintiff's attorney—is s/he going to make the case more difficult and expensive than necessary?
• What is the likelihood the assigned judge will grant a summary judgment motion and dismiss the case?
• How tight or loose are juries in your jurisdiction?

How you answer these question will dictate whether you litigate or offer a settlement, and, if it's the latter, when you make that offer. Keep in mind, however, that even if you choose to offer a settlement, no case resolves without two willing parties. If the other side is not willing to meet you at a fair and reasonable value for the claim, then the choice has been made for you, lest you become an easy mark for every disgruntled employee.

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