And likely is the key word. The Dunlap Commission, which was created by Labor Secretary Robert Reich to study labor laws, issued a preliminary report of its findings in May, and it's not optimistic for employers. The Commission stated that about 10,000 wrongful termination complaints are filed every year in state court. Employers need to protect themselves if they don't want to be among those 10,000.
Michael J. Lotito is the West Coast coordinating partner for the New York City-based law firm of Jackson Lewis Schnitzler & Krupman, a practice limited to representation of management in labor, employment and benefits law. Here, Lotito offers advice on warding off and dealing with wrongful termination suits.
To begin with, could you explain the types of complaints that could fall under a wrongful termination suit?
It could be contractual claims: violations of so-called expressed contracts of employment, based upon either formal written contracts or employee handbooks; or it could be implied contracts based upon a pattern of conduct or verbal representations that might have been made. It could be [termination after] promises of long-term employment or guaranteed employment. It could be violations of so-called public-policy complaints, such as individuals being terminated for attempting to exercise a right that was guaranteed them, such as making a complaint to the labor commissioner or fulfilling their duty to do jury duty. It could be [termination for] the refusal to do something that the law says is wrong, such as refusing to lie in connection with a financing statement that a company files with the Security and Exchange Commission when trying to go public, or when an employee refuses to engage in behavior that would pollute a stream and violate an environmental law.
In its broadest definition, are those all the cases that could fall under a wrongful termination suit?
If you want to broadly define wrongful termination, that could include anything from sex discrimination to race discrimination and all those sorts of [actions dealing with] protected classes as well. So it really depends upon how broadly you want to define wrongful termination. It could be a wide variety of issues. I think that wrongful termination today is usually defined in the broadest sense, although there is customarily a distinction made between a claim based upon the public policy complaints as opposed to the statutory violations, which are the complaints that [involve] race, color, creed, sex, etc.
What is the time frame in which a former employee may legally file suit against a company?
It varies depending on the [type of claim]. I'd say as a general rule the individual has around a year. [The opportunity to file suit] doesn't go on forever. Ordinarily if you haven't heard from the employee within a year, it's very unlikely that you're going to hear anything at all. And it usually happens faster than that.
How common are wrongful termination lawsuits?
We know, based on a study that was concluded about a year ago, that over the last 20 to 25 years, we've seen an increase of about 2,000% in the number of these types of complaints being filed. Some predictors suggest that any major company is going to at least get threatened with one of these actions—if not hit with an actual lawsuit—about once every seven years.
Will the likelihood of a company being involved in this type of suit increase?
Wrongful termination is widely perceived as one of the most rapidly expanding areas of any legal practice, and it is literally spawning the development of law firms for the defense of these types of cases. It's a major complaint of businesses today. So this is a big, big deal, and when it's combined with the type of money awards that can be issued, it's a significant concern to management.
Is the number of complaints increasing because a lot of employers are in the wrong, or are there other factors?
I've maintained for a long time that employment law has less to do with law than it does with money and emotion. These cases tend to be extremely emotional, and the amount of money involved is huge. The damage awards are very, very significant, and that's one of the things fueling the onslaught of litigation in this arena.
Of the complaints filed, how many would you say actually get to court and receive these huge awards?
I'd say 98% of these cases are never tried, and maybe 90% are never even heard about. But there's a tremendous onslaught of threatened litigation. And because they're so expensive to try, and management tends to lose about 70% of them in front of juries that really don't understand the employment relationship, many companies find it's easier to settle than it is to defend their principles. As a result, we have many, many confidential settlement agreements with companies paying out very large sums of money in order to rid themselves of the time, the aggravation and the bad publicity that can come as the result of a negative verdict.
Conduct such as racial discrimination and harassment is clearly wrong. But what types of activities could a company engage in quite innocently that may get it into trouble down the road?
The overwhelming majority of these complaints come not from discrimination, but rather improper personnel actions. For instance, in order to persuade a tryer of fact—a jury, a judge or an administrative agency—that what they did was correct, a company has to have supporting documentation for its decision. When the supervisor [in explaining a termination] says, "The individual did something wrong, and that's why I [terminated the employee]," and the employee says "I did it right, and the supervisor is wrong in saying I didn't, and the real reason was because of my race" or whatever, the tryer of fact, looking at these two stories, has to find some other way to determine who's telling the truth. And they usually look to documentation.
What is usually wrong with the documentation that could hurt an employer's case?
Oftentimes the documentation that employers have to back up the decision is either non-existent, incomplete or downright inconsistent with the stated reason. Often that comes about because supervisors don't know how to conduct a performance appraisal—they haven't been trained. As a result, the supervisor, in sitting down with somebody, will conduct a performance appraisal, and to avoid conflict says that the individual is fully satisfactory when that really is code for "I wish that I'd never hired him or her in the first place." And then when the documentation is inconsistent with the stated reason, the company is put in the unconscionable position of being asked the question: "Were you lying then or now?" And as a result the company loses.
What are the steps that a company should take to protect itself before terminating an employee?
I think that what companies have to do is what I summarize as my ABCs. They always must: be consistent, document everything, treat people equally and to the extent that they can, be fair. Those are my ABCs. I think that before you make a decision to terminate, the company should first suspend, in order to be able to conduct an investigation.
What should companies cover in the investigation?
Have someone who's skilled in these issues take a look at the decision before it's made. Make sure it stacks up to those ABCs, that there is indeed consistency and that the supporting documentation is going to be consistent with the personnel decision. Then after that check has been done it's OK to go ahead and make that decision. But it's very frustrating as a practitioner to be called in after the decision has been made and to try to justify something that you wish could have been much more properly documented or defended.
So an employee's winning a wrongful termination suit is often a result of employers not thinking a termination through?
It's because employers don't go back to the basics, to have well-schooled, well-trained, educated supervisors who from a preventive standpoint can make a decision with the anticipation that it is someday going to be reviewed by a jury. If so, how will the jury look at it? Until you pass that test, I suggest you not terminate anyone.
So should companies train supervisors more on these issues?
I don't believe that the supervisors, however well-trained, can do it themselves. I believe that in any organization, the most authority that any one person should have is the right to suspend an employee pending termination. I believe that there should be a designated central source within every organization that is responsible for reviewing these terminations. Who that central source is will depend on the organization's complexity. But there should be somebody designated within the organization—because there's so much at risk here—to review the decision before it becomes irretrievable and somebody says two years down the road, "If I only knew then what I know now."
You mentioned the importance of documentation. How much should you document to protect your company?
In the best of all worlds, having an essential-function job description that's also utilized as a basis for the interviewing of candidates, and then is matched to the performance appraisal form where employees and other end-users of the product give input [as to how] the employee is producing so that you have uniform feedback from everybody involved and it's very clear and consistent from one person to another—that's what's best.
What other forms of documentation does a company need?
An employee handbook that clearly states what the rules are, what the progressive discipline is, what the results of inappropriate behavior can be—that should certainly be in place. The employee should sign a receipt for that booklet that says "I agree to read the regulations and abide by them, and if I breach them then I agree to be subject to the penalties provided." All of that should be there. If your work force is 95% non-English speaking, it's a good idea to have a handbook in a language that they speak. These things may sound like just common sense and the answer is, well sure it is. The only problem is that common sense is very uncommon.
You say many of these suits are fueled by emotional issues. When you terminate someone, how can you ensure the employee doesn't feel wronged?
All companies should consider what's known as ADR or alternate dispute resolution—sometimes known as avoiding disastrous results, also sometimes known as achieving desirable resolutions. In essence it's an alternative to filing a governmental complaint or going to a plaintiff's lawyer and filing a lawsuit. It can include such things as arbitration clauses, mediation, peer reviews. The central theme is that employees are entitled to due process. They're entitled to have some tribunal make a judgment as to whether or not the employee was treated properly and consistently. You don't necessarily have to go outside the organization in order to have that sort of a review. The organization can provide it. Organizations that have their employees represented by unions have done that for years with grievance and arbitration procedures, and you don't need a union necessarily to have those type of procedures in place. That, it seems to me, is the No. 1 thing companies ought to do to avoid these types of complaints.
What else can you do for an employee to ease the transition?
Make sure that the emotion has dissipated. One way is to ensure that you do have this ultimate form of due process. Another way of dissipating the emotion is to call upon professionals who know how to do it. Those are the outplacement agencies, the individuals who can work with the person in structuring their resum, in figuring out how to go on with their life. [It's important to] do these things in a very humane way because there's hardly anything more frightening than not having an income to provide for you and your family.
Anything else a company should consider to protect itself?
There's insurance that can be purchased today against these types of complaints where counsel is provided and different damages are covered. That's certainly something that from a preventive standpoint companies should consider doing.
Let's say the worst happens and an employer is taken to court. How can the company prepare?
If you have not worked with counsel, now would be a good time to consult with one. There needs to be an independent assessment of the facts which involves an independent investigation. Then there needs to be what I call a risk-assessment meeting—what's the likelihood that something [illegal] happened? What's the likelihood that the individual is going to succeed? How much is it going to cost to defend? What are the implications of negative publicity? And other practical issues become involved, such as, is your primary witness a supervisor who himself is about to be subjected to discipline and discharge? That does not make for a good lawsuit when your primary witness has been fired three months after he or she has fired the plaintiff. Those practical types of concerns are very, very important.
Anything else that's important for employers to know?
Just to summarize, this is an area of the law that still doesn't get a proper degree of respect in most organizations. Until 10 years ago, employment decisions were not viewed as a high-risk ventures. Today they're extraordinarily high-risk ventures. They need the attention of the organization's top executives, not necessarily in making every single decision, but in making sure systems are in place so that when these decisions get made, they're made in the most intelligent, defensible way that they can possibly be made.
Personnel Journal, January 1995, Vol. 74, No. 1, pp. 123-126.