The Enemy Within

Companies fear employee lawsuits more than any other legal threat. To prevent them, experts advise looking in the mirror.

Hire to Fit

Litigation deterrence starts with good hiring practices at all levels. Many companies seeking to limit lawsuit exposure use preemployment screening, including several rounds of interviews, drug tests, and personality tests to ensure that potential employees will fit in with their co-workers. McDonald uses an “integrity” test, a type of personality screening to make sure that employees will complement Pelco’s corporate culture, a culture McDonald likens to a family.

Rigorous hiring practices at Geil Enterprises, a California-based firm that specializes in cleaning and security services, are part of the reason that it has never had a successful employee lawsuit filed against it in its 20 years of existence, says president Sam Geil. Using Predictive Index System, a personality-assessment tool, the company creates a desired-personality profile for each job, then evaluates potential hires according to that profile. Similarly, NRG uses a tool it created itself to match the personality traits of successful employees to those of applicants for similar jobs.

Both Pelco and Geil then leverage those “right” hires to create an open communication system bent on avoiding conflict. At Pelco, for example, 360-degree performance reviews are used for supervisors. Everyone two levels below each manager answers anonymous questionnaires about his or her performance. Supervisors’ raises are based largely on their scores. “If we can’t get a supervisor into the right range, we move them into a position where they’re not supervising others. That forces everyone to keep their eyes on the ball,” says McDonald.

Those supervisors are also rigorously schooled not just in employment law but in basic conflict resolution as well. McDonald puts all his supervisory employees through a 12-week management communication workshop taught by professors from Fresno State University’s Craig School of Business that focuses on conflict resolution, motivating employees, and fair treatment. Meanwhile, Geil, who was an HR manager at another company before taking over the reins of his family’s business, employs a more hands-on approach by going to the manager’s location and “walking around with them, talking about the real issues they face, and figuring out how to work things out.”

Above All, Be Fair

Still, there will always be litigious employees who will find something to sue about no matter how much trust and communication a company has fostered. When that happens, it’s important to have a comprehensive discussion with counsel, the CEO, the CFO, and other relevant senior executives to evaluate all options. Knowing when to fight, when to settle, and when to arbitrate or mediate can mean the difference between an inconvenient legal scuffle that costs a few thousand dollars and a court order to pay millions in punitive damages.

First, say experts, executives must evaluate their true legal position. Brutal honesty will directly affect the bottom line: Does the company have a defendable case and a credible explanation for its decisions? (Oberman says that even the appearance of lies and cover-ups can lead to the worst possible results.) Does the company have thorough and consistent documentation of all actions relating to the case? Did the company act as soon as the matter was brought to management’s attention? Did the company have a formalized process to do so? If an employee is accused of harassment or discrimination, was a thorough investigation done even if the accused employee was a senior-level or high-revenue-generating employee? Most important, were all matters handled in a truly honest, fair, and impartial way? If the answer to these questions is yes, the company probably has a strong case. If a company chooses to go to court, it had better have deep pockets to pay for litigation expenses, though that may be less expensive in the long run than paying off weak claims just to get rid of them. According to Oberman, quick settlements with undeserving plaintiffs often lead to “me too” claims by others.


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