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Employment Litigation Lessons From Lawyers As Employers

Connecticut Law Tribune

July 19, 2013

The Law Tribune recently reviewed last year's financial performance by Connecticut's largest law firms. As that article made clear, many law firms are bigger than ever in regard to numbers of lawyers, size of staff, and amount of revenue. Whether included on that list or not, hundreds of other law firms in Connecticut are significant employers, too. Connecticut is not unique in this regard, as many firms now employ lawyers and staff in offices across the country and the world.

Given their increased size, it is not surprising that law firms are now subject to an increasing number of employment law cases brought by current or former employees. Indeed, whether a firm is a mega-firm or a small office with three employees, law firms are employers and subject to the same legal requirements as any other company. A review of recent cases involving law firms as defendants demonstrate that law firms have been successful on certain issues, and unsuccessful on other issues, when defending against such claims.

The number of discrimination lawsuits filed against employers, including law firms, has increased over the past several years. As two June 2013 cases demonstrate, however, law firms have been successful in defending against such claims due to the clear, deliberate decisions made in the period leading up to the challenged employment action.

In one recent case, the plaintiff was a former employee of a firm's IT department. After a new manager started in 2006, the employee made numerous complaints to the human resources department. In those complaints, the employee claimed that the manager was giving him poor reviews and creating a hostile work environment based on his race. The employee was terminated very shortly after his last complaint, which he claimed was evidence of race discrimination. The law firm prevailed on summary judgment, as it was able to assert and clearly document the legitimate, non-discriminatory reason for the termination — reductions in costs.

In addition, the law firm demonstrated that the cost-reduction decisions were made by the department head, and not the manager who had been the subject of the employee's prior complaints. Given this evidence, the Court of Appeals for the District of Columbia Circuit had little difficulty affirming the June 2013 ruling in favor of the law firm.

Employers need to avoid situations where the employee has grounds to claim that the individual making the termination decision is not objective. In this case, the employee's prior complaints against the manager could have presented such a situation. In the end, however, the law firm was able to support its termination decision due to the fact that it was made by another, higher-level employee, and without influence from the manager — a good lesson for all employers.

Another good lesson for employers can be found in a lawsuit challenging a restructuring at the California office of a national law firm. In that case, a secretary filed a race discrimination lawsuit against the firm, claiming that African-American secretaries were being subjected to disparate treatment. After her employment was terminated in connection with a subsequent downsizing, she amended her complaint to challenge her termination.

The trial court granted summary judgment in favor of the firm and, in June 2013, the California Appellate Court affirmed. The Appellate Court rejected the plaintiff's retaliation claim, noting that the firm had designated a partner to investigate her claims and that partner did a thorough investigation. The court also noted the careful, deliberate method used by the law firm to select the secretaries who would be laid off in the downsizing. Among other things, the firm had ranked the secretaries based on several categories, reviewed the rankings to ensure no protected category was overly represented in the layoffs, and then had other attorneys review the downsizing.

As this firm discovered, restructurings and downsizings are fertile ground for employment litigation. This case demonstrates the value to an employer of a sufficient amount of review and objective analysis — often with outside counsel — of any proposed staffing changes.

In recent years, law firms, like many other employers, have attempted to compel arbitration as a means of resolving employment disputes. Recent cases demonstrate that law firms have had mixed results with attempts to arbitrate claims given the language of their employment agreements. 

In the first case, the California office of a national law firm terminated an associate in February 2011. She brought suit against the firm, claiming that she was wrongfully terminated and discriminated against due to her alleged disabling sleep disorder. At the start of her employment, the associate had signed an employment agreement in which she agreed that "any legal disputes . . . which arise out of, or are related in any way to your employment with the Firm or its termination . . . shall be resolved exclusively through final and binding private arbitration. . . ." The agreement's choice of law provision stated that Massachusetts law governed.

The firm moved to compel arbitration based on the parties' agreement. The trial court denied that motion. In a March 2013 opinion, the California Appellate Court affirmed. The court noted that the firm was "trying to have it both ways" by arguing that the law that it had chosen to govern the agreement (Massachusetts law) should not apply to the question of arbitrability. The court noted that California law favored choice of law provisions in private contracts, and in general allowed the weaker party in the relationship to argue such a provision is unconscionable, not the stronger party.

Since Massachusetts law requires an arbitration agreement to state "clearly and specifically" that it applies to statutory discrimination claims in order be enforceable, and since the parties' agreement did not contain any such language, the Appellate Court affirmed the denial of the motion to compel arbitration of the statutory claims. Without any significant analysis, the court also found that the remaining claims were "integrally related" to the statutory claims, and therefore they should be resolved in court, too.

In June 2013, the New Jersey Appellate Court reviewed a similar situation. In that case, a lawyer joined a firm as a shareholder, and signed an agreement with a general, all-encompassing arbitration agreement, like the prior case. The employment relationship ended badly, and the attorney filed a multi-count complaint. The trial court denied the firm's motion to compel arbitration.

Just like in California, the Appellate Court agreed that, under New Jersey law, the arbitration agreement did not cover the attorney's statutory discrimination claims since it did not specifically reference that statutory claim. As to the remaining claims, however, the Appellate Court concluded that the Federal Arbitration Act governed, and that the Act compelled a bifurcation under the language of the parties' agreement. Thus, the non-statutory claims were sent to arbitration, while the statutory claims remained in court.

These cases demonstrate that arbitration agreements must be clear about what claims the employee is agreeing to resolve through arbitration, especially in regard to statutory discrimination claims. If they are not clear, courts may not enforce them or may send only some claims to arbitration, and force the employer to litigate in two separate venues like in the New Jersey case — a situation that employers should want to avoid.

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