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Avoiding Six Common Traps In Defending Against Employee Lawsuits

When an employee (or a former employee) threatens a lawsuit against the employer, the employer should have a game plan in place to maximize its chances of successfully defending against that lawsuit.  While there is no “one size fits all” strategy, there are traps to avoid.  This article outlines tips for avoiding six common traps that employers often face in these circumstances.

1.         Don’t Ignore Demand Letters (And Don’t Send A Half-Baked Response)

Some employers ignore demand letters, or send a half-baked (off-the-cuff) response.  This is a mistake.  A demand letter is often the first notification an employer receives of a threatened lawsuit by an employee (or former employee).  Typically sent by the employee’s lawyer, the demand letter usually sets forth the employee’s claims, the alleged basis for these claims, and a monetary (or other) demand for resolving the claims without resort to litigation.

Even if the allegations appear baseless – or completely ridiculous – provide a firm, measured, professional response.  Generally, employers should forward the demand letter to counsel for review and preparation of a prompt response.  While lawsuits are not always averted by the response to a demand letter, they often are.  Ideally, the response will stop the former employee and his/her attorney in their tracks, forcing them to acknowledge the frivolity of their claims – or it may lead to a negotiated solution, if that is appropriate.  At worst, however, the effort to investigate the threat contained in the demand letter should help the employer begin to prepare a successful defense of the lawsuit, if it is filed.

2.         Utilize The Litigation Hold

Employers sometimes neglect to promptly impose a “litigation hold,” which is a written instruction to key employees that they must not discard or destroy any documents or information that pertain to the employee, the employee’s claims, and the employer’s defenses.  The “litigation hold letter” should be drafted with care, to ensure that it addresses all relevant facts and legal issues, and then it should be sent to all relevant managers, supervisors, and coworkers, as well as to those who maintain the employer’s paper and electronic records.  The litigation hold should specifically include documents and information stored electronically, including e-mails.

Some employers expressly refuse to send out such a letter, based upon the mistaken belief that what does not exist cannot cause harm.  Unfortunately, that “strategy” has backfired badly.  The risk is that such employers will incur substantial liability under the “spoliation doctrine,” which applies when a party – or someone affiliated with the party – negligently or intentionally loses or destroys documents or other evidence relevant to actual or anticipated litigation.  A party that loses or destroys relevant evidence – even if erroneously and in good faith – may be held accountable for the resulting prejudice to the opposing party.  Thus, when questions arise, the employer should err on the side of preserving documents.

Sanctions for failing to preserve evidence can be severe, and may include:  giving a jury permission to infer that the missing evidence would have been unfavorable to the employer’s case (an “adverse inference” instruction); precluding testimony from any of the employer’s representatives who failed to preserve evidence; and requiring the employer to pay the potentially substantial costs associated with re-deposing witnesses after missing evidence is retrieved.

3.         Advise Employees About Inquiries By Plaintiff’s Counsel

Employers sometimes neglect to advise employees that they may be contacted by plaintiff’s counsel – and that they have the right (or, in the case of certain managers, the obligation) not to communicate with him/her.  Employers should be sure to have these conversations with employees and managers, and should ask them to report any such contacts to a designated company official.

Note:  employers should not instruct employees that they “must” report any such contact by plaintiff’s counsel, as such an instruction could infringe on employees’ rights under Section 7 of the National Labor Relations Act, which entitles employees to engage in “concerted activities” for the purpose of “mutual aid or protection.”

Generally, plaintiff’s counsel may contact employees in connection with a lawsuit without notifying the employer.  The only employees who are typically “off limits” are those who (1) exercise managerial responsibility in the matter, (2) are alleged to have committed the wrongful acts at issue in the litigation, and (3) have authority to make decisions for the employer about the course of the litigation.  But while plaintiff’s counsel has a right to contact most employees, the employees have no corresponding obligation to cooperate.  Being informed of this is often a relief to employees, as many would prefer not to deal with the lawyer of a disgruntled coworker (or former coworker).

4.         Carefully Designate Company Representatives

If a lawsuit is filed, carefully designate your employer representatives for purposes of the employer’s deposition.  Under state and federal rules of civil procedure, plaintiffs can – and almost always will – take the deposition of the employer, after first serving a deposition notice that includes a list of the topics to be explored in the deposition.  The employer must then designate one or more officers, directors, managing agents, or other persons who consent to testify on its behalf, indicating the topics as to which each person will testify.

While the employer’s witness(es) cannot be designated until the deposition notice has been served, nonetheless, ideally, this issue will have been given some consideration early in the case, when the employer selected its “point person” for managing the litigation.  In this regard, the manager(s) who are most likely to be employer witnesses should not be completely unfamiliar with the lawsuit when the deposition notice is served.

The employer’s designees need not have had involvement in the circumstances giving rise to the litigation.  The only requirement is that they appear at the deposition prepared to testify about information known or reasonably available to the employer relative to the topics for which they are designated.  Factors to consider in determining the employer’s designees include the individual’s ability to (a) absorb information concerning the designated topics and understand how to discuss it in the context of the case, (b) present well and think on his or her feet, (c) project an image of confidence and credibility, and (d) handle a challenging or even hostile cross-examination calmly and tactfully.

5.         Always Consider Potential Counterclaims

When a lawsuit is threatened, the employer should consider whether it has any potential counterclaims against the employee (or former employee).  If the employer can assert a counterclaim against this person based on facts arising out of the employment relationship, then this counterclaim is likely to be “mandatory,” meaning that the employer will waive the right to pursue this claim by failing to raise it as a counterclaim.  Valid counterclaims, whether mandatory or permissive, can be an effective way to gain leverage against the employee, as they increase the employee’s risk of loss and impose a burden to defend.

Employers also need to be circumspect about potential counterclaims.  In short, employers should not countersue merely because the employee’s suit is considered to lack merit.  Counterclaims of this kind, sometimes styled as claims for malicious prosecution or abuse of process, are routinely dismissed under the Massachusetts Anti-SLAPP Act, which prohibits “strategic lawsuits against public participation.”  When a suing employee successfully files a special motion to dismiss under this law, the employer is required to pay the employee’s costs and reasonable attorneys’ fees.  Accordingly, any and all counterclaims should be based on facts and legal grounds beyond the fact of the employee’s lawsuit.

6.         Include A Cooperation Clause In Separation Agreements

Even when employers may not anticipate a future lawsuit, employers should always consider including a cooperation clause in separation agreements (and other similar agreements) signed by departing employees.  A cooperation clause typically requires the departing employee to assist the employer in pending and future lawsuits (or similar proceedings, such as audits and investigations) concerning matters that arose during the individual’s employment and as to which he or she has knowledge or information.  Such provisions should routinely be used with departing management employees.  Employers whose agreements do not include a cooperation clause may have difficulty in future litigation after a supervisor, manager, or key employee separates from the employer, as such persons often have knowledge or information about the circumstances giving rise to the lawsuit.  From a practical standpoint, then, a cooperation clause is an easy way to secure a commitment of assistance in advance of litigation.

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Please do not hesitate to contact us if you have any questions, or if we can assist with threatened or pending employment litigation.  Our attorneys are licensed to practice in seven states, the District of Columbia, and numerous federal trial and appeals courts, and routinely represent employers in state and federal actions and administrative proceedings.