The Un-American Rule Puts California Employers at Risk


By: Lisa R. Gorman
Many of my initial conversations with clients begin with them – shocked and outraged at the allegations – declaring their disinterest in settling.  Of course we take these denials with a grain of salt, but frequently after investigating the facts we find they’re right – the claims are meritless.  In a recent case, for example, the plaintiff alleged harassment on the basis of gender, perceived sexual orientation and religion, as well as retaliation and failure to accommodate  a mental disability she allegedly suffered from the harassment.  To give you an idea of how baseless the claims were, plaintiff and the alleged harasser were both women, rendering gender-based harassment highly unlikely.  As far as perceived sexual orientation harassment, plaintiff openly talked to her co-workers about her boyfriend, as well as her affair with a married man she met through work.  There is no indication anyone perceived plaintiff to be a lesbian.  During her employment, plaintiff sent six detailed emails to human resources complaining the alleged harasser picked fights with her about work-related issues.  Plaintiff never mentioned harassment on the basis of religion, perceived sexual orientation, gender or any other protected category in her detailed email complaints, nor did she do so verbally.
What drives an individual to sue her employer for meritless claims?  It turns out this plaintiff sued a prior employer as well, with the same attorney representation.  They settled that case, and we settled ours.  I hear my clients when they say they don’t want to throw money at meritless claims, and I agree, but our choices are limited.  In this case, the factual issues would have precluded summary judgment.   We could have taken the case to trial, and we would almost certainly have won.  And there’s the rub.  We never know with certainty how a jury would rule, even when a female plaintiff who spoke openly about her heterosexual love life alleges another woman harassed her on the basis of her gender and perceived sexual orientation.  If by chance the jury were to find this plaintiff was unlawfully harassed or terminated, or not reasonably accommodated, she would have recovered minimal lost wages, as she earned only $11 per hour and worked at the company for a mere 8 months.  However, in addition to paying its own defense fees, my client would have also owed Plaintiff hundreds of thousands of dollars in attorneys’ fees.
In the United States, the general rule (called the American Rule) is each party pays only their own attorney’s fees, regardless of whether they win or lose.  Under California’s Fair Employment and Housing Act (“FEHA”), however, prevailing plaintiffs recover their attorneys’ fees and costs, but prevailing defendants do not.  In December 2013, the Ninth Circuit Court of Appeals held the district court properly awarded a demoted female employee $697,971.80 in attorneys’ fees on her FEHA claim against her employer, even though the jury only awarded her $27,280 in damages and she only prevailed on 1 of her 3 claims.  (Muniz v. United Parcel Service, Inc. (9th Cir., December 15, 2013) 2013 U.S. App. LEXIS 24189.) 
Given the potential for an attorneys’ fee award to bankrupt the company, my client couldn’t take the risk of going to trial, even on a meritless case with minimal damages.  He ultimately realized he had no choice but to settle, despite his indignation.  Plaintiffs’ attorneys certainly know small business owners can’t afford to go to trial and risk paying plaintiffs’ attorneys’ fees in addition to their own.  When we see individuals sue multiple employers, we get the feeling they know it too.  Even the most meritless employment cases settle because the law does not give employers any other feasible choice.  Our system, which rewards individuals and their attorneys for filing meritless claims, puts all employers at risk and creates an overly-litigious environment.