What Is the Real Cost of Employment Lawsuits?

Do a search on “cost of employment lawsuits” and you are sure to find plenty of “statistics” and “facts” regarding the cost of litigating an average employment lawsuit.  To be honest, many of these websites belong to various HR related vendors – software companies, lawyers, etc. – that are attempting to coax businesses into their using their services.  However, just like many “facts” found on the internet, it is hard to tell what is real and what isn’t.

Sometimes you do find impeccable sources, though. I recently ran across a 2010 study done by Duke University on this subject.  Entitled “Litigation Cost Survey of Major Companies” and compiled by Lawyers for Civil Justice, Civil Justice Reform Group, and the U.S. Chamber Institute for Legal Reform. The Duke researchers sent surveys to all of the Fortune 200 seeking solid information on total litigation costs for their employment related lawsuits. Their intent was to quantify not only the “hard costs” of litigation such as attorneys fees, court costs, etc. but also to take a look at the soft litigation costs such as discovery costs and lost productivity.  About 20% of the companies participated in the survey.

Key findings of the survey reveal:

  • Litigation costs keep rising – Companies reported that litigation costs continue to rise at the rate of over 9% per year.  From 2000 to 2008 litigation costs had increased 112%.

 

  • International companies spent between four and nine times more on US-based litigation than they did on foreign based litigation.  This statistic was adjusted to reflect the level of revenue each company generated domestically vs. internationally.

 

  • One of the drivers of the increased litigation costs appeared to be the incredible amount of discovery done by US attorneys.  In major cases – those that resulted in awards of greater than $250,000 – as many as 4.5 MILLION documents were produced during discovery while only about 1% of these were actually used at trial.  This would seem to indicate that perhaps US attorneys are (a) afraid of missing something important so they look at everything, or (b) generating excessive document trails in order to generate excessive bills (you decide).

 

  • Among the 36 survey participants who responded to the questionnaire, the total aggregate spend on litigation in 2008 was $4.1 billion.

 

Employers have long contended that the US has become a litigious society and the Duke survey certainly bears this out.  While the Duke survey looked at litigation costs only within very large companies — who reported actual litigation costs of between $625,000 and $9,500,000 per case – logic would assume that any similar survey of smaller employers would yield the same type of results.  Litigious employees and their aggressive attorneys, combined with an ever expanding regulatory environment, is creating a perfect storm that is threatening American businesses like never before.

The real cost of constantly expanding employment litigation might be the loss of American jobs and our competitiveness in a global market.  As the study concludes, “If U.S. litigation costs are significantly higher than in other countries, and the situation is left unchecked as economic differences between countries narrow, the United States will be unable to compete effectively in the global marketplace.”

That is one reason why we at GeniusHR focus so much of our effort on providing excellent legal compliance tools as part of our HRIS software, empowering the HR department to provide a solid first line of defense against employment related legal problems.

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