Many employers have had the misfortune of dealing with the following (or a similar) scenario:

Employer is on the verge of terminating employee due to longstanding performance problems. Before the employer takes any action, however, employee complains of harassment (or discrimination, or failure to accommodate, etc.). Following the complaint, employer begins experiencing an increase in performance problems and employee also begins engaging in disruptive behavior. When employer takes steps to address this misconduct, employee accuses employer of harassing and retaliating against him/her. Employee claims that the harassment and retaliation is causing him/her stress and sees a psychologist who puts employee on medical leave.

What started as a simple (and probably meritless) claim has turned into a mine field for the employer, presenting potential retaliation, constructive discharge, ADA and FMLA issues, on top of trying to run a business, avoid damaging relations with clients or customers, and avoid triggering claims by other employees.

An employer faces unique challenges when sued by a current employee. Maintaining productivity, morale and an appropriate defense while the litigious employee is underfoot (or on leave) is not easy. There are, however, steps an employer can take to make this formidable HR task more manageable and, potentially, work to the employer’s advantage.

1.  Reality Check

Many HR professionals will advise that an employee who has sued (or filed a claim of employment discrimination with a federal or state agency, or made an internal complaint of discrimination, etc.) is subject to a sort of immunity (one “expert” witness refers to this status as ”super-protected”). By this, they mean that any action taken against the employee (no matter how richly deserved) after the employer is on notice of a claim is likely to create an additional claim of retaliation.

It’s not bad advice. There are a multitude of employment cases in which an employer prevailed on a discrimination claim, only to find itself on the losing end of a retaliation claim. The question is, why?

Unlike discrimination claims, which juries may have difficulty understanding or accepting, juries simply “get” retaliation claims. Payback and retribution are the stuff of Shakespeare and the Bible. Prosecutors with weak cases focus on convictions for obstruction of justice (as Richard Nixon’s ghost and Martha Stewart’s attorneys can attest).

Retaliation cases can usually be presented as simple cause and effect stories based on a temporal proximity between an adverse employment action and protected activity. This intuitive, although frequently false, link is easy for a jury to grasp and may be complicated for an employer to “disprove.”

Some juries may also view a retaliation verdict as a convenient way of compensating an employee without branding an employer as a discriminator. While jurors frequently look for a means to compensate a plaintiff, they may at the same time be reluctant to label an employer or a supervisor as a racist (or someone who is biased in some other respect).

Finally, retaliation and whistle-blower claims have the potential to anger juries and produce large punitive damage awards. Particularly in this post-Enron climate, juries have little tolerance for anything that smacks of corporate cover-up.

2.  So What Exactly is Retaliation?

Simply put, retaliation occurs when an employer subjects an employee to an “adverse employment action” because the employee has engaged in some form of “protected activity.”

“Protected activity” includes filing certain types of claims or charges against the employer. It also includes testifying, assisting or participating in a proceeding under one of the many federal and state statutes which prohibit retaliation, such as Title VII, the Americans With Disabilities Act, or the Family Medical Leave Act. “Protected activity” also includes “opposing” acts by an employer which are unlawful under one of these statutes.

Even informal complaints of discrimination or other unlawful conduct to an employer may be protected. The complaints need not be well-founded. An employer may be sued for retaliation even when it is determined that there is no merit to the underlying claim, so long as the employee has a good faith belief that the complaint had some merit at the time it was made – a test most Courts find is easily met.

What constitutes an “adverse employment action” varies depending on the jurisdiction. At a minimum, such actions include “ultimate” employment decisions such as refusing to hire, refusing to promote, demotion, and termination. The Equal Employment Opportunity Commission, not surprisingly, takes the position that an “adverse employment action” is any adverse treatment which is likely to deter employees from engaging in protected activity. Under this definition, decreasing work responsibilities, denying a raise, disadvantageous transfers or assignments, undeserved negative performance reviews, and toleration of harassment by other employees have been held to be adverse employment actions, in at least some contexts.

3.  Resist the Urge to Purge

An employer’s initial reaction to a lawsuit filed by a current employee is predictable. Most employers will at least initially (and hopefully, only in the context of an attorney-client communication) be outraged and conclude that the company would be best served by terminating the ungrateful, incompetent, lying employee. Although having an adversary in the workplace may be uncomfortable, avoiding the reflexive termination is not only the safer course of action, it may actually be used to the employer’s advantage.

An employer finding itself in this situation should keep in mind the sage advice Don Corleone provided to his son, Michael: “Keep your friends close and your enemies closer.” The employer who has been sued by a current employee has a unique opportunity that is not available to other employers. In continuing to employ the litigant-employee, the employer has an ongoing opportunity to write the defense script for trial.

It also does not hurt that a current employee does not normally have a lost income claim. A marginal discrimination claim with no lost income is much easier to defend, has less punitive damage exposure, and generates less jury sympathy than a retaliation claim where the plaintiff has lost his or her livelihood.

So, unless the complaining employee conveniently provides the employer with an opportunity to explore settlement (in a privileged context, of course), the employer is stuck with the employee for the time being. And this, in turn, creates some defense and HR opportunities.

4.  How to Successfully Navigate the Mine Field

(a) Take Appropriate Preventative Measures

The most effective means of precluding retaliation claims is to prevent the occurrence of underlying claims. Employers need to ensure that they have appropriate policies and procedures established to prevent discrimination and harassment. Employers also need to ensure that management, in particular, is fully trained in these policies and procedures. An employer that takes proper steps to prevent discrimination or harassment is less likely to be sued. An employer who has a demonstrated “no tolerance” record towards discrimination and harassment will be in a much better position to defend against a retaliation claim.

(b) Take All Appropriate Steps to Address the Underlying Claim

The second line of defense in retaliation claims is to address any complaints of discrimination or harassment promptly and appropriately. A proper response by the employer may be sufficient to satisfy the employee that his/her grievances have been redressed. The failure to respond to a complaint or a botched response, on the other hand, is likely to create the type of adversarial environment that can trigger a retaliation claim.

Even when the employer’s prompt response is not sufficient to dissuade the employee from pursuing a claim for compensation, it ultimately benefits the employer in a number of respects. An employer who starts out “doing the right thing,” is more likely to get the benefit of the doubt with respect to later actions. On the other hand, conduct such as ignoring complaints of harassment or conducting a biased investigation can be fatal in the eyes of a jury.

The employer should use its initial response to a complaint to begin “scripting” its defense: witness stories should be pinned down, any ongoing unlawful activity should be eliminated, necessary remedial measures should be implemented, and the employer can begin the process of demonstrating its good will towards the complaining employee. In general, this is the best time to begin damage control and the process of containing the scope of an employment claim.

(c) Provide the Employee with a Safe Contact

As part of the investigation/remediation process, the employer should provide the complaining employee with a contact person who he/she can comfortably approach with any additional complaints. The contact person should periodically check with the complaining employee to confirm that he/she does not have any additional complaints. This provides the employer with the opportunity to respond to new complaints promptly. It is not uncommon for employees to come up with a laundry list of slights (perceived or real) as a basis for a retaliation claim. Creating an outlet for a complaining employee’s grievances provides the employer with a means of impeaching the employee’s later claim that he/she was subjected to retaliatory conduct.

Similarly, the employer should follow up with the complaining employee even after the claim has been investigated, any remedy implemented, and the matter closed. A couple of follow up conversations in the weeks or months after a claim is made, to ensure that things are going smoothly, is another way of showing that the employer takes things seriously, and dilutes the inference that any subsequent adverse action was animated by retaliatory motives.

(d) Create a Supervisorial Chain which Insulates the Employer

If feasible, the employer should consider arranging for the litigant-employee to be supervised by someone who has no knowledge of the employee’s claim against the employer. Thus, even if the supervisor takes some form of adversarial action against the employee, the employee cannot establish the causal relationship necessary for a retaliation claim.

(e) Create an Oversight System

Actions taken against a litigant-employee are less likely to be viewed as retaliatory if there is an objective basis which is unrelated to the employee’s “protected activity.” It is more likely that an employer can convince a jury that its actions were not retaliatory if more than one person was involved in decisions. It is also important that any actions which potentially could be characterized as “adverse” for purposes of a retaliation claim be reviewed by someone other than the litigant-employee’s immediate supervisor. Supervising a litigant-employee can be trying and it is not uncommon for the employee’s immediate supervisor to develop a dislike for the employee. Setting up some form of an oversight system so that any decisions involving the litigant-employee are reviewed by someone who is not involved in the employee’s day-to-day supervision will decrease the potential for bad decisions and be helpful in the defense of any ensuing retaliation claim.

(f) Establish and Follow Procedures for Performance Reviews and Handling Disciplinary Issues

The manner in which an employer normally handles performance and disciplinary issues can have a significant impact on the employer’s ability to control such issues after being sued by an employee. Not surprisingly, performance issues frequently arise with litigant-employees. Some employees who sue view themselves as immune from disciplinary measures and will constantly try to “push the envelope” with the employer. Some employees take this a step further and intentionally attempt to set up a retaliation claim by trying to “bait” the employer into terminating them. On the other hand, employers will frequently look for performance issues to use as a pretext to get rid of an employee who has sued them.

Controlling disciplinary issues involving litigant-employees is problematic unless the employer has established and followed performance and disciplinary policies before being sued. Having a policy of performing performance reviews on a regular basis (or a progressive discipline policy, or a policy requiring that performance issues be documented) and not following the policy is worse than not having the policy to begin with. Employers who have a policy requiring that performance issues be documented will have difficulty convincing a jury that a litigant-employee had performance issues before he/she complained if these are not reflected in the personnel file. Employers who have tolerated alleged performance issues for an extended period of time before a complaint is made will have difficulty convincing a jury that those issues suddenly became significant enough to justify disciplinary action or termination.

It is important that an employer apply disciplinary actions consistently before and after a complaint is made. It is also important that an employer apply disciplinary measures consistently to all employees. A jury may buy that an employer was justified in demoting an employee for clocking in late on multiple occasions. However, this becomes problematic if the employee is able to point to co-workers who had the same or worse violations and were not even written up. Inconsistent application of rules and regulations will inherently lack credibility and, potentially, give the appearance that the employer is setting the employee up.

Employers should also avoid “grade inflation” in completing performance reviews. Employers are inclined to provide good reviews to employees who are performing at an acceptable level, to avoid confrontation and poor morale. However, it is important to be honest in completing reviews. If the employee has consistently received “outstanding” and “good” marks despite having performance issues, it will be problematic to correct these evaluations after the employee has sued the employer.

(g) Avoid Putting the Employee Under a Magnifying Glass

Employers frequently react to claims by subjecting the complaining employee to excessive scrutiny in hopes of uncovering potential bases for discipline. Any performance issues uncovered by such scrutiny are likely to be viewed by a jury with skepticism. A retaliation claim can be based on a mixed motive. Subjecting a complaining employee to a level of scrutiny not applied to other employees may be viewed as evidence of a retaliatory motive. Moreover, such conduct is likely to offend a jury and potentially provide a basis for punitive damages. Many jurors can relate to the experience of being set up to fail by an employer.

(h) Maintain the Status Quo

Retaliation claims are based on adverse employment actions. If the employee is maintained in exactly the same situation before and after a claim is made, he/she will not have any grounds for claiming retaliation. The employer should use its oversight system to ensure that any actions taken with respect to a complaining employee either maintain the status quo or improve the employee’s position.

(i) Document, Document, Document

For many jurors, an incident did not occur unless it was documented. Employers need to ensure that any complaints, the employer’s response, any performance problems, and any actions taken with respect to the employee are documented. However, employers should still keep in mind item (f) above. If the employer has not previously had a practice of writing up employees every time they are three minutes late to work, then beginning this practice with a complaining employee is not a good idea.

All documents are potential trial exhibits and should be prepared from the perspective of how they will be perceived by jurors. Most importantly, they should depict the employer as inherently fair. The language should be professional, observations should be described as objectively as possible, grammar and spelling should be correct, and the person preparing the document should refrain from comments which could be interpreted as personal animus.

(j) Get Your Attorney Involved

Investing in legal advice to navigate the employer through the mine field is a worthwhile expenditure. In addition to being an expert on what the employer can and cannot do with a litigant-employee, outside counsel can provide objectivity and sometimes defuse the internal politics which can create retaliation claims. For example, a human resources director may have difficulty approaching the CEO and telling him he cannot terminate the secretary who has accused him of sexual harassment.

Having an attorney involved also potentially provides the employer with an advice of counsel defense if efforts to prevent a retaliation claim are unsuccessful. While this is not a defense of preference, in some cases it is necessary, particularly where there is a probability of a punitive damage award. An employee will be hard-pressed to establish punitive damages against an employer who presents evidence that it retained counsel to advise the employer how to treat the complaining employee and followed counsel’s advice. However, employers should keep in mind that advice of counsel generally only applies where there has been full and accurate disclosure of all facts to counsel. The defense also results in a waiver of the attorney-client privilege.

(k) Don’t Kick ‘Em While They’re Down

Employers should bear in mind that ”adverse employment actions” can include actions which occur after an employee leaves. Some employers (usually the same ones who want to fire an employee for filing a complaint) cannot resist the urge to badmouth a former employee to prospective new employers. However, this can provide a basis for a retaliation claim, not to mention a defamation claim.

Resist the urge to tell a prospective employer how worthless the employee was (or, even worse, that the employee is suing the company). The best course of action is to have, and follow, a policy of only providing “name, rank and serial number” to prospective employers.

It is to the employer’s benefit that the litigant-employee find a new job. A steady income reduces potential damages. Furthermore, an employee who moves on to a new job will be more amenable to resolving a dispute with his/her former employer.

(l) If All Else Fails, Punt

Despite an employer’s best efforts, there are some employees who are insistent on utilizing their ongoing employment as an opportunity to extract an inflated settlement or bootstrap a retaliation claim. These are the nightmare situations where the employee poisons the well with other employees, threatens the employer’s relationship with clients or customers, and creates such a disruption in the workplace that the employer cannot conduct business.

One solution for some employers is to negotiate an agreement with the employee that he/she will stay off work through the conclusion of the litigation, while being paid full wages and benefits. For some lower paid employees, this can be done at minimal cost to the employer. However, even where an employee is highly paid and/or the conclusion of litigation is not imminent, the cost of buying an employee off the job can ultimately be less costly than the alternative.

(m) Security Issues

While “keeping your enemy close” can have its benefits, it can also have downsides if proper protections are not taken. A litigant employee has access to the employer’s office, employees, customers, computer system and much more. Any information which could assist the employee in litigating his/her case should be secured. Significant documents such as the employee’s personnel file, any investigation related to the employee’s complaint and any litigation materials (including attorney-client communications) should be kept under lock and key and only limited people should have access to the materials. It is also a good idea to store copies of items such as the employee’s personnel file outside the office (such as with counsel) in the event of anything untoward.

It is surprising how frequently personnel files mysteriously disappear during employment disputes. Inevitably, the employee will claim that the employer destroyed the file because it did not contain any adverse reviews or write ups (or the employee will claim that he/she never received the company’s sexual harassment policy or arbitration agreement and there is no signed document to refute the claim).

Limit knowledge of the case to as few people as possible. The fewer people who know about the case, the less likely the litigant-employee will overhear a stray comment concerning the case or defense strategy. (This also cuts down on potential defamation claims.)

Administrative staff should never have access to mail, e-mail or other information concerning the case, particularly attorney-client materials.

Employers should also take steps to prevent potential sabotage to their business. To what extent does the employee have access to confidential or proprietary information stored on the computer or otherwise? To what extent does the employee have access to the computer system? Does the employee have after-hours access? These and similar issues need to be examined to determine what potential vulnerabilities exist and what steps the employer can take to minimize the potential for damage.

However, the employer should avoid precautionary measures which may impact the complaining employee’s ability to perform his/her job. The employer should also avoid taking steps which could constitute a violation of the employee’s right to privacy or potentially offend a jury. For example, monitoring only a complaining employee’s e-mail without any evidence that it is being used in violation of the employer’s policy is likely to be more problematic than beneficial.

5. Additional Issues Created by the Employee on Leave

As in the initial scenario, claims of discrimination or harassment frequently propagate “stress” or other similar claims resulting in the employee going out on medical leave. Depending on the size of the employer, this creates additional traps for the unwary employer, such as disability discrimination claims, family leave claims, workers’ compensation claims, as well as additional bases for retaliation claims.

As a preliminary matter, an employer should take steps to avoid providing the complaining employee with a basis for claiming stress. For some employees, it is sufficient that the employer react promptly and appropriately to an employee’s complaint. The employer should also be particularly mindful of item (g) above. Employees are more likely to make a stress claim, whether real or contrived, if they feel they are the subject of continuous scrutiny and criticism.

If a complaining employee does go out on leave, the employer needs to be aware of what its obligations are under implicated laws such as the ADA and FMLA, and ensure that these obligations are met.

Having a complaining employee on leave is not a bad thing for the employer. It can be easier to maintain the status quo and there is less potential for damage. However, problems arise when the employee’s leave impacts the operation of the employer’s business. While it may be easy for the large employer to arrange for temporary or even long term coverage, this can present a hardship for the smaller employer. Any decision to hire a replacement for the complaining employee or terminate him/her needs to be evaluated carefully for compliance with disability accommodation and family leave requirements. Employers should keep in mind that the need to replace an employee on leave does not necessarily mean that the employee needs to be terminated.

6. When Life Gives You Lemons …

While maintaining an employment relationship with an employee who is suing may be fraught with peril, it is also a situation which presents abundant opportunities for the enterprising employer. An ongoing employment relationship allows the employer to control how the case will appear to a jury. Rather than trying to set the employee up for termination, take the approach of “killing him/her with kindness.”

Whenever possible, the complaining employee’s requests should be granted. And if possible, the employer should try to go one step better. If the employee asks for a week off to deal with “stress,” tell him/her to take two weeks. Consider offering to pay for counseling for an employee who has been subjected to sexual harassment.

Particularly in cases where there is little dispute that the employee was subjected to harassment or discrimination, the employer should ensure that it deals with the employee on a human level. An extreme example of how juries view parties who are more concerned with their liability than the harm they have inflicted is the dog-mauling case in San Francisco: The dog owners’ refusal to express any remorse for the victim’s death and persistence in arguing that she was responsible for her own death resulted in a murder conviction for one of the defendants.

An employer should also consider what it can do to demonstrate that it views the complaining employee as a valuable member of the organization that it intends to retain. One rather clever employer made this point by giving the employee a brochure for a continuing education seminar offered several months in the future and encouraging the employee to enroll.