The Mission of the Manhattan Institute is
to develop and disseminate new ideas that
foster greater economic choice and
individual responsibility.

US News.

Suppose they sue?
Why companies shouldn't fret so much about bias cases
September 22, 1997

By Amy Saltzman

By most accounts, today's workplace is treacherous territory--for employers. Multimillion-dollar job discrimination settlements are front-page news. Politicians and business executives complain loudly about what they see as an explosion in employment-related lawsuits. In his new book, The Excuse Factory, legal writer Walter Olson portrays an American workplace paralyzed by laws aimed at protecting workers. Today's real victims, argues Olson, are the companies that can't hire or fire employees or run their businesses effectively for fear of a lawsuit.

Managers are understandably worried that the slightest misstep--an imperfectly asked interview question, a misconstrued compliment to a female worker--could trigger a lawsuit. But are their concerns justified? An extensive analysis by U.S. News of recent job discrimination cases and interviews with experts who have studied the issue reveal that managers have little reason to fear being sued. "Many of the claims in the press and public literature are greatly exaggerated," says John Donohue, a professor at Stanford University law school. Clearly, it is legally prudent and smart management for companies to weed out discriminatory practices. But managers have more control than they might think.
MYTH: Companies today are being pummeled by job discrimination suits.

REALITY: New laws have given more workers a platform for airing their grievances. These include the Americans with Disabilities Act, passed in 1990, and a legal broadening of the definition of sexual harassment to include any form of sexually offensive behavior resulting in a "hostile" work environment. Last year, 23,152 suits alleging race, sex, disability, or age discrimination were filed in federal courts, more than double the 1992 total of 10,771. But given the number of employed Americans, currently at a record 129.7 million (11 million more than in 1992), the number of people who actually take legal action is minuscule. Last year 77,990 people filed complaints with the Equal Employment Opportunity Commission, the first step in pursuing a lawsuit--a rate of less than six claims per 10,000 workers annually.

The upward trend in employment complaints, triggered in part by corporate downsizings, may also be abating as the economy and job market continue to accelerate. Race, sex, age, and disability charges filed with the EEOC in 1996--the latest year for which figures are available--were all down from the previous year. And while employment-related class action suits get a lot of attention, their numbers have plummeted in the past two decades, from 1,174 in 1976 under an activist EEOC to just 68 in 1996 as a short-staffed and underfunded agency has focused primarily on high-profile cases. The result, say legal experts, is that solid cases that might once have been resolved by the EEOC are now being rejected by the agency, leaving workers no choice but to file individual lawsuits or abandon their cases.
MYTH: Workers whose cases go to trial are winning more often.

REALITY: Since passage of the 1991 Civil Rights Act, which made it easier for discrimination victims to get jury trials, employees have won more often. Between 1991 and 1995, when 47 percent of cases were decided by a jury rather than a judge, employees won 30 percent of the cases. Between 1978 and 1990, when just 24 percent of the cases went to a jury, the win rate for plaintiffs was 24.5 percent. Still, says Theodore Eisenberg, a Cornell University law school professor who compiled those data, "job discrimination cases remain one of the single most unsuccessful classes of litigation for plaintiffs. They settle less and lose more than almost anything else." Among the only cases consistently less successful are complaints filed by prisoners, few of whom are represented by lawyers.
MYTH: Even cases that don't get near a courtroom cost employers a bundle.

REALITY: Recently, Texaco agreed to pay $ 176 million to settle a racial discrimination suit. Figures like that have led companies to assume that even weak cases could hurl them into bankruptcy. This is unlikely. In a study that followed 470 wrongful termination cases in California civil court between 1987 and 1994, James Dertouzos, a senior economist at Rand, a public policy research firm based in Santa Monica, Calif., found that 17 percent of the cases were dropped after an initial complaint, costing the employer less than $ 500 on average. An additional 40 percent of the cases were settled before going to trial, at an average cost for the companies of $ 60,000, including attorney's fees. (In the case of a small business, losing $ 60,000 could threaten its entire existence, but relatively few small businesses get sued.) Attorneys handling federal discrimination cases report similar findings. William Ewing, a Philadelphia employment litigation lawyer, says the cost of handling administrative work and fact finding for a client company after a complaint is filed with the EEOC is usually less than $ 5,000. And most such charges, he says, are resolved before they are filed in court.
MYTH: If a case does go to trial, juries are likely to hit companies with millions in damages.

REALITY: The 1991 Civil Rights Act enabled employees who win discrimination cases to collect compensatory and punitive damages, whereas in the past they had to settle for lost back wages. That change has given juries the power to hand down huge awards to plaintiffs, and they have occasionally done so. In a case against Wal-Mart, for example, a Jefferson City, Mo., jury voted in 1995 to give $ 50 million to a female employee who was sexually harassed and then rebuffed by management as she tried to work through the company's in-house grievance system.

Such awards, however, are extremely rare and are usually reduced on appeal. In the Wal-Mart case, the award was whittled down to $ 385,001. The median jury award in sexual harassment cases last year was $ 100,050, according to Jury Verdict Research in Horsham, Pa.; the median award for all federal job discrimination cases decided by a jury, according to Eisenberg, actually dropped from a peak of about $ 350,000 in 1990 to $ 100,000 in 1994. Few cases, of course, ever go to a jury. Just five of Dertouzos's 470 cases went to trial, costing companies between $ 60,000 and $ 300,000. Most were toward the low end.
MYTH: Complying with laws like the Americans with Disabilities Act is prohibitively expensive for companies.

REALITY: Most studies suggest the opposite. In research on Sears, Roebuck & Co., University of Iowa law professor Peter David Blanck found that most accommodations required under the ADA could be handled at little or no expense. Between 1993 and 1995, Sears, which employs an estimated 20,000 people with physical or mental disabilities out of a total work force of 300,000, spent an average of $ 45 accommodating the disabilities of 71 workers. The cost for thosewith mental impairments was virtually nothing. While these figures represent direct costs only, like lowering a desk to ease the discomfort of someone with back problems, preliminary results of a new study by Blanck indicate that indirect costs, such as time spent by human resources staff, are also minimal.
MYTH: Virtually everyone is a member of a "protected class" under today's employment discrimination laws.

REALITY: Recent court rulings have actually made it tougher for employees to claim discrimination by narrowing the definition of who is protected by employment laws. Courts have found, for example, that if an employee's mental illness is controlled through medication or his or her hearing is improved by a hearing aid, then the person is not disabled under the law. Likewise, federal appeals courts have ruled consistently that workers filing age discrimination suits must show that their employer intentionally discriminated against them, not simply that a corporate policy, such as one resulting in more older workers being laid off, was harsher on them than on younger employees.

There is also little evidence that large numbers of workers, armed with the knowledge that they are members of a protected class, are prone to sue at the first sign of discrimination. Male managers' fears that complimenting a female worker on her appearance could result in a sexual harassment charge appear to be unfounded. A recent study conducted by the University of Illinois--Urbana-Champaign, for instance, found that few women who have been sexually harassed ever identify what has happened to them as sexual harassment--let alone file a legal complaint.
MYTH: Providing references for a former employee is asking for legal trouble.

REALITY: In the mid-1980s, a handful of high-profile defamation cases against employers gave job references a bad name. Fearful that they would be socked by million-dollar suits, companies stopped handing out references or limited them to the worker's name, position, and dates of employment. In truth, employers had little reason to fear that providing an honest reference of a former employee would spark legal action. Between 1985 and 1990, just 12 employment-related defamation cases involving job references were filed in federal and state courts, up from four between 1965 and 1970. Steven Willborn, a professor at the University of Nebraska law school, who compiled the data, says he does not believe the numbers have changed dramatically in the past six years. If anything, employers now have more protections against such suits: Twenty-five states--20 since 1995--have passed laws providing employer immunity for disclosure of employment information.

Ironically, employers who don't give references may be setting themselves up for more legal problems than those who do. Reflecting a growing trend, companies are suing former employers who failed to provide references alerting them to problems with an employee, especially if the worker had demonstrated violent behavior. "Courts are increasingly recognizing this as negligent referencing," says Colin Theis, a Kansas City attorney who represents insurance companies in employment cases. The lesson for employers is clear: While employees do sue--sometimes for no good reason--common sense still prevails. The best way to avoid legal trouble is to run a fair-minded, well-managed business that doesn't waste too much energy worrying about getting sued.

©1997 US News



Home | About MI | Scholars | Publications | Books | Links | Contact MI
City Journal | CAU | CCI | CEPE | CLP | CMP | CRD | ECNY
Thank you for visiting us.
To receive a General Information Packet, please email
and include your name and address in your e-mail message.
Copyright © 2009 Manhattan Institute for Policy Research, Inc. All rights reserved.
52 Vanderbilt Avenue, New York, N.Y. 10017
phone (212) 599-7000 / fax (212) 599-3494