Case Study: The Financial and Reputational Cost of Employee Lawsuits for Employers

Workplace issues like bullying, discrimination, and sexual harassment don’t just harm individuals—they can throw an entire company into turmoil. Ignoring these problems or trying to sweep them under the rug only makes things worse. Beyond tarnishing a company's image and trustworthiness, such misconduct hits hard financially. A recent study by Vault Platform revealed a staggering $20.2 billion lost by U.S. businesses last year alone due to workplace misconduct.

If your company has avoided such issues, consider yourself fortunate. In 2020, the U.S. Equal Employment Opportunity Commission (EEOC) received 67,448 workplace discrimination complaints,  including employee harassment lawsuits, and recovered $439.2 million for affected employees through settlements and legal action. Addressing these challenges head-on isn’t just the right thing to do—it’s crucial for protecting your business and your team. 

What does Reputational Damage Cost Companies?

Bad publicity doesn’t just hurt a company’s name—it can also harm customer trust, finances, and the company’s overall worth.

• On average, 63% of a company’s market value depends on its reputation.
• 76% of companies that faced a reputation crisis said it could have been avoided.
• 64% of people stopped buying from a brand after learning it treated its employees poorly.

If you're feeling pressured or harassed at work, check out our Lawyer Density Statistics page to locate the top employment lawyers in your state.

How much does Employee-Related Legal Action Cost Businesses?

Businesses rarely anticipate facing legal disputes with employees, but studies reveal it happens more often than expected. Implementing measures to prevent and address issues early can save a company significant money and stress.

• Research from Hiscox shows that 1 in 5 businesses with 500 or fewer employees faces a lawsuit related to employment.
• Defending a harassment case costs an average of $250,000.
• The average jury award is $600,000 if a company is found responsible.

Investing in strategies to reduce legal risks and avoid disputes can protect businesses from significant financial losses and damaging their reputation.

What is the Average Cost of Employment Lawsuit Litigation?

If an employee lawsuit is filed in federal court and the employee wins, the compensation can be:

• $50,000 for companies with 15 to 100 employees
• $100,000 for companies with 101 to 200 employees
• $200,000 for companies with 201 to 500 employees
• $300,000 for companies with more than 500 employees

According to EEOC, the final payout in an employee harassment lawsuit depends on the details of the case and negotiations between the lawyers. These amounts are general guidelines used as a reference in court.

Top Reasons Why Companies Face Employment Lawsuits

Here are some of the top reasons U.S. employers are sued by their employees, listed in no specific order:

1. Changing Wages

According to the Fair Labor Standards Act (FLSA), Employers cannot withhold or reduce wages, pay less than twice a month, or lower overtime pay below 150%. Many states require payments at least twice monthly unless exempt or with written consent, and docking wages for losses is primarily illegal.

2. Mislabeling Workers as Independent Contractors

Misclassifying workers as contractors to avoid taxes or benefits violates laws and invites lawsuits. Worker agreements don’t automatically classify them as contractors, and employers remain at risk of fines and lawsuits if workers are misclassified, even with their consent.

3. Misunderstanding At-Will Employment

At-will employment allows firing at any time, but it doesn’t protect employers from implied contracts or illegal reasons like discrimination. Employers risk wrongful termination claims without proper documentation if the firing reason isn’t apparent or legally justified.

4. Asking Illegal Questions in Interviews

Interview questions about age, disability, marriage, or salary history can lead to discrimination claims. Asking about past arrests or running a credit check without written consent is also illegal. Employers must avoid questions that can be seen as discriminatory.

5. Not Following Company Rules

Failure to follow company handbook procedures for grievances, discipline, or reviews can lead to employee lawsuits. For example, inconsistent performance reviews followed by firing may lead to claims of unfair treatment. Clear documentation and consistency are essential in managing employees.

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What Counts as Wrongful Termination?

These issues could lead to expensive settlements, high legal fees, and damage to the company's reputation. Even if the company wins the case, the damage to its reputation and the costs can still be significant. According to U.S. labor laws, most jobs are “at-will,” meaning employers can fire employees at any time, without notice, and for any reason that isn’t illegal.

Wrongful termination happens when an employee is fired for something protected by law, which is considered discrimination and can lead to a lawsuit. There are seven protected characteristics: 

• Age
• Race
• Gender
• Religion
• Color
• Sex
• National origin
• Disability

It’s also wrong to fire someone for using medical or parental leave, which they can take based on their work contract. If an employer breaks the contract when firing someone, it can be considered wrongful termination. Another illegal reason for firing someone is whistleblowing. When you’re making the firing decision, the best way to avoid wrongful termination claims or employee bullying lawsuits is to understand the labor laws and follow them. Ensure your recruitment staff is trained on the legal rules and consequences of firing an employee.

What Affects the Settlement Amount?

Nolo reports that employees are more likely to get compensation if they hire a lawyer to help negotiate. Whether the former employee brings a lawyer can also affect the settlement amount they negotiate with your company.

In addition to having a lawyer, several other factors can impact the settlement amount. Here are some of them:

• Lost wages: The employee will expect compensation for the wages they lost after being fired, based on their previous salary. You may also need to pay them until they find new work or return to their old position.
• Lost benefits: If the employee had benefits like health insurance, life insurance, or other perks while working for you, they likely had to cover the average cost of employee lawsuit after losing their job. You may be expected to reimburse them for these expenses.
• Emotional distress: You may need to pay for the emotional pain caused by their wrongful termination. The employee might ask for more than you're willing to offer, so this area may require more negotiation.

Besides these main factors, the employee may also try to negotiate for other expenses:

• Job search costs: The employee could ask you to cover expenses related to finding a new job, such as transportation, hotel stays for interviews in other cities or costs for professional memberships.
• Attorney fees: While the fees should be lower than if the case went to trial, you may be expected to pay for their lawyer, especially if the firing was unlawful.

If an employee harassment lawsuit goes to trial, the court might award punitive damages if they believe your company's actions were incredibly severe and illegal. However, these are rare and won’t affect the settlement unless the other lawyer uses them as leverage. The size of your company can also influence the settlement amount. It wouldn't make sense for the employee to ask for an amount your small business couldn't afford.

Estimating the average settlement for wrongful termination cases can be challenging because settlements can be kept private. Employers can include a confidentiality clause in the settlement agreement.

The average wrongful termination settlement is around $40,000, but it can range from $5,000 to $100,000, depending on the case details. In some situations, the amount could be more than $100,000, especially if the company is significant.

Case Study: $28.7 Million Nuclear Verdict in Employment Practices Liability

In 2015, a 77-year-old doctor with nearly 20 years at Cleveland Clinic was forced to retire. The new leadership claimed he was "no longer a fit" because of his age. The hospital also directed his patients to younger doctors.

When the doctor complained to his boss and HR, the hospital stopped giving him new patients, which hurt his income. He eventually left to work elsewhere. Feeling unfairly treated, he sued the hospital for age discrimination and retaliation. The case went to court in Cuyahoga County.

In 2018, the jury ruled in favor of the doctor, awarding $28.7 million. This included $1.95 million for lost income, $325,000 for emotional distress, and $26.375 million in punitive damages. Legal limits later reduced this to $6.8 million plus attorney fees. This popular Nuclear Verdict case study shows the high cost of workplace discrimination and the need to treat employees fairly.

Hire the Best Employment Lawyer Today!

Employee harassment lawsuits can harm a business in many ways. Whether the case goes to court or is settled outside of court, it can seriously affect a company. However, you can prevent these lawsuits by setting clear rules and following fair workplace practices. If you're looking for an employment lawyer, connect with Lawyersrating.FYI to find top legal professionals searching for justice and quality legal help.