How Much Does it Cost to Defend an Employment Lawsuit?
Last Friday I had the pleasure of appearing on Huffington Post Live, in a segment entitled, "You're Fired! No really." We discussed the current state of employment at-will, and whether American workers need greater protections from being terminated without just cause. If you've read my blog for any length of time, you know what I have some pretty strong feelings on this topic. Heck, I've even written an entire book on this issue of employer rights.
If you missed the show, you can watch it here.
Following my appearance, Texas plaintiff-side employment lawyer Chris McKinney tweeted that he was surprised at my statement that it could cost a company $250,000 to defend an employment lawsuit.
Chris was responding to my comment that the myriad laws that already protect employees from arbitrary or capricious terminations (Title VII, ADA, ADEA, FMLA, etc.), coupled with the threat of defending an expensive lawsuit, serve as enough of a deterrent to most reasonable employers from firing an employee without a good reason.
The reality is that defending a discrimination or other employment lawsuit is expensive. Defending a case through discovery and a ruling on a motion for summary judgment can cost an employer between $75,000 and $125,000. If an employer loses summary judgment (which, much more often than not, is the case), the employer can expect to spend a total of $175,000 to $250,000 to take a case to a jury verdict at trial.
Most employers, if acting rationally, will chose to retain an employee instead of assuming the risk of a $250,000 legal bill with an uncertain outcome. Moreover, employers cannot avoid this risk simply by settling every claim that is filed, lest the company risk the perception of being an easy mark by every ex-employee.
If you must terminate an employee, however, the safest, most prudent course of action is to offer a severance package—but only in exchange for a waiver and release of claims, and covenant not to sue—for all terminated employees except those terminated for some egregious or intentional misconduct. By offering severance in exchange for a release, you are capping your exposure and buying off the risk of a costly, time consuming, and burdensome lawsuit.