Litigation - cost of litigation to US businesses - includes related articles - CE Roundtable - Panel Discussion

Chief Executive, The, Jan-Feb, 1995 by Lorri Grube

EDS insists its outside law firms sign an agreement that details what the company won't pay for, including first-class travel, Xeroxes, and overtime. Says Gilbert Freedlander, vice president and general counsel at EDS in Dallas: "Contract lawyers definitely have made outside counsel more competitive and responsive to business' needs."

RELATED ARTICLE: Courting Disaster

Congratulations! You've re-engineered your company by streamlining operations and reducing the work force. Profits are rebounding; Wall Street is happy.

It sounds good in theory - right up until a disgruntled former employee hauls you into court to fight a wrongful termination suit based on age, sex, race, or disability discrimination. The action may costs you hundreds of thousands of dollars. And downsizing companies aren't the only targets; virtually any organization is vulnerable.

According to Jury Verdict Research, a legal research and publishing firm in Horsham, PA, employees win about 60 percent of such cases that go to trial. In the old days, awards only included back pay, attorney fees, and court costs; now compensatory and punitive damages also may be levied because of combined common-law claims and changes in federal law.

"Disability cases especially can cost the employer dearly," says Robert J. Smith, a senior partner in Labor and Employment Law Section, Morgan, Lewis & Bockius in Washington. "The litigation involves medical experts, comparative accommodation and safety evidence, numerous depositions, and other pre-trial discovery. And that doesn't include the potentially significant sums in back pay and compensatory and punitive damages the company could be forced to pay."

Numbers in other wrongful termination cases are equally startling. Two former employees of Hughes Aircraft, a General Motors subsidiary, won an initial damage award of $89.5 million in October in a race bias case. The amount was later reduced. Richard Pietsch sued General Electric for age bias and received $1 million.

In light of this, what's a company to do? "Surprised employees are vindictive employees," says John E. Lyncheski, chair of Pittsburgh-based law firm Cohen and Grigsby's Labor and Employment Practice. "Communicate what's going to happen to them and consider offering severance packages attractive enough to forgo litigation."

Smith adds that companies should fully document why employees were laid off or fired and ensure that voluntary incentive programs used in downsizing efforts are, in fact, voluntary. There's no magic bullet, he says. If diligent, however, companies that effectively plan in advance of these actions can stay in control - and out of court.