So How Much Does A Discrimination Lawsuit Really Cost?

I have preached for years the benefits of preventive law – that is, preventing claims and lawsuits by employing best practices in the workplace.   Aside from the grief and distraction of such lawsuits, ever think about how much such a lawsuit might cost?  Probably — but not enough to take the necessary steps to prevent them, I would guess.

Let’s start with the old saw “penny wise pound foolish.”

As a litigator of many decades, I can tell you that it costs plenty, what with endless depositions, document productions, motions, and – God forbid! – a lengthy trial.

But many employers – if not most, prefer to keep their heads in the sand and are “penny wise pound foolish.”  Perhaps they figure that it won’t happen to them because (pick one or more): “my employees love me” and would never sue me; I am a benevolent employer and treat everyone right; I tell everyone to be good and not discriminate or harass; I walk around and never see any harassment; my managers don’t discriminate in hiring or firing, all of my employees are little angels, etc.

The list is endless:  any rationalization is good as long as you don’t have to part with that penny!

Credit Squeeze, Taxation, Purse, Tax

In your heart, of course, you know that it is a whole lot cheaper and easier to prevent lawsuits than to fight them.  Believe me.

So, you might ask — how much does it cost if/when you do get sued?  We now have some hard statistics to back up the typical response of “a lot.”

The insurance company, Hiscox, has just published its 2015 “Guide to Employee Lawsuits” which, among other useful information, tells us that: “A representative study of 446 closed claims reported by small- to medium-sized enterprises (SMEs) with fewer than 500 employees showed that 19% of employment charges resulted in defense and settlement costs averaging a total of $125,000. On average, those matters took 275 days to resolve.”

It also reports on the states with the highest probability of employee lawsuits.

Among its other findings of significance to employers: “Most employment matters don’t end up in court, but for those that do, the damages can be substantial. The median judgment is approximately $200,000, which is in addition to the cost of defense. About 25% of cases result in a judgment of $500,000 or more.”

So settlement can cost $125,000, and losing in court can cost between $200,000 and $500,000.   That’s a lot! 

So what can you do?

Let’s end this post with another old saw which begins with the words “an ounce of prevention. …”  Preventing problems is a heckuva lot cheaper (“penny wise”) than fighting a lawsuit (“pound foolish”).   To prevent discrimination or harassment suits there are a host of things that you can, and should, do – but first you have to be prepared to part with that penny.

I have written before that if an employer has and maintains an adequate anti-discrimination and anti-harassment policy, and an employee handbook or manual, updated as needed, which is distributed to everyone in the workplace and sets forth a “zero tolerance for discrimination” provision;  posts anti-discrimination notices in the workplace; provides periodic equal employment and anti-harassment training to both managers and employees; and periodically conducts an audit to insure compliance with the numerous anti-discrimination laws, that employer would be in a much better position to ward off – and even win – employee lawsuits.  And avoid the enormous expense, time and distraction of a lawsuit, and possibly a whopping judgment.

I will post a “to do” list soon that I think will be helpful.

Macro, Coin, Lincoln, Copper, Cents

But first remember about that penny and that ounce of prevention. …


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Richard Cohen

Richard B. Cohen is a partner in the New York City office of FisherBroyles, LLP, a national law firm. Richard Cohen has litigated and arbitrated complex corporate, commercial and employment disputes for more than 35 years, and is a trusted advisor to business owners and in-house counsel both in the United States and internationally. His clients have included Fortune 100 companies, domestic and foreign commercial and investment banks, Pacific-rim corporations and real estate development companies, as well as start-up businesses throughout the United States. Email Richard at [email protected]