Employment lawsuits are among the most time-consuming and costly problems that any business could face. In 2010, as many as 99,922 suits were filed with the Equal Employment Opportunity Commission (EEOC) in the state of Florida alone. This number is based on data from Enterprise Florida, which is the state’s official economic development organization.
How much do businesses spend on employee lawsuits? The EEOC estimates that it collects $404 million from employers every year. This staggering figure highlights the importance of having cyber liability insurance, which protects against financial losses as well as data breaches.
According to a Bloomberg Law report, employment lawsuits have increased by more than 400% during the past 20 years. The publication shows that employees have a 16% chance of receiving more than $1 million from claims and a 70% chance of receiving $165,000.
Costs of employment lawsuit at the federal level
If a claim is brought before a federal court and upheld, employees can receive compensation as follows:
- $50,000 from companies with 15 to 100 employees
- $100,000 from companies with 101 to 200 employees
- $200,000 from companies with 201 to 500 employees
- $300,000 from companies with more than 500 employees
The actual settlement amount depends on the circumstances of the claim and negotiations made by legal counsels on behalf of their clients. These merely serve as statutory guidelines that serve as benchmarks in claims proceedings.
Out-of-court settlements average approximately $40,000. As many as 10% of discrimination and wrongful termination cases end in settlements of about $1 million. About 67% of claims that go to litigation are ruled in the favor of the plaintiff.
Litigation costs have increased considerably over the past several years. A survey commissioned by major law firms revealed a 9% annual increase on the national average. The survey was prepared by the Civil Justice Reform Group, U.S. Chamber Institute for Legal Reform, and the Lawyers for Civil Justice Group.
In 2008, the average litigation cost was $115 million. This figure represents a 73% increase from 2000 when the average was $66 million.
Reasons why companies face employment lawsuits
Why do companies face employment lawsuits? The reasons vary from firm to firm, but one of the most common reasons is alleged discrimination, which may be based on sex, race, religion, age, or other factors.
Another common reason is unlawful pre-employment practices. Employers could find themselves on the receiving end of an employment lawsuit because of improperly documented company practices and policies.
Other common reasons why employees file employment lawsuits are:
- breach of contract
- negligent hiring
- retaliation
- invasion of privacy
- sexual harassment
Any of these reasons could cost a company a hefty settlement, costly legal fees, and considerable damage to its professional reputation. Even if the court rules in favor of the firm, the subsequent blowback and cost to the company’s reputation can be devastating.
Tips to avoid employment lawsuits
Companies can avoid employment lawsuits as well as financial losses by implementing the following measures:
- Establish clear HR policies. Employees must provide employees with a handbook containing all of the rules and regulations of the company. It is also advisable to establish a system for updating the handbook every time there is a significant policy change.
- Update or enhance existing practices. Times have changed, and previously commonly accepted policies may no longer be appropriate or applicable to the current business environment. Identifying policies that require change is crucial to establish a good working employee-employer relationship.
- Get expert assistance. Most companies have established HR departments with experienced HR managers. Even so, occasionally hiring third-party consultants could be necessary for resolving difficult issues.
- Maintain propriety in the workplace. Always strive to maintain a professional work environment. Jokes and banter are a part of most office settings, of course. But these should never go beyond the bounds of appropriate interaction.
- Document everything. Employment lawsuits often come down to one person’s word against another’s. Companies that maintain detailed documentation often have a stronger defense against any claims that may arise.
- Never make exceptions. As an employer, you should always maintain consistency in implementing company policies. Favoring certain employees or making exceptions could alienate others and have long-term consequences. Practices and guidelines concerning salary, promotions, assignments, and discipline should always be implemented fairly.
Conclusion
Employment lawsuits can be damaging to a company in more ways than one. Whether it goes to litigation or results in an out-of-court settlement, the impact on a firm can be devastating. However, you can avoid these lawsuits by implementing proper guidelines and practicing fair workplace policies.
About Arroyo Insurance Services
Arroyo Insurance Services was officially established in 1986, but we have roots dating back to before 1950. One of California’s leading client-oriented and independently owned agencies, we have over 140 employees with a combined experience of over 450 years, spread across 11 locations. We are committed to providing the best insurance and risk management services at the most competitive premiums, and backing it with hands-on service tailored to our customers’ needs. For more information on how we can mitigate your risks, contact us today at (877) 220-4769.