ARE YOUR CLAIMS PREVENTION POLICIES REALLY CLAIMS CREATION POLICIES?

Avoiding Lawsuits

We often hear from clients that they always do X or have a policy that mandates Y because, "as everyone knows," X and Y will reduce their potential liabilities. We know, however, that X and Y are what causes the liabilities in the first place. The problem is that what passes for "common wisdom" and "business judgment" is often an amalgam of dangerous misinformation that leads businesses into lawsuits, particularly in the employment practices field.

Here are a couple of examples.

WHEN IN DOUBT, THROW IT OUT?

The Dangers of Document Destruction

Many companies have instituted policies requiring that all "non-essential" documents are to be routinely destroyed. The rationale is to make sure that those who sue the company are not provided with a storehouse of incriminating evidence. Current, popular examples of the astuteness of such a policy include the extent to which Bill Gates was skewered on his e-mails, or how "travelgate" records almost caused Hillary Clinton's indictment. If these records were routinely destroyed, goes the argument, these problems never would have bubbled to the surface.

The problem with this sort of blanket document destruction policy, however, is that it can violate the law, deprive the company of the documentation it needs to defend itself and, perhaps worst of all, create the impression that the company is engaged in an unlawful cover-up. A recent federal court case out of Connecticut provides a good example of how this kind of policy can come back to bite you.

Robert Byrnie applied for a teaching position with the Cromwell School District. He was in his 60s, and eminently qualified. However, the Board of Education hired a younger teacher, and Byrnie filed an age discrimination claim. Cromwell's policy was that once a teaching position was filled, all records that pertained to the interviewing and hiring process were to be destroyed. In his lawsuit, however, Byrnie claimed that the destruction of the records unfairly compromised his ability to prove that he was, in fact, the most qualified candidate - for instance, the records in question might show that his age entered into the decision-making process. Cromwell countered by claiming that the document destruction policy was simply routine, and the documents were destroyed long before they knew that Byrnie might make a claim.

Cromwell's policy - most likely instituted to forestall potential liabilities - backfired in a big way. Cromwell claimed that Byrnie's age had nothing to do with the hiring decision, but without the records, proving that fact became a near-impossibility. To make matters worse, Cromwell's policy violated various federal laws that require employers to retain all records pertaining to employment decisions for a period of two years, making Cromwell look even worse. But the real cruncher was the court's conclusion on whether the document destruction was the result of an innocent, neutral administrative policy, or part of a nefarious scheme. Here's what the court said:

Cromwell admitted that its policy was to destroy such records soon after the hiring process had been completed and that the records in this case were so destroyed. At no point has Cromwell asserted that their destruction was merely accidental. This is evidence of intentional destruction sufficient to show a culpable state of mind on Cromwell's part. The term "a culpable state of mind" is law-talk for "you did it on purpose to deprive the plaintiff of his rights." Stated more simply, without the documents, Byrnie wins, Cromwell loses.

Document destruction policies are serious business. They are anything but foolproof litigation- avoidance techniques. The issue becomes even more complex when electronic documents, such as e-mail, are involved. In some instances, these kinds of policies can even result in criminal consequences. Consult counsel.

BUYING YOUR PEACE

How Not To Prevent An Age Discrimination Claim

Due to certain legal presumptions in their favor, age discrimination claims brought by terminated employees over the age of 40 are becoming all too common. Consequently, as a matter of policy, many companies will cut a deal in order to buy their peace: they will pay a reasonable amount of severance beyond the amount they would otherwise be obligated to pay, in exchange for the terminated employee's agreement to sign a standard release of all claims. The companies' assumption is that even if they have not discriminated in any way, the extra money is a wise investment, when compared to the legal fees and distractions they will have to incur if litigation were commenced.

Early this year, new (and seriously under-publicized) EEOC regulations took effect that emasculate this strategy. Basically, the EEOC regulations provide that even though an employee has signed a release of the right to sue an employer in exchange for extra severance or other payments, the employee has the right to thereafter challenge the validity of the release, while at the same time retaining all of the extra severance and any other monies the employee received in exchange for the release. In addition, the employer must keep paying what it agreed to pay, even though the employee agreed not to sue and did so anyway. The employee gets to have his cake and eat it, too.

And as they say on the infomercials, but wait, there's more. A lot of the standard release forms companies typically use say that if the employee breaches the settlement deal, sues the company, and loses, the employee pays the company's counsel fees. Again, the point of the whole arrangement is deter employee claims. The EEOC regulations have invalidated that provision as well - you may not hold the employee responsible for your legal fees or other damages simply because the employee tried to challenge the release, even if the release agreement gives you this right.

All of this does not mean that the release will always be invalid. It simply means that older employees with whom you thought you had a "I pay severance/you don't sue" deal will be permitted to challenge the validity of the release without penalty. If the employee wins, he or she gets to sue you for age discrimination (but at that point must refund the extra severance which, of course, they will seek to credit against their claimed age discrimination damages). If the employee loses, he or she is none the worse for wear. The claims prevention lesson is this. As these new regulations become more well-known, improperly drafted release forms may actually encourage the commencement of claims. To really prevent litigation, employers must take as much care in crafting the release as they do in crafting the severance package. The release language is much more than just a formality, and your standard form will no longer do the trick. More than anything else, courts who judge the validity of releases of this type will look to see whether the employee made a "knowing and voluntary" deal. The employer must be in a position to prove that it supplied all information required by the age discrimination law and the latest regulations, and that the employee knew and understood what the employee was giving up and getting. This takes some real care and know-how.

As usual, please don't shoot the messenger.

Powell, Trachtman, Logan, Carrle & Lombardo, P.C. is a full service law firm with offices in suburban Philadelphia, PA, Harrisburg, PA and Cherry Hill, NJ. Powell Trachtman represents a variety of commercial enterprises, entrepreneurs and business executives in respect to their litigation, litigation avoidance planning, business formation, business transactions, estate and tax planning, and other needs. We are also approved defense counsel for numerous insurance carriers in matters pertaining to professional malpractice, products liability, employment practices, directors and officers liability, and many other fields. For more information, contact us at info@powelltrachtman.com and visit our website at www.powelltrachtman.com.

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