Is your business prepared to get sued? It can happen to organizations of any size, including nonprofits, and it will probably happen to you, says S. A. “Sam” Murray, CEO of ManagEase.
“It’s almost inevitable. If you’re in business long enough, you’re going to get sued for something,” says Murray. “It could be employment-related, it could be product-related, but we live in a litigious society, and eventually it’s going to happen.”
Smart Business spoke with Murray about what to do if your company is sued and how working with an HR firm to establish policies now can improve your chances of prevailing in a lawsuit later.
How can you prepare now for a potential lawsuit?
Having regular HR assessments of policies and practices is something that you should institutionalize at your company. Businesses should do this at least once a year.
During the assessment, the HR company will interview managers to identify how they’re implementing policy, review records to make sure that recordkeeping is consistent, and examine compliance factors such as how you’re paying people and how frequently you’re conducting training.
Having the right documentation, policies and practices won’t prevent a lawsuit, but it is a good liability management strategy and will give you ammunition in the event that you are sued. Those documents become most valuable when you have to defend yourself, and working with an HR firm to make sure those documents are in order will pay off down the road.
Is the number of lawsuits against employers increasing?
We are seeing a rise in the number of employee disputes because, as the economy has gotten tighter and more challenging for businesses, they have made some tough decisions, and sometimes employees don’t agree with them.
Perhaps a layoff is made but the employee feels that he or she was singled out and unfairly selected. Jobs are hard to find right now, so laid-off employees are anxious to find some way of getting revenue, and that could be in the form of a lawsuit against a former employer.
What can an employer do to minimize the risk of a lawsuit by a laid-off employee?
The best way to avoid a lawsuit is by providing a severance agreement in which the employee releases the employer from any claim. The best time to do that is at the time of the termination, so the employee isn’t out of work six months down the road, worried that he or she won’t be able to get another job and decides to file suit. That person will probably sue the former employer for a lot more than what they would have accepted in the severance agreement.
That’s the best way to get around a potential lawsuit, but it’s not cheap. As an employer, you have to be able to defend that the severance was a fair settlement of potential claims that the employee could have against you. It has to be a reasonably substantial amount of money. It can’t be $100; we’re talking in the thousands or tens of thousands of dollars.
But the exact amount is tricky, because once you start this practice, you’re going to be measured against it in the future.
Once a suit has been filed against you, what do you need to think about?
If you have employment practice liability insurance, notify the carrier because it will likely assign an attorney to the case. Or if you don’t have insurance, contact your corporate attorney who can make referrals, or ask other business owners who have gone through a lawsuit who they would recommend. Then interview at least two of the attorneys, ideally more, to determine if that person is aligned with you on how to approach your case.
You also need to secure all documents, both electronic and hard copies, that relate to the case. Don’t delete or change anything, and make sure you keep everything. It could be months or more than a year before you get to court, and that is not the time to be looking for e-mails.
You need to be very careful about who you include in knowledge of the suit, because you don’t know who at your company is friends with the disgruntled former employee and who’s going to share information with that person. And the fact that there is a pending lawsuit is not something that you want to announce to the whole company anyway.
Be discrete about how you manage data relating to the case. Often you’ll need to notify the IT person, because that person is the one securing the data, but you need to communicate that the matter is confidential and should not be discussed.
What advice would you give an employer who is facing a lawsuit?
It’s a distraction and it’s a challenge to manage your focus on the day-to-day business matters. The most successful management of lawsuits are the cases in which employers are able to classify the suit as just another business issue. Put it on the agenda of items that you’re dealing with and keep it in that perspective, rather than having the Chicken Little reaction that the sky is falling.
Know that you will get through it, it will be resolved one way or the other, and life will go on. Be confident in knowing that other business owners have been through it and survived.
S. A. “Sam” Murray is CEO of ManagEase. Reach her at (714) 378-0880 or email@example.com.