More Fired Employees Pursuing Legal Recourse : But Rand Study Says Size of Wrongful Termination Awards Continue to Drop
Although more fired employees are seeking legal recourse in the courts, a new study by the Rand Corp. suggests that terminated employees and their employers would do better financially by trying to settle their differences out of court rather than going to trial.
“Unless you have a very good case, don’t bother (filing suit),” said James N. Dertouzos, a Rand economist, who was one of three authors of the study published by the nonprofit, Santa Monica-based research institute. “Very few people are getting big payments.”
In analyzing the wave of civil “wrongful termination” lawsuits that began during the early 1980s, the 73-page study found that 40% of plaintiffs’ winnings went to their lawyers and that the median net payment to the successful plaintiff was only $74,500. When losing plaintiffs were included, the median payment to a worker declined to $30,000.
Nevertheless, the number of wrongful termination suits has risen dramatically, said the authors, who included economist Dertouzos, attorney Elaine Holland and Patricia Ebener, a behavioral specialist.
In Los Angeles Superior Court such cases increased to 600 in 1986 from just 90 in 1980. Overall, an estimated 1,000 suits were filed throughout California in 1986.
“One of the reasons there is a long line at the court house is that (companies) roll over,” said Harry B. Bernhard, a former IBM official, who serves in the University of Southern California’s executive-in-residence program in the graduate business school. He said companies should be more vigilant in defending against lawsuits.
But juries also favored plaintiffs in two-thirds of the 120 California trials held between 1980 and 1986. Initial awards averaged $650,000, but that figure was inflated by a few multimillion-dollar judgments, the study found.
Historically, employers in the United States have had considerable discretion in firing workers, said Reginald Alleyne, professor of law at UCLA. Under common law, managers were free to fire a worker at any time, for any reason or no reason at all. However, this employment-at-will theory has become more muddled in recent years as state courts across the country have moved to place limitations on companies’ ability to fire their employees.
“Most employers who are defending against these actions are not aware of the general level of arbitrariness a plaintiff must show to win these cases,” said Alleyne. Employers can’t be blamed for their skittishness, he added. “Who knows where the line will eventually be drawn” by the courts.
But a wrongful termination suit now making its way through the California courts may soon clarify the matter, the authors of the report contended.
The California Supreme Court has been asked in the case Foley vs. Interactive Data Corp., to decide whether an employee who was fired three months after accurately reporting that a new boss was under investigation for embezzlement on a previous job, was wrongfully terminated.
Although the company claimed that Daniel Foley, a middle manager whose annual salary at Interactive Data was $56,164, was fired due to “inadequate performance,” Foley had a seven-year history of regular promotions and pay increases and had just received a large bonus.
Salaries a Factor
The authors say the case “will have tremendous influence on wrongful discharge law in California.”
Like Foley, the typical California plaintiff was middle-aged--45 years old--had eight years’ seniority and made $36,000 a year. More than 89% were white; nearly 69% were men. Executives filed 13.6% of the suits, middle managers, 39.8%.
Employers cited inadequate performance in 80.8% of the firings. The rest were attributed to external economic factors.
Women appeared to receive considerably lower damages than men, a finding linked to women’s generally lower salaries as well as smaller salary growth over time and lower expected labor force participation.
Lawyers Favor Executives
But author Dertouzos, also said that women and minorities were likely to fare worse in trying to seek legal recourse for alleged wrongful termination.
“Once you get somebody to take your case the system does not discriminate,” Dertouzos said. “But because awards are based so closely on salary, wrongfully terminated people who make smaller salaries,” are unlikely to interest “attorneys who work on contingency fees. The people who have guaranteed employment contracts are big executives.” And those are the cases that most interest lawyers, Dertouzos said.
