Employers sometimes respond to employee wage and hour claims in ways that cause them to suffer unnecessary financial loss and workplace stress.  They pay more money in attorneys’ fees and litigation costs than they should.  They sacrifice the time and resources of key employees in a lawsuit that lasts a year or more.  And they expose their workforce to the stress of an on-going lawsuit, leaving employees guessing as to what is happening in the case or, worse yet, directly participating in the proceedings.  People generally take sides and have strong opinions about employment lawsuits..

Stacks of moneyThe Wage Lawsuit is Always About Money

Once litigation begins these same employers produce reams of internal documents to the employee’s attorney.  That lawyers’ goal is to take as much money away from the company as the law permits on behalf of as many of the employer’s current and past employees as possible. To add even more workplace stress and potential future loss to the equation, employers expose themselves to an increased risk that other employees will assert similar claims against them as they learn about the lawsuit.  All of these things can happen as a result of decisions employers make or fail to make within days of learning about an employee’s wage and hour claim.  Permitting anger or disappointment to control the decision-making process at the earliest stages of litigation can, and very often does, result in very poor outcomes for the employer.

Under certain conditions the only economically rational choice for an employer is to settle a wage and hour claim as quickly as possible.

Step 1:  The Right Strategy for the Right Case

Chess BoardWithin days of receiving notice of a wage and hour claim, an employer should begin to develop a strategic response plan based on key characteristics of the claim.  Identifying cases that should be resolved expeditiously and confidentially is usually fairly straightforward.  Such cases generally have three common characteristics:

(1) The employee has asserted at least one wage and hour claim that the employer concludes is valid;

(2)  The law will require the employer to pay the employee’s attorney’s fees if the employer defends the the wage and hour claim through trial and loses; and

(3) The employee has retained an attorney.

Defending cases with these three characteristics through trial or through the contractual arbitration process will often result in poorer outcomes for an employer than can be achieved through settlement at the beginning of the case—even when the employee’s claim is exaggerated.Why?  Because he litigation process is very expensive.

Step 2:  Risk Assessment and Outcome Management

When faced with claims displaying all three of these characteristics, an employer should carefully answer the following three questions.

First, how much money and other resources should the employer commit to defending the claim?  Though this is an obvious initial inquiry, it requires the employer to engage in a thoughtful and candid assessment of the probable costs of proceeding through various stages of the litigation process.  The civil discovery process in a wage and hour claim can subject an employer to tens of thousands of dollars in attorneys’ fees and costs.  Is the investment appropriate?

Second, how long should the employer remain engaged in the dispute?  The consequences of remaining locked in a fight with an employee are significant.  Co-workers and managers will need to be interviewed.  The employee’s attorney will take the depositions of key employee witnesses, from supervisors to co-workers.  Employees will talk about the case among themselves and with family and friends, despite instructions to the contrary.  The workplace and the attitudes of current employees will be affected.  Former employees will learn that a former co-worker, perhaps one who had the same duties, has sued the employer for unpaid wages.  As employees learn about the claims and spend time talking with the employee and her attorneys, some of them will entertain thoughts of suing as well.  Not infrequently, one or more of them will be represented by the same lawyers.

Third, how important is it to the employer to demonstrate that it will resolutely defend any similar claims brought against it and invest the time and money necessary to defeat them?  Although employers sometimes conclude that a strong litigation defense will be the best deterrent against other claims and lawsuits, it might, in fact, be the weakest approach available when an employer is faced with valid wage and hour claims that affect multiple employees.  The more time one employee is engaged in the fight, the more likely other employees will learn of the allegations and bring similar claims.  Defending these kinds of wage and hour claims is more likely to increase the risk that the employer will be sued again than to deter others from asserting similar claims.  The risk is amplified when the employer has a high turnover rate.  Former employees are more likely than current employees to filed wage and hours claims against an employer.

The Takeaway

It can be difficult for any employer to come to terms with the costs and ancillary risks it faces when an employee asserts a wage and hour claim against it.  With the right advice, however, an employer can make accurate predictions about probable outcomes, and make choices that protect itself.  If an employer can accurately assess these costs and risks, it can respond to these kinds of claims in ways that protect it from additional financial loss and help it avoid unnecessary future risks.  A well-advised employer can make the right choices about case management and claim resolution in these kinds of cases very soon after a claim is made.

In wage and hour litigation, experienced lawyers on both sides of a dispute evaluate cases similarly.  Often, they assign similar values to claims and predict similar outcomes.  At times, however, a represented employer will make litigation decisions that seem to serve no other purpose than to increase its costs and risks.  A company should insist that its outside counsel articulate sound justifications to subject the company to the costs, rigors and risks of defending a wage and hour claim.  If the attorneys cannot do so to management’s satisfaction, then it is time to find new counsel.

This is not to suggest that any employer should simply hand money to any employee who makes a valid claim for wages, regardless of the amount demanded.  Even the strongest wage and hour claim is subject to risks.  The employee must prove the claim and, if successful, must enforce the judgment.  All of that takes time and money.

It is important to remember that the employee’s counsel is assessing risk as she readies the case for litigation, and never really knows precisely how the employer and its counsel view liability and damages.  Will it be a long and expensive slog to settlement or will it be resolved early through appropriate bilateral compromises?  An attorney who understands how the employee’s counsel measures and responds to these risks will be in the best position to use that knowledge to exploit the anxieties and uncertainties the employee and her counsel face as they move forward with the claim.  By selecting the right cases for early resolution and then using its understanding of the risks inherent in the litigation process to its advantage, an employer should be able to avoid the worst outcomes in wage and hour litigation.

Patrick Kitchin has more than 25 years’ experience advising California companies involved in serious litigation..  Please feel free to reach out to Patrick Kitchin at 415-677-9058 or by email to prk@kitchinlegal.com