The payroll clerk you hired a month ago has sued your business for sexual harassment, alleging that her supervisor made unwelcome advances. The Equal Employment Opportunity Commission (EEOC) dismissed her claim as having no reasonable cause, but she sued anyway. Just defending the lawsuit could cost you $50,000 in legal fees, not to mention the time and effort required to gather evidence. If you lose, it could cost far more. The plaintiff has offered to settle for $10,000. What should you do?
Hundreds of entrepreneurs would lean toward paying the settlement just to cut their losses. And that's what a new breed of con artists is counting on. Michael D. Karpeles, an employment attorney with Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz Ltd. in Chicago, explains that professional plaintiffs change jobs frequently with the chief intent of finding a grievance and threatening to sue. "Seeking out potential litigation is a full-time job for chronic suers, who threaten legal action whenever they think there's the slightest hint of provocation that could result in a cash settlement," Karpeles says. "It doesn't matter if there's a legitimate claim; the perceived threat alone is often enough to prompt some companies to settle."
It's difficult to track these people or gauge the prevalence of their scam because many agree to a quick settlement without ever filing formal charges. Even when they do file a lawsuit, a settlement agreement would effectively hide the matter from public scrutiny. After all, one reason companies are so eager to settle is their desire to avoid negative publicity. However, some statistics from the EEOC provide a hint of the growing problem. In 1992, 33 percent of the 10,532 resolved sexual harassment claims filed with the EEOC were classified as having no reasonable cause. By 1998, the number of resolved sexual harassment claims had ballooned to 15,618, and 42 percent of them were classified as having no reasonable cause. Likewise, EEOC statistics for 1998 show that 61 percent of the 15,191 charges of age discrimination and 70 percent of the racial discrimination charges had no reasonable cause. You can see the potential for abuse.
"People sue knowing it's cheaper for the company to settle and pay $15,000 rather than spend $30,000 and win," Karpeles says. "Employers sued on meritless claims have to choose between their principles and their pocketbooks." Such scams are especially rough on small businesses, he adds, because they can't afford to defend themselves against frivolous lawsuits.
Steven C. Bahls, dean of Capital University Law School in Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane Easter Bahls specializes in business and legal topics.
Sometimes it pays to fight back. In one recent case decided by the U.S. Court of Appeals for the Seventh Circuit, a male loan originator for a mortgage company in Indianapolis claimed that the female loan processor he worked with exposed her breasts to him, sat on his desk and made sexual advances at work and over the telephone--all of which she flatly denied. In his sexual harassment lawsuit, he produced a memo supposedly written by their branch manager to another superior acknowledging that the harassment was going on and suggesting that the easiest way to stop the loan originator's complaints would be to get rid of him. The branch manager said she never wrote the memo, although it appeared to bear her signature.
Attorneys for the mortgage company discovered the plaintiff had sued three former employers. In one case, he had produced an employment contract granting him favorable terms, bearing the signature of a company agent who denied ever having seen the document. While evidence of the plaintiff's history of litigation is normally not admissible in a subsequent lawsuit, the U.S. District Court for the Southern District of Indiana allowed it in because it suggested the plaintiff's method of operation--suing his employers and forging incriminating documents to introduce as evidence. The district court ruled in favor of the employer, and the U.S. Court of Appeals for the Seventh Circuit upheld its decision.
The company might have been able to avoid the whole problem if it had identified the plaintiff as a chronic suer before offering him a job in the first place. That's the best way to deal with the problem, Karpeles says, because otherwise your only options are spending money to settle the lawsuit or spending money to take it to court. Be careful, though, because federal law prohibits employers from retaliating against a job applicant for having exercised the right to complain to the EEOC or state human rights agencies over alleged discrimination.
It's not easy to identify a professional plaintiff in the hiring process, however, because out-of-court settlements don't appear on the public record. So even if you search diligently, you may not uncover a history of lawsuits. But that doesn't mean you're out of luck. Karpeles offers the following suggestions:
- Be suspicious of job candidates whose work histories show job changes every year or two.
- When verifying prior employment, pay attention if the prior employers' references are very brief and limited to mundane virtues. "Often, these are attempts to hide real problems," Karpeles contends.
- Let the applicant do most of the talking in the interview, and schedule follow-up interviews if necessary to give you a better sense of the candidate's past.
- After screening applicants for job skills and experience, base your final selection on the candidates' work-related values and attitudes. Look for someone whose work ethic matches your company's culture.
- To minimize the chance of being charged with discrimination, make sure your policies are written clearly and your procedures are consistent. By producing a well-written employee handbook, you create strong evidence of your consistent policies for any future employment lawsuit.
Don't agree to settle every claim out of court. Consider the evidence carefully, and if the claim appears to be merely an attempt to extort money from the company, don't give in. Getting the case to court where a judge can throw it out is one way to put the plaintiff's name on the public record for the benefit of future employers. The more employers fight chronic suers, the less profitable their scams will be.
"Prevention is the best way to avoid legal problems," Karpeles concludes. "Employers need to do their best to screen out professional plaintiffs while creating a work environment that gives little reason for anyone to sue."