Posted on April 24th, 2017
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Its Friday afternoon and you are just wrapping up a busy week at your company. You love your business but you are looking forward to the weekend and a few days break from it all.
That’s when you receive a letter.
Its from an attorney and law firm you have never heard of. They are demanding the records of a former employee of yours. This is called an attorney demand letter.
What do you do?
It seems like a fishing expedition to you. Should you hand over the records as they are demanding or are you just shooting yourself in the foot if you do that?
Many uncertainties race through your head. But one thing is for sure. That stress free weekend you were looking forward to has just disappeared.
ATTORNEY DEMAND LETTER
If you have a successful business in California with employees, at one time or another it is likely you will receive a demand letter from an attorney.
If it is anything other than a labor claim letter it will likely be very straight forward and demand one of two things.
1.) You DO SOMETHING or….
2.) that you STOP DOING SOMETHING.
Labor demand letters are quite a bit different.
In fact, most people that review them with a layman’s eye will find them to be very vague in some cases and in other cases complete exaggerations of facts with huge demands for payments of money related to those exaggerated facts.
- First, I will explain the corrupted system that allows attorneys to hassle you with such letters;
- Second, I will explain the motivation attorneys have to sue you ;
- and finally, I will give you some tips to defend your business.
THE SYSTEM-FLAWED BUT NOT BROKEN
We have a system of jurisprudence in the Unites States that allows anyone to sue anyone else for any reason. If it is not a valid lawsuit, it may be kicked out of court prior to trial but not before expensive motions are filed and money is spent on attorneys to defend.
The mistake some defendants make is assuming a bogus lawsuit will not result in a judgment if it is not vigorously defended.
The opposite is true.
The most frivolous law suit can easily become a default judgment if it is not responded to within the time limits set by civil procedure (typically 30 days for state court and 20 days for federal court).
LABOR LAW-THE THE UNWITTING PAWN
Labor laws are necessary and valuable when used for the purpose intended; to ensure that employees who may be in a disproportionate level of power are not taken advantaged of and in some cases abused.
However, as altruistic as the purpose of the laws may be, they are being used by a select few attorneys for the sole purpose of profiteering.
I am hopeful that most of my esteemed colleagues are interested in protecting the interest of good employees and not just shaking businesses down for a quick buck but unfortunately, my recent experiences lead me to believe that more and more attorneys are jumping into the lucrative game of twisting good laws for their own self-interest.
INCENTIVES FOR ATTORNEYS TO SUE YOU
There are three factors that are giving incentives to attorneys to sue, whether they have a good case or not:
Factor 1. F#©k You, Pay Me.
If the plaintiff’s attorney wins even on one cause of action, YOU the employer must pay all his attorney’s fees.
Imagine going to trial and receiving some vindication because the jury awards a nominal judgment of $5,000.00 in favor of the employee.
But when you receive the judgment, it is for $250,000.00.
How can that be? The 18 months of legal fees due to the attorney that just sued YOU, that’s how!
Yes. Again, even if in the end you lose just a nominal amount to the employee you are going to get stuck paying their high legal fees which is the real killer.
To add insult to injury, the attorney can claim “reasonable” fees and expenses in any amount. Suppose you paid your attorney $400 an hour for your defense but opposing counsel claims his fees are $600 an hour.
That is okay according to the law. It is easy to see why so many attorneys are jumping into this area of law. Free money for all.
Factor 2. We, the people of the jury….
Juries are very generous to employee litigants. My theory is that most if not all members of a jury are themselves employees and have had an employer they did not like in the past.
Instead of innocent until proven guilty, employers are put in a position where they must prove they did not do anything wrong instead of the plaintiff proving their case.
Sometimes even if you prove that you are 100% in the right, a jury may award something nominal as a gesture of solidarity. The problem here is that it will likely trigger the crazy attorney fees mentioned above.
Now that nominal award may cost you six figures!
Factor 3. It’s the cost of doing business.
Most businesses take the attitude that litigation is a cost of doing business and tend to settle for an amount lower than the potential cost of litigating and the potential cost of losing a case. In some cases, this is a good strategy.
If you have truly broken labor laws and the opposing counsel is willing to settle for a reasonable number, I think it makes sense to limit your liability. However, if you have not done anything wrong or if a labor violation is relatively small and opposing counsel is not reasonable in his demands, fight and fight hard.
The problem with giving in to an unreasonable number is that you are setting yourself up for several more of these types of claims. Likely from the same attorney.
Yes, believe it or not the same attorney can sue you multiple times and the law doesn’t allow you to enter into an agreement with the attorney that just sued you to agree not to sue you again.
Once they know you do not have the stomach for a fight, you are simply a consistent victim.
HOW DO YOU RUN A BUSINESS IN THIS HOSTILE ENVIRONMENT?
It is not easy but it can be done.
As hostile as California has become to business, it is still the 6th largest economy in the world and a great place to build your business, leave your legacy and create opportunities for others.
You cannot avoid litigation entirely but you can minimize its effects with the following recommendations:
- Be proactive about educating yourself and keeping up with labor laws and trends. There are typically new labor laws every 6-12 months. If you have not changed anything related to your procedures in the last 6-12 months, you are likely not in compliance.
- Be fair but consistent with your employees. It’s the employees that think they have been mistreated that are likely to sue.
- Have a system in place for hiring. It is much easier to hire a good employee than it is to fire a bad one.
- Have a SIGNED ARBITRATION AGREEMENT with every employee that complies with the law, keeps you away from a jury and requires each party to pay their own attorney fees.
Important take away:
The state of California and employee side attorneys hate arbitration agreements. They realize it is one of the few tools that employers have left.
Because of this they will do their best to poke holes in any alternative dispute resolutions you may have with your employees.
This is why its critical that you make sure you are using an arbitration agreement that is valid and that has been drafted by a qualified person.
Downloaded boiler plate arbitration agreements do not typically pass muster these days and likely wont hold up.
If you receive one of these demand letters from a threatening attorney, do not panic!
Remember I offer a FREE 15 Minute Consultation to any California employer. You can tell me what is in the letter and I can give you a good outline of what to expect. Even if you do not hire me you will still have the best advice on what you should do next for free so you have nothing to lose.
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Hi I’m John Fagerholm, the founding partner of DefendMyBiz. My mission is to defend employers like you from California’s unfair labor laws.
Book a FREE 15 Minute Consultation with me today so I can listen to your story and tell you exactly what you need to do to get rid of your employee problems.
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