PEO Horizon: A Publication of PEO7.com

IN THIS ISSUE: COST OF FIRING: WHY EMPLOYERS ARE RELUCTANT TO FIRE PROBLEM EMPLOYEES


This is a quarterly newsletter. Each issue covers one specific area of employer liabilities with suggestions to control that liability. You are not to rely on this publication as legal advice and must seek competent legal assistance.

COST OF FIRING: WHY EMPLOYERS ARE RELUCTANT TO FIRE PROBLEM EMPLOYEES

An unhappy engineer at GE squabbled with his superiors over his performance and prospects for promotion.  He strolled into work late, spoke ill of his co-workers, accumulated sick days without giving notice, and refused assignments that he considered beneath him. His job application indicated that his employment was “at will” and that the company “may terminate his employment at any time for any reason.” His bosses terminated him after they were fed up with the daily hassle. His firing would cost upwards of $10 Million Dollars, though as far as GE was concerned, the case was closed.
 
However, the employee was also 49 years old, of Indian descent, and suffered from chronic kidney failure that required him to receive daily dialysis.  He had also resumed his workplace hostilities after returning from long-term medical leave.
 
Although termination of troublesome employees makes traditional sense, the status of at-will employees has been transformed by a succession of laws that bar employers from making decisions based on race, religion, sex, age, national origin, and other qualities. This article explores how employee firings that traditionally follow from situations like that of the engineer are now considered risky for employers. 
 
Who falls into a protected class?
 
Since their advent in the Civil Rights Act of 1964, federal, state, and local laws prohibiting employment discrimination have evolved to protect more categories of workers. They include women, minorities, gays, whistleblowers, the disabled, people over 40, employees who have filed workers’ compensation claims, and workers called away for jury duty or military service, among others. Even white males might claim protection by suing for reverse-discrimination. 
 
Even though an employer can escape liability by proving in court a legitimate, nondiscriminatory purpose for terminating an employee, it has become easier for U.S. workers to bring lawsuits alleging unfair treatment or wrongful termination. Terrified of the burden, expense, and threat to morale that lawsuits bring, many companies let unproductive employees linger, expend valuable workers while retaining inferior ones, and pay off unproductive workers with severance packages in exchange for promises not to sue.
 
What is the extent of legal action taken by employees?
 
In 2006, 14,353 employment cases were filed in federal court, which an increase from 8,273 in 1990, though down from a peak of 20,955 in 2002. The boom followed Congressional authorization for punitive damages and jury trials in job discrimination cases in 1991. What’s more, these statistics include both unlawful termination cases and other types of claims, which dramatically understate how frequently companies deal with these issues. For every lawsuit filed, several more confrontations between employers and employees result in settlement well beforehand.
 
Fear of Discrimination Lawsuits

Notwithstanding bogus claims that have arisen as a result of the expanded categories of protected traits, defending against discrimination claims can be an expensive endeavor. Employers can easily spend $100,000 to get a meritless lawsuit dismissed before trial. And if a case goes to a jury, the fees can reach $300,000, and often much higher.
 
The cost and distraction of lawsuits lead employers to undertake litigation avoidance that conflicts with an employer’s autonomous decision to employ the best candidate for the job.  For example, if faced with a decision to lay off either a male worker or a female worker, the concern that the employer would be more exposed in a lawsuit by the female weighs determinatively against retaining the male, no matter how much more qualified he may be. 
 
Some would argue that the prevalence of employment discrimination lawsuits has increased company tolerance for poor performance. Employers will often wait until employees commit the most extraordinary errors or offenses so that the company is virtually certain to defeat any claims.   In some cases, employees with documented performance issues – and who happen to be female or belong to a minority group – will steal or embezzle from the employer before they can be terminated without fear of a lawsuit. Prior to these kinds of ugly endings, employers may have to deal with difficult employees or substandard workers if they fall into a protected class. Even if the employer attempts to improve deficiencies in these workers, the company will necessarily suffer through poor performance for some period of time. 
 
What is a Retaliation Lawsuit?
 
In the above example,the engineer at GE had accused his supervisors of discriminating against him because of his race, age, and medical condition before he was subsequently terminated.  Although his discrimination claims didn’t hold up in court, the engineer was awarded $11.1 million, including $10 million in punitive damages for being fired in retaliation for complaining about bias.
 
Many businesses face a unique battle against increasing allegations of retaliation. In a claim for retaliatory termination, plaintiffs need not allege that a company discriminated against them, but that the company retaliated when they received complaints about mistreatment. Such mistreatment is not limited to terminations and demotions – even excluding an employee from meetings or relocating his or her workspace could lead to liability. As in the case of the engineer, retaliation claims can be a powerful Plan B for weak discrimination claims.

Prohibitions against retaliation gives many workers incentive to come forward with legitimate complaints where they would otherwise find it too risky. Nonetheless, some plaintiffs have figured out how to take advantage of the protection.  For example, workers who fear losing their jobs may make flimsy discrimination complaints to HR or corporate abuse hotlines in order to obtain protection of anti-retaliation laws. Even though employers can defeat these suits, meritless cases can still burden companies in expensive and time-consuming proceedings.
 
How can I avoid liability?

The best tactic an employer can take to quiet fears of litigation is to create a paper trail of troublesome employees. Large companies should formulate policies and procedures to track employee progress and production. Supervisors in charge of performance evaluations must conduct regular and candid reviews that will allow an employer to prove poor performance if a fired employee brings suit. Honest, if harsh, evaluations will offer legal protection while also maximizing company development and efficiency. Specifically documented evidence is also the best way to combat claims of retaliation. If an employer offers verifiable proof of legitimate, nondiscriminatory reasons for termination, the employee is less likely to inspire juror sympathy by attempting to engage the company in a he-said/she-said case.
 
A qualified PEO can help you reduce your exposure and let you get back to the business of running your business. For more information go to www.PEO7.com. Fill out this form www.PEO7.com/form to get more info and proposals on employee leasing services.


ABOUT THE AUTHOR: David Sheehan is a licensed attorney and a member of the State Bar of California.

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