Deciding Whether to Settle an Employment Claim

The number of employment claims filed each year is absolutely astounding.  Some, of course, have merit while others are nothing more than meritless complaints of a jilted former employee.  Unfortunately for employers, the systems in place in Wisconsin and elsewhere are set up in such a way that even frivolous claims can make it through the first several steps of the process – steps that can be expensive to defend.  On the other hand, claims that have some merit can take years to work their way through the various steps in the state and federal systems. Because of its unique nature, deciding whether, when and how to settle an employment claim can be a complex undertaking.  This article will examine and analyze the different considerations counsel, and the client, should undertake in evaluating such a decision.

This article should not be construed to suggest that most claims should be settled.  However, both counsel and the client should go into the defense of each case having their eyes wide open about the nature of the process and the risks and benefits of defending a case.  Fighting a claim until the bitter end can be a laudable approach.  However, counsel and the client should never adopt such a strategy until they have considered all of the below factors and whether a resolution makes sense in that specific case.

Overview of Typical Process

The most common type of employment claim is some type of post-termination discrimination or retaliation complaint filed with Wisconsin’s state administrative agency, the Equal Rights Division, or the federal Equal Employment Opportunities Commission.  This article will focus on this scenario, though certainly other scenarios often occur and are subject to similar considerations.  Before delving into the nuanced considerations, it is important to understand the totality of the process and why employment discrimination claims pose different resolution problems than other types of litigation.

In Wisconsin, a claim is typically filed with either the state or federal agency and is cross-filed with the other.  The agency assigned to handle the case first under their work-sharing agreement will process the claim while the other agency places the matter on hold until the investigating agency completes its process.  Once the first process is done, the other agency will more than likely conduct their own separate investigation, depending on the circumstances present.  This can lead to a long, drawn out process involving two separate systems.

If a claim is handled first by the state ERD, a typical case could potentially follow this path:

1.  Investigation by ERD including employer’s submission of position statement, possible responses to requests for additional information, rebuttals to plaintiff’s statements, potential witness interviews by investigator and an initial determination by the investigator.

2.  Depending on the results of the investigation, some combination of a no probable cause hearing and/or a merits hearing before an Administrative Law Judge, and discovery, depositions, witness preparation, hearing preparation, hearing and post-hearing briefing. It is not an unusual circumstance where the parties end up engaging in two or three hearings which could take several days each.

3.  Any appeal rights either party wishes to exercise before the Labor and Industry Review Commission, the circuit court, the court of appeals and, eventually, the Wisconsin Supreme Court.

This state process itself can take anywhere from 6 months (if the employer receives a favorable decision and the plaintiff gives up) to 3 years or more (if there are multiple hearings and the parties exercise appellate relief on multiple occasions).  However, even after this state process is done, the federal EEOC may investigate and address the claim.  A typical case in the federal system could potentially follow this path:

1.  Investigation by the EEOC, including the employer’s submission of a position statement addressing federal claims and federal law, possible responses to requests for additional information, rebuttals to plaintiff’s statements, potential witness interviews by the investigator and a finding by the EEOC.

2.  Typically, regardless of the results of the EEOC investigation, and absent unusual circumstances, the plaintiff is issued a 90-day right to sue letter that provides him or her the opportunity to file suit in federal court. If so, the case proceeds through the typical litigation process including discovery, depositions, expert witnesses, dispositive motions and, potentially, trial.

3.  Of course, the parties also have appellate relief available before the Seventh Circuit and, eventually, the U.S. Supreme Court.

Similarly, this separate process can take anywhere from 6 months (if the plaintiff declines to file suit in federal court) to 3 years or more (if the matter goes to trial and the parties exercise appellate relief).

The idea behind the administrative systems that have been set up was to provide for relatively quick and efficient resolution of such claims so they would not overburden the court systems at the state and federal level.  While fewer lawsuits in court may end up getting filed, there is little doubt that the systems created, and those that take advantage of the weaknesses in the systems, actually tend to lead to more expensive and more drawn out cases for employers.

10 Considerations In Evaluating Whether To Settle an Employment Claim

1.  Is There Merit to the Claim? The first step is evaluating the claim and determining whether a mistake was made by management in how they handled this particular situation.  It is crucially important that one fully investigate the claim internally to evaluate the merit of the claim and also to determine if there is any more systemic, widespread problem beyond the complaint received.  Regardless of how nice or how well-trained management is, everyone makes mistakes.  This can be due to a mistake by management regarding what the law required or may be based on actual discriminatory motivations.  In either event, if a mistake was made and the plaintiff actually has a legitimate claim against the employer, this may influence whether an early resolution should be explored.  Similarly, if a widespread, systemic problem is uncovered, would an early resolution on a single claim allow the employer time to address the problem before it becomes a larger issue?

If there is merit to a claim, one might want to consider offering the plaintiff unconditional reinstatement if a mistake was, in fact, made.  This will typically cut off the damages regardless of whether the plaintiff accepts reinstatement or declines it.

2.  Has the Claim Been Filed With Both the State and Federal Agency? Some claims, such as arrest record discrimination cases, may only be filed with the state agency as, typically, federal law doesn’t cover such claims.  Other times, for strategic reasons, perhaps the plaintiff has only filed with one agency before the statute of limitations has run.  If this is the case, it can potentially cut the time the case can be dragged on, and defense costs, in half and make the case more defensible from a cost and resource standpoint.  One must also take into account the damages available in each forum.  In the state system, plaintiffs will usually only recover backpay and attorneys’ fees.  While, in the federal system, plaintiffs can also recover compensatory damages, punitive damages and the like.  The damages available can significantly alter the total liability exposure for an employer based on the forum it is in.

3.  What Can Be Determined About The Employee’s Motivations And Drive? Some plaintiffs automatically file a claim if they are terminated as a way to try and extract a quick buck from employers.  They probably will not hire an attorney and will attempt to move forward pro se.  When pressed to do any work or respond to the investigating agency, they may decide its not worth it and may simply disappear.  Other plaintiffs fervently believe they were treated unfairly, may have retained legal counsel before they were even terminated and intend to fight to their last breath.  Ironically, sometimes their claims are almost identical in terms of facts and potential damages.

A significant factor in resolution is what type of plaintiff you are dealing with.  The first type may be willing to walk away for $500 and give the employer a full release and confidentiality clauses.  The second type feels they have a $2 million payday on the horizon and would never settle for less than $750,000.  Usually, one can tell which type of plaintiff is involved by speaking with the employer about the plaintiff’s behavior while still employed and how the plaintiff has conducted themselves since.  Was the plaintiff always filing internal complaints?  Did the plaintiff pursue the internal complaints to the end or give up after the first step?  Has the plaintiff filed any complaints with outside agencies before?  What was the result of that?  Was the plaintiff a leader amongst fellow employees or a follower?  Did the plaintiff retain legal counsel before termination?  Did the plaintiff wait until the last day or week to file the complaint?  Was the complaint a single paragraph or a laundry list of issues?  All of these factors can educate counsel as to the plaintiff’s motivations and drive

4.  Has The Plaintiff Already Secured Re-Employment? Often times, a plaintiff needs to find another job quickly and continue working.  If the plaintiff obtains re-employment and is making the same, or similar, compensation, their claims for backpay damages (a plaintiff’s primary source of damages in most cases) will be significantly curtailed.

5.  The Dreaded Attorneys’ Fees. Under the systems that have been established, in almost all cases a plaintiff is entitled to reasonable attorneys’ fees if successful on the claims asserted.  Because of the long, drawn-out nature of these cases and the cost of attorneys, this is usually the most significant risk and liability an employer faces if the employer decides to fight the claim until the end.  The plaintiff may only have $25,000 in backpay damages because he or she secured re-employment relatively quickly, but if successful on the claims the plaintiff could be entitled to $250,000 in attorneys’ fees for a long, drawn out case.  It is a sad reality, but it is reality.  Thus, it is important to determine if the plaintiff has retained counsel, and if so, who did the plaintiff retain.  Every attorney has a pattern or reputation that develops wherein one can reasonably predict whether the attorney tends to settle cases quick and easy or whether the attorney tends to take cases up to trial to obtain a more significant payday.  Knowing what type of attorney you are facing will allow you to better evaluate the potential attorneys’ fees.

6.  What Are The Potential Internal Impacts Of Settling?  Places of employment are one of the biggest rumor mills in society. Even a strict confidentiality provision in a settlement agreement will typically not stop other employees from somehow finding out that a certain former employee received money as part of a settlement.  The rumors may not even be true or accurate, but that is largely irrelevant as it is what the employees believe occurred which could motivate them to act differently.  Might this cause additional claims to be filed by current employees about current treatment or cause more terminated employees to file claims?

While there is little empirical evidence on this topic, typically good employees and good people will not be swayed to file meritless claims regardless of whether they believe another employee received certain sums as part of a settlement.  Problem employees may indeed be encouraged to file additional claims they may not have otherwise brought at the thought of a quick payday.  But, frankly, these are the same individuals who would likely have filed a claim anyway.  Having a frank conversation with the employer about the nature of the workforce is an important aspect to evaluating settlement.  How many employees are there?  Are they a tightly knit group?  Does the plaintiff have close friends or family still employed with the employer? Are there many internal complaints about issues?  Who are the problem employees?  Are the problem employees leaders of the groups or are they ostracized by the others.

7.  What Are The Potential Internal Impacts Of Not Settling? On the flip side, if the employer refuses to settle, is there the possibility of inflicting additional damage internally?  If a mistake was made and a current manager acted illegally, will the employer’s reputation or brand be tarnished by dragging the manager and the employer through the mud?  Will the manager be able to successfully manage employees and retain their respect when the facts come out?  What will the internal cost to the employer be for likely numerous witnesses to attend discovery meetings, deposition preparations, depositions, administrative hearings and/or trials?  How much productivity and lost revenue will the employer incur?

8.  The Plaintiff And The Witnesses. Many times in employment cases credibility and likeability of witnesses will be crucial in determining success.  These types of cases often come down to a lot of he-said-she-said or what a person’s internal motivations or reasoning were.  These are not personal injury car crash cases where one can hire an accident reconstruction expert to tell what happened, when someone braked, whether the person had their seatbelt on, or the like.  Rather, a case is often won or lost on who said what in a meeting or whether the plaintiff did, in fact, receive those numerous verbal warnings.

Thus, whether the plaintiff is likely to make a good witness and, perhaps more importantly, whether your primary witnesses are credible and likeable, may be a significant factor.  First, one should look to who will be deciding the case – a judge or a jury – and whether the plaintiff will be relatable to that person or group.  Is the plaintiff well-spoken and respectful or do they fly off the handle and curse in regular conversation?  Is the plaintiff a sympathetic figure that a regular person will identify with or does the plaintiff come off as a greedy individual bringing meritless claims?

Similarly, how do your primary witnesses stack up against the plaintiff?  Counsel can usually determine this within the first several minutes of the first meeting with them.  Are they brash, evasive, nervous or condescending?  Or do they present as the consummate, unflappable professionals?  While witness preparation can improve a witness’ demeanor and testimony, more often than not the individual’s true nature will show itself to the factfinder at some point.

9.  Is There Room To Get Creative? While the primary driver of settlement negotiations is money, sometimes there are other creative items that can be included that may have more value to the plaintiff than to the employer and could help reach an agreement.  For example, offering to pay for job placement services or additional training would cost the employer money but may be seen as even more valuable than the cost by the plaintiff.  Other items may include a reference letter, a verbal apology (only in limited, appropriate circumstances), health insurance for a few months, or the like.  Any item that may be valued by the plaintiff more than the actual cost to the employer may help aid in bridging any gaps.  If there are some items like this that can be included, a favorable resolution may be more likely.

10.  How Valuable is Confidentiality and Other Post-Employment Restrictions to The Employer? The only way to reasonably prevent negative information being shared by the plaintiff about the employer is through a settlement agreement with a confidentiality and non-disparagement clause.  If the employer chooses to fight the case and even if they win, this will not prevent the plaintiff from disparaging the employer or damaging its reputation with the public.  Similarly, unless the plaintiff already has a non-compete or non-solicitation agreement in place, the only way to stop a plaintiff from going to work for a competitor or attempting to poach clients or other valuable employees, is through including post-employment restrictions in a settlement agreement which the plaintiff agrees to.  If these items are of particular value to the employer, it may have to pay to resolve the case to obtain these protections if the circumstances warrant.

After counsel and their client have undertaken these considerations they can determine whether a resolution makes sense in that particular case or whether the claim should be fought and contested.  Having a frank, honest conversation with your client about these considerations before adopting a scorched earth approach and incurring significant defense costs will lead to a more content, knowledgeable client who will understand the risks and benefits of the strategy adopted.

If you have questions about this article, please contact an attorney at Mallery & Zimmerman.