Financial Post: 13 July 2005 All Rights Reserved.
How do you win in court? A common adage is that winning or losing a trial is a function, in roughly equal proportions, of the strength of each side’s case, the skill of counsel and the judge you happen to draw.
My view is otherwise. In dismissal cases, how much an employee obtains is very much a function of the strategies each side applies. Law suits are not only about money. They are about relationships, goodwill and psychological stability. In litigation, an employer decides how much to offer based as much on those factors as on an employee’s legal entitlement.
Employers that understand the litigating employee’s apprehensions (and misapprehensions) in the litigation process make the best settlements.
What are those fears?
- An employee’s greatest need for severance is immediately after the termination rather than later when they are re-employed. They will often take less money if it is offered quickly.
- Just as there are skeletons in some employer’s closets, the same is the case with employees. I have won many cases based on facts I discovered only while preparing for a case on unrelated issues. Sometimes I’ve discovered those facts in the middle of a trial and the employee has dropped the case accordingly. Some employees successfuly conceal misconduct they fear will be uncovered if their matter proceeds to litigation. Sometimes this fear is unreasonably based, a function of the employee’s idiosyncratic psychology, but nevertheless, it can motivate settlement. Even problem-free employees fear that litigation could result in the employer discovering a secret that, although it may not be harmful to their lawsuit, could damage their reputation.
- Many employees are concerned about the effect a law suit could have on their reputation and future relations with the employer. Such employees will settle more quickly when a positive reference is part of the package.
- Employees are concerned that prospective employers may learn of the law suit and be more reluctant to hire them. Although, in my experience, this is seldom an issue in the hiring process, employees with those apprehensions tend to wish to settle their case quickly, quietly and comparatively inexpensively.
In the same way that employees’ fears motivate settlements, the reverse is equally true.
Employers’ fears include:
- No one scrutinizes wrongful dismissal cases more intently than co-workers. If they view a former colleague to have been treated harshly, they are less likely, in turn, to be as loyal to the organization or as productive. Similarly, a poor reputation for dealing with employees will make it more difficult to recruit marketable new applicants.
- Employers seldom view a case individually. Rather, they look at the incentive that excessively generous severance settlements provide to other employees to litigate. Excessively generous settlements promote litigation in others as much as particularly parsimonious ones. But employers must be cautious. Litigating and losing at trial will motivate further litigation in the same way that succeeding at trial will make other employees less prepared to sue.
- Many employers fail to consider the impact of litigation on the dismissed employee’s coworkers. But virtually all employers worry about the impact on customers. If a terminated employee has an excellent relationship with the former employer’s customers, the employer should proceed particularly gingerly. Customer loyalty can be as fragile as employees’ loyalty.
Some employees use the tactic of soliciting letters of reference from those customers and suppliers with whom they have formed a relationship. Having your customers testify against you can be more “expensive” then any wrongful dismissal judgment. One thing you can be certain of — they will not want to be involved.
- The most potent “hidden persuader” involves employees who have access to confidential information that is embarrassing or involves illegal activity. If the employee makes that conduct relevant to the law suit, employers will pay virtually any amount to settle it. The history of the dissolution of Canadian companies is, I suspect, replete with unhappy former employees who (improperly) disclosed secrets to the competition or regulatory authorities.
- Larger corporations, in particular, are nervous at the prospect of media scrutiny of their conduct. Honda Canada, which recently had the largest punitive damage award in Canadian history levied against it for its treatment of an employee, will doubtless be more impacted by the publicity surrounding the recent decision outlining its misconduct than by the $500,000 punitive damage award it has to pay.