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How Much Money Does an Employment Dispute Cost & What’s A Business' Likelihood of Getting Into an Employment Related Dispute?
| Guest post by: Charles Krugel |
Article Overview: Article discusses the cost and likelihood of getting into an employment related dispute with a current or former employee, or a job candidate who wasn't hired. This doesn't discuss disputes with unionized employees or employees seeking union representation.
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Free Download - Are Employment Policies or Handbooks Really Necessary? By Charles Krugel |
How Much Money Does an Employment Dispute Cost & What’s A Business' Likelihood of Getting Into an Employment Related Dispute?
The Cost
One approach to determining cost is past experience. I’ve settled employment cases at the administrative level for $500 (not including attorneys’ fees and costs). At the circuit court level, I’ve settled cases for as much as $125,000. However, past performance is neither a predictor nor guarantee of future performance.
Here’s another way to compute the cost of a dispute: If a complaint is filed with an administrative agency such as the Equal Employment Opportunity Commission, a business should expect to pay a minimum of 5 hours for attorney’s fees to just negotiate a quick settlement. Thus, if attorney’s fees are $250/hour, miscellaneous costs are $50, and the settlement reached is $1,000, that’s $2,300 spent. This doesn’t even include the cost that employees have to spend away from the business to deal with this matter, and any other transportation, gas or lost sales, profits, etc. If the case isn’t quickly settled or if it proceeds to court via lawsuit, then we’re looking at substantially more money.
Another cost is the employee’s damages. Damages may include back pay and benefits, front pay, punitive or exemplary damages, reinstatement or promotion. Furthermore, a court or agency may order training (e.g., diversity and harassment), affirmative action and monitoring. This is an additional and substantial cost that the business may bear. Overall, damages cost as much, if not more, than attorney’s fees, expenses and costs.
A reasonable range for attorney’s fees is $150/hour to $400/hour (this doesn’t include a retainer fee arrangement). Also, an attorney’s fee may depend on the attorney’s level of experience and the attorney’s status as either an associate (employee), partner (owner or shareholder). Generally, an attorney’s fee is for knowledge, research, counsel and document preparation, not for copying and travel, which are usually considered expenses.
Attorney expenses generally relate to copying and exhibit/documentation production postage, paper and travel. Court costs are generally considered filing fees, court reporter fees, transcription and expert witness fees (if an expert is necessary). Another way to approach cost is looking at what juries and courts award employees.
According to Jury Verdict Research (www. juryverdictresearch.com), one measure of jury awards in employment cases, the median compensatory award, rose 18% in 2003 to $250,000. Jury Verdict Research compiled a large sample of employment cases to arrive at this figure. From “Working Up a Suit” by Barbara Bowers, Best’s Review, Jan. 2005, Vol. 105, Issue 9, pp. 74-77.
The average jury verdict award for an employment discrimination case, from 1998-2004, was $990,000 in the manufacturing, industrial and high tech sectors; $486,000 in the service and retail sectors; $445,000 in the transportation sectors; and $581,000 overall (all sectors including government). From “Risk Management–Why Train?” 2006, http://www.emtrain.com/risk_manage_ why_train.shtml, citing Jury Verdict Research’s “Employment Practice Liability: Jury Award Trends and Statistics,” 2005 Edition.
The Likelihood of Getting Into a Dispute
Some statistics compiled by government and private industry might help to determine the probability of an employment related complaint or suit being filed in addition to the cost to settle or litigate these complaints.
According to a 2004 Chubb Insurance (www.chubb.com) survey, in recent years, 1 in 4 privately held companies have been sued by an employee or former employee. However, it’s estimated that 75% of these claims are groundless. Yet, these claims still cost money to process and resolve. From “Working Up a Suit” by Barbara Bowers, Best’s Review, Jan. 2005, Vol. 105, Issue 9, pp. 74-77.
According to the Equal Employment Opportunity Commission (EEOC), they filed 328 lawsuits in fiscal year 2000, 430 lawsuits in fiscal year 2001, 364 lawsuits in 2002, 393 lawsuits in 2003, 415 lawsuits in 2004 and 417 in 2005. The monetary benefits paid over all of these suits averaged $51.3 million from 2000-2002. However, in 2003, the amount awarded jumped to $148.7 million, and in 2004 it increased to $168.1 million. In 2005, it fell to $107.7 million (From http://www.eeoc.gov/stats/litigation.html; this depicts complete litigation statistics from FY 1992 – FY 2005). Regarding money paid on all complaints, not including lawsuits, from 2000-2005 (fiscal years), an average of $251.8 million was paid by businesses (www.eeoc.gov/stats/all.html).
The above numbers just relate to the EEOC. This leaves out the courts, the Illinois Department of Human Rights, the Cook County Commission on Human Rights, the federal and state labor departments, labor boards, Homeland Security, etc. There’s a lot of money at stake here.
As I said before, it’s much cheaper to prevent these problems from arising via proactive or preventive human resources. For example, according to Jury Verdict Research, it costs $5,000 to train 200 employees at $25 each on employment issues such as harassment and discrimination. If that same company is sued, the cost to litigate the case is approximately $155,000, and the cost to settle is about $85,000. Yet, the cost to litigate or settle an individual case, when no training occurs, is $960,750 to litigate and $304,000 to settle. From “Risk Management–Why Train?” 2006, http://www.emtrain.com/risk_manage why_train.shtml, citing Jury Verdict Research’s “Employment Practice Liability: Jury Award Trends and Statistics, 2005 Edition.
In short, it pays for almost any business of any size, to have a basic understanding of human resources and employment law, and to have access to a great employment attorney.
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About the Author: Charles Krugel RSS for Charles's articles - Visit Charles's website Click here to visit Charles's website   Severance and Separation Agreements Employee Screening and Risk Assessment More Questions Concerning Severance Separation Agreements What are Human Resources Labor Employment Law Labor Employee Relations and Why Should It Matter to You Are Employment Policies or Handbooks Really Necessary |
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