Steps For Developing A Settlement Strategy For Employment Claims

Every time a current or former employee threatens or brings legal action, in-house counsel faces the question: Should we litigate or settle?

But the question often is not as straightforward as it seems. If you forego an early settlement, will the company incur significant defense costs only to settle for a larger amount later? Will a settlement with one employee invite similar claims from others? Which cases merit a full-throated defense as a matter of principle?

While it is common to approach each case on an ad hoc basis, legal departments would be wise to invest the time to develop a more comprehensive strategy for when to settle, and when to go to the mat in litigation, that is in line with the company's broader goals and values.

Here are 10 steps to develop such a strategy.

1 Identify key goals.

The legal department should begin by identifying a set of key goals for the company around litigation and settlement. For example, key goals for many businesses include reducing overall defense costs, reducing overall spend on settlements and judgments, and protecting reputational interests.

2 Involve critical stakeholders.

In setting a strategy around settlement of employment claims, it is wise for the in-house legal team to involve critical stakeholders up front. For example, legal may wish to involve human resources and leaders of the major business units or departments. Doing so helps ensure that the major constituencies have bought into the strategy and avoid later conflict or territorial struggles over individual claims.

Listening to the perspectives of the different stakeholders — who may have different cost centers, financial incentives or business pressures — may also result in a strategy more finely tuned to the overall company's interests.

3 Review metrics.

A critical starting point is to review metrics on the company's past settlements and litigation. For example, in the past five years, what has been the range of settlements paid out, and what is the average settlement paid? At what stage of litigation were such settlements paid?

For cases that have not been settled, what was the success rate in litigation, and what was the average cost of defense and/or judgment? If there was a period in which the company settled more claims, did the overall number of claims brought go up, stay the same, or go down?

4 Set a goal for an average resolution cost.

Consider setting a dollar figure that is the goal for the average cost to resolve a...