BY DIAN RUBANOFF
Recent decisions by the 9th Circuit Court of Appeals and the U.S. Supreme Court have made it easier for employees to file frivolous claims against Oregon employers. I frequently have to deliver the bad news to an employer that there is a double standard when it comes to recovering attorney fees in discrimination lawsuits.
Under the state and federal laws, a prevailing employee is entitled to receive an award of attorney fees from the employer, but the reverse is almost never true. The only hope for a prevailing employer to recover defense costs — which can easily be $100,000 or more — is by convincing the court that the employee’s claims were “frivolous.” Employers are rarely successful in doing this.
Now, based on the new case law, an employer that wins in court can’t even recover attorney fees for frivolous claims, if they overlap with other claims that are viewed as “non-frivolous.” That was the ruling last January in a federal court in California. The employer spent $315,000 in attorney fees, and prevailed on each of the ten claims in the lawsuit. The judge found that some of the claims were frivolous, and allocated $85,000 to the employer as reimbursement for the frivolous claims. The 9th Circuit (which also governs federal cases in Oregon) reversed on appeal because the employer didn’t prove that those fees were incurred solely in defense of the frivolous claims. This month, the U.S. Supreme Court made the same ruling in another civil rights case.
So what can employers do to minimize the risk of a devastating loss? Many employers are surprised to learn, after it’s too late to do anything about it, that general liability insurance does not cover discrimination claims. Employment Practices Liability Insurance (“EPLI”) can be purchased, but it often comes with a large deductible (up to $50,000 or more), so it is important to know what you are buying.
Employers can also limit the impact of litigation by requiring new employees to sign arbitration agreements as a condition of being hired. Under these agreements, both sides agree in advance that any employment-related claims will be resolved in arbitration rather than in court. Litigating before an arbitrator tends to be faster and less expensive than court trials. Currently, an Oregon statute requires an employer to tell an applicant about the arbitration agreement 14 days before hiring. A bill is making its way through the Oregon Legislature that would reduce this time period to 72 hours. These agreements need to be carefully drafted to be enforceable.
As always, the most cost-effective way to minimize the risk of litigation is to get advice from a knowledgeable source before making an employment decision. For employers who cannot afford to pay an employment attorney, the Oregon Bureau of Labor and Industries (BOLI) is an excellent resource. BOLI’s website provides informational fact sheets regarding compliance with the various employment laws. BOLI also provides employer seminars in areas such as drafting personnel policies, documenting discipline, and preventing harassment. Another good resource for employers is the Job Accommodation Network, askjan.org, which provides free consultations for accommodating employees with disabilities.
No matter the size of the employer, planning ahead is crucial. In these stressful economic times, unexpected events can cause the best of employment relationships to become adversarial overnight.
Dian “Dee” Rubanoff is a shareholder with the law firm of Williams, Zografos & Peck in Lake Oswego.