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Employment litigation has become an increasingly serious problem, due in large part to recent media attention to huge jury awards that employment cases have garnered. In addition, the wealth of information about employment laws available on the Internet has made employees much more savvy about employment issues. The risk of employers being faced with defending wrongful discharge or discrimination cases is greater than ever.

The legal fees to defend a single wrongful discharge or discrimination case can be enormous. Litigation can consume managers' time as they may be required to give depositions, testify and the like. You can't guarantee that your company won't be sued, but by adopting a proactive approach to managing the work force, companies can reduce the litigation-associated risk.


Employers should adopt and use a full employment application and require job applicants to complete the entire application. The application should be signed under penalty of perjury. Employers should not accept a resume in lieu of a completed application. These applications can be an extremely useful tool for employers if employment litigation arises later.

Employment gaps often are easier to spot in employment applications than in resumes. Applicants should be questioned about any gaps in employment and explain any questions that were not answered completely the employment application. Use extreme caution when using form applications available in stationery stores or over the Internet--they may be outdated, fail to include important questions or contain unlawful questions. Employers should have their employment application form reviewed by their attorney.


Interviews must be conducted with care and an understanding of employment discrimination laws. Thus, it is important that everyone who interviews applicants be trained to avoid asking ill gal questions or participating in discussions that are potentially illegal. For example, questions regarding a person's age, race national origin, religion, political associations, arrest record, sexual orientation and medical conditions should be avoided. Rather, the questions should be phrased to elicit information that will enable the company to determine the applicant's job-related skills and experience, as well as ability to perform the required work.


Employers have a duty to exercise reasonable care in hiring their employees. A background check can be viewed as an essential part of this duty. Background checks should include contacting former employers and references, and also can include financial histories (if relevant to the job), criminal convictions, education history, prior addresses and professional licenses.

Many companies specialize in conducting these background checks. Before using these companies, it is imperative that employers comply with the Federal Fair Credit Report Act (FCRA) requirements and any other state or local laws that pertain to background checks.

Under the FCRA, companies that use outside investigators to conduct background checks are required to provide employees with certain information about the FCRA and have employees sign authorizations for background checks.

Employers should have all applicants sign FCRA authorizations, authorizing the employer to conduct a background investigation at any time during the hiring process and, if hired, at all times thereafter. This is because, even if the employer does not intend to use an outside company to conduct the background check during the hiring process, the need for a background investigation by a professional investigator may arise later if the employee is subsequently hired.

For example, an investigation by a professional investigator may be desired if the employer later suspects the employee has been stealing company assets, sexually harassing other employees or engaging in any other improper act. If the company had not obtained the authorization during the hiring process, it may be difficult to obtain one later when the employee is suspected of wrongful conduct.


One way to greatly reduce the possibility of a runaway jury verdict is for employers to have employees sign arbitration agreements. In general, these agreements provide that the employee and company both waive their right to have their disputes resolved in court and instead agree that the sole forum for resolving all disputes is arbitration.

There are some very specific requirements for arbitration agreements to be valid. These requirements can vary from state to state, so before adopting such an agreement, it is important to have an expert review from a local attorney.


Certain state laws create the presumption that employees are employed at will and can be discharged at any time, with or without cause or notice. To preserve this at-will relationship, employers should have their employees sign express at-will employment agreements. In addition, at-will language should be included as part of every company's employee handbook and employment application forms.

How employers handle discipline and discharge also should be communicated to employees in writing. It is important that these policies allow employers flexibility and impose appropriate discipline for the particular situation, rather than a rigid multi-step disciplinary procedure.

There also are some policies that are required to be included in employee handbooks. Thus, it is important that employers check with their local attorney to be sure that they comply with all applicable laws. Employee policies should be uniformly applied to all employees.


One key ingredient to a proactive employment approach is an honest and accurate performance review practice. It is important that employees who perform below expectations receive performance reviews that clearly and explicitly state what the deficiencies are and the consequences for failing to improve. If an employee is ultimately discharged for poor performance and then sues for wrongful termination, it is critical to the defense to show how well the performance deficiencies were documented.

It will be difficult for an employer to prevail on a wrongful discharge case if the employee was discharged for poor performance but there are no performance reviews or memos to the employee explaining the performance problems. It is even more problematic if the employee received "good" or even "satisfactory" performance reviews. Satisfactory means acceptable performance. If employees are performing below expectations, they should not receive a satisfactory rating.


The manner in which employees are disciplined and discharged can have a significant impact on the likelihood of litigation. Employees should be treated at all times with dignity and respect, including during the termination process. Discipline should be conducted in private. Before disciplining or discharging employees, employers should conduct an investigation and allow the employee to respond to the accusations. Employees always should be told the reason for their termination. Often, a primary reason employees file lawsuits is because they want to know why they were fired.

Janet Swerdlow, Esq. is a shareholder in the Beverly Hills-based law firm of Swerdlow Florence Sanchez & Rathbun, which practices exclusively in the area of labor and employment law, representing employers.
COPYRIGHT 2001 California Society of Certified Public Accountants
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2001, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:California CPA
Geographic Code:1USA
Date:Nov 1, 2001
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