From Employee to Plaintiff: What to Do When You Get Sued by a Former Employee in the US

Getting sued by a former employee can be a stressful experience for any employer, especially for a company that has just started to grow its workforce and is not experienced with these kinds of claims. Unfortunately, the cost of doing business includes the risk of getting sued by former employees for a wide variety of claims – including discrimination, unpaid wages, breach of contract and wrongful termination.

You may first learn of a lawsuit when your company receives a pre-litigation demand letter (a letter typically from the ex-employee’s attorney that asserts potential legal claims and outlines demands before filing a lawsuit), or when your company is served with a formal legal complaint. Navigating the litigation process can be complex, so it is critical to approach any pending or potential lawsuit carefully. Below are some pointers for getting organized when you receive a complaint or demand letter for the first time.

Please note this article focuses on suits by employees who are based in the US. Employment laws and practices vary widely across countries, as well as among US states, so consider discussing any employee suits with local counsel as appropriate.

Don’t delay

Lawsuits and demand letters operate on strict timelines. For example, a party served with a lawsuit filed in a US federal court must respond to the complaint within 21 days. Missing this deadline can result in a judgment against your company and potential reputational damage. Demand letters also often come with requested deadlines for a response, and failing to respond in time could lead to the former employee filing a formal lawsuit rather than negotiating a settlement. Contacting your counsel as soon as possible will help you figure out immediate next steps, along with sifting through document preservation (more on that below), and developing a strategy and response.

Don’t delete anything relevant

If you have been served with a complaint or sent a demand letter, or even if you haven’t but could predict a potential claim down the road, it is imperative that you do not delete any evidence that may be relevant to that claim. In fact, employers have an obligation to preserve all evidence – whether physical or electronic (including evidence on messaging apps like Zoom, Teams, Slack, etc.) – relating to potential claims, and can risk a court imposing sanctions if a judge finds that such evidence was intentionally destroyed. Preserving evidence includes taking care not to wipe out an ex-employee’s returned company property (e.g., laptop and mobile phone) if a claim has been asserted or is reasonably foreseeable. In addition, employers may need to immediately suspend automatic document destruction or deletion procedures to ensure that any potentially responsive documents are not deleted. It is essential to consider all places where relevant documents may reside, including with particular people and on any relevant company systems. When talking to your counsel, your company will want to develop a plan for document preservation.

Review key paperwork

Many businesses carry insurance policies for former employee claims. For example, employment practices liability insurance (EPLI) coverage can provide payment or reimbursement of legal fees, judgments and settlements. What claims are covered, the deductibles, coverage levels, and even which attorneys can represent you or your business will depend on your specific policy. If the claim is for a workplace-related injury, your workers’ compensation or general liability insurance company also may provide coverage. It is critical to understand your insurance policies at the outset of any potential employment claims. You should contact your insurance broker or carriers immediately to determine these details, along with any steps you must take to tender the claims and make use of these policies.

Another important immediate step is checking whether you have an arbitration agreement with the former employee. These agreements are sometimes signed as part of onboarding paperwork and require employment claims to be handled through arbitration instead of the court system. Arbitration differs from litigation in significant respects, so it’s vital to assess whether the dispute should be arbitrated. Consult with legal counsel to understand the implications and next steps.

Get organized

To prepare for an initial conversation with your attorney or insurance carrier, there are several key documents that you can gather to get a head start, no matter what the claim entails. These key documents include:

• The employee’s personnel file, which should include the employee’s offer letter, job description, payroll records, any disciplinary records and performance evaluations, and any agreements signed by the employee, including any arbitration agreement as discussed above.
• The company’s employee handbook in effect during the employee’s employment, along with any other relevant policies or procedures. For example, if the claim alleges employment discrimination, you want to be sure to have a copy of your anti-discrimination or equal employment opportunity policy handy.

In addition, you should think about who at your company is likely to have information relating to the claims and allegations, and thus could be a potential witness. This could include the ex-employee’s supervisor or anyone who was a decision-maker on any adverse employment action affecting the employee.

If possible, hold off on responding to the former employee or their counsel (whether they have served a complaint or sent your company a demand letter) and on contacting any potential witnesses until you can speak with your counsel. Counsel can help strategize on your response, on reaching out to witnesses and other next steps.

When the dust settles, think about proactive steps to avoid future suits

It’s better to avoid a lawsuit than to have to defend against one. Once a dispute is behind you, you’ll want to take steps to reduce your employment litigation risk going forward. To start, these steps include reviewing your employee handbook, providing regular training on anti-discrimination and other essential policies, and ensuring your documentation of employee performance and discipline are up to date. In addition, an inclusive and respectful work environment that addresses employee concerns promptly can go a long way toward minimizing litigation risk and improving employee morale. Your counsel can assist in identifying other proactive steps to mitigate against expensive and time-consuming litigation.

Employment disputes are a reality for many businesses. Putting in the effort at the front end to mitigate against litigation risk – and also at the back end when litigation or the threat of litigation arises – will help reduce significant headache and distraction for you and your business down the road.