Officer
In the movie WarGames, the American military’s supercomputer,
Joshua, repeatedly simulates global thermonuclear warfare until
discovering the futility of it all, observing, “A strange game. The
only winning move is not to play.” The same can almost always
be said of litigation. For a multitude of reasons, the best way to
win a lawsuit is to avoid it from the beginning.
First, litigation is costly, both in dollars spent and time wasted.
Unsurprisingly, in a 2015 survey of chief legal officers, costs
rank as management’s number one concern.
The cost of defending (and ultimately resolving) a lawsuit, even one with
dubious merit, can be prohibitive. Nationwide, small and
midsize businesses faced with employment lawsuits spend an
average of $125,000 – and 275 days – to settle them.
Those costs can vary considerably, of course, depending on the
nature of the lawsuit and the forum in which it is brought. In
Massachusetts, the average cost of settling a complaint filed
with the Massachusetts Commission Against Discrimination
was a little more than $32,000 in 2014.
MCAD cases are notorious for their longevity, however, with many complaints
hanging over an employer’s head for three or even four years
before reaching a final outcome, causing significant distractions
and lost productivity to the business.
Second, litigation is risky and often brings with it the possibility
of catastrophic loss. One MCAD case from 2014 resulted in
damages for the plaintiff/employee in excess of $350,000 and
an award of attorney fees just short of $420,000 – on top of the
employer’s costs for defending the suit, almost certainly also a
six-figure number.4
A business’s potential liability in defective
product cases routinely exceeds $1 million, with one recent
plaintiff ’s verdict in Massachusetts reaching as high as $130
million.5
A botched merger and acquisition can create still
greater exposure, as illustrated by Boston Scientific’s agreement
to settle litigation brought by Johnson & Johnson for the sum
of $600 million.
Even that figure pales in comparison with
the potential liability that can arise when an employee blows
the whistle on unlawful business practices. Vanguard, the
largest mutual fund company in the United States, is currently
grappling with numerous federal and state actions alleging that
it owes a staggering $35 billion in taxes, interest, and penalties.
Third, litigation is unpredictable and the outcome is always
uncertain. In order to adapt to future market conditions and
continue meeting customer demands, businesses must plan
carefully. Litigation can be extremely disruptive to a five- or
ten-year plan, however, leaving serious doubts about the
company’s financial health and even its survival as a going
concern. “Bet the company” litigation is common, and not
every company will come out on the winning side.
Fourth, litigation can generate bad publicity. Many documents
filed in connection with lawsuits become a matter of public
record, and news outlets routinely scour court dockets in
search of scandalous stories. Even a company that has strong
arguments on the merits may find its reputation destroyed
in the “court of public opinion.” For businesses whose value
is largely a function of intangible assets such as brand equity,
name recognition, and customer goodwill, getting tangled up in
a high-profile lawsuit can create a “no win” situation.
For those reasons, among others, the most prudent business
strategy is to avoid litigation whenever possible and to
minimize the costs and risks whenever it is not. The following
tips can help a business reduce its exposure to potential claims.
- HAVE A LAWYER REVIEW YOUR CONTRACTS.
This may seem obvious, but as seasoned litigators will attest, it
is not unusual for businesses to operate on the basis of selfdrafted or form contracts that they signed without involving
corporate counsel. Do-it-yourself contracts tend to create more
problems than they solve by inaccurately identifying the parties,
relying on vague and undefined terms, neglecting to capture
important aspects of the agreement between the parties, and
failing to provide remedies in the event of a failure to perform.
Obtaining legal advice in connection with drafting a contract
will help minimize disputes down the road. - UTILIZE ALTERNATIVE DISPUTE RESOLUTION.
Litigating claims in court, where an adverse party can avail
itself of robust discovery techniques, abundant opportunities
for motion practice, and ultimately appeal rights, is typically
the most expensive and slowest method of resolving a dispute.
It is also the most public way for that dispute to play out. To
mitigate those risks, businesses should seek legal advice on the
best way to incorporate alternative dispute resolution into their
contracts. Contract clauses requiring the parties to mediate
their claims before seeking relief in court – and limiting the
remedies available to them if they do end up in litigation – can
provide both the means and the motivation to reach out-ofcourt settlements that are swift, cost-effective, and private.
Likewise, binding arbitration clauses can expedite a final
outcome by limiting discovery and appeal rights. - BE PROACTIVE BY TRAINING YOUR STAFF.
Two of the most common sources of litigation against
employers are discrimination/harassment claims and wage-andhour actions that allege the employee was not paid minimum
wage or worked unpaid overtime. Employment-based claims
are particularly hazardous for employers because the applicable
statutes make certain corporate officers personally liable and
allow aggrieved employees to recover multiple damages and
attorney fees. Many businesses attempt to avoid such claims by
setting clear written policies regarding appropriate workplace
conduct and timekeeping practices. That makes good sense,
but having policies is not enough; the employees tasked with
carrying out those policies must be trained in the best practices
for doing so. Businesses should make a habit of training their
staff on an annual basis to ensure that their conduct policies
and compensation models are compliant with the current
state of the law and are implemented consistently. Investing
company resources in training programs will help protect
against potentially ruinous employment claims. An ounce of
prevention truly is worth a pound of cure. - DO YOUR HOMEWORK.
It was recently reported that the Boston Red Sox quietly ended
their pursuit of a Cincinnati Reds pitcher after their background
research revealed his involvement in a violent domestic dispute.
The Los Angeles Dodgers, by contrast, reached an agreement
in principle to trade for the pitcher before news of the alleged
episode broke, sending the organization scrambling to unwind
the deal and control the damage. Contrary to what common
sense would suggest, businesses often proceed with care and
caution where the stakes are comparatively low, while rushing
headlong into decisions that involve significant company
resources. Whether your business is considering a joint venture,
structuring an incentive plan for key employees, or preparing
to launch a new product, it is vitally important to carry out due
diligence that is commensurate with the risk. There are always
traps lurking for the unwary business that leaps before it looks.
Before embarking on a bold new course of action, engage legal
counsel to evaluate the potential pitfalls and craft a strategy for
navigating them successfully.