How to Handle an Employee Lawsuit

How to Handle an Employee Lawsuit
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As an employer and a person who has an extensive human resources background, I will tell you upfront that employee lawsuits are something every business owner must prepare for. Most business owners can’t afford the expense of having a labor law attorney on retainer, but there are some important things to keep in mind if you become involved in a lawsuit with an employee.

Types of Lawsuits

Most states recognize the employer/employee “at will” clause meaning that both the employer and employee may terminate employment at any time, for any reason. Unfortunately, this doesn’t mean that employee lawsuits won’t occur.

Even if you feel you have dotted all the I’s and crossed all the T’s, an employee (former or current) can and will find an attorney to represent them if they feel they have a case against you. While some of these types of lawsuits may be frivolous, if the employee can pay an attorney, the lawyer probably wants the money and will pursue the case. These types of lawsuits can range from anything from character defamation to libel to sexual harassment to discrimination.

Depending upon the reason for the lawsuit, up and beyond filing the suit alone, employees can also contact state or federal agencies that by law, are required to investigate the employee accusations; real or imagined, valid or invalid.

Even if you have set written policies and procedures that outline employee lawsuits and how they will be handled, a state or federal agency such as the Equal Employment Opportunity Commission (EEOC) or Department of Labor can still investigate the claim and if you’re found at fault, that means money out of your pocket.

Protecting Yourself From Lawsuits

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While you may not be able to totally protect yourself from an employee lawsuit, there are some things you can do.

Employment contracts with mediation or binding arbitration clauses are becoming more popular. If you implement employment contracts for all employees, regardless of position, you can insert a mediation or binding arbitration clause. What this means is that instead of the employee suing you, they agree to go through a mediator first and if no resolution is found, an arbitrator will make a decision that is both binding on the employee and the employer.

According to, this type of clause in an employment contract is perfectly legal except in the cases of railway or sea workers or if a government agency is involved such as OSHA. If an investigation of your company policies comes from a workers’ compensation or unemployment claim, mediation and arbitration also will not apply.

Make sure you document every stage of an employee’s lifecycle with your business. That means punching a time card or keeping time card records (even for salaried or exempt employees), setting policies and procedures in your employee handbook that include a signed acknowledgement page that the employee did receive the handbook. If warning are made to the employee, then keep a copy of written warning signed by both you, the employee, and a witness.

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Set safety standards and manuals and have regular safety meetings with employee sign-in and out sheets to prove they attended the meeting. Your business liability insurance company can help you set up a safety program for free and these are invaluable in the case of a workplace accident you feel is a false claim. Visit the OSHA website to ensure you have all the correct safety posters depending on the type of your business.

Make sure you have written procedures on how workplace injuries must be reported. You’ll be better off if you have set policies and an employee lawsuit occurs as a result of a workplace accident if you can prove the employee did not follow company procedures.

Have clear policies on how unemployment claims will be handled within your company. Although most state’s labor departments don’t look at your employee handbook as a legal or binding contract, if you have polices that say if an employee can be fired for a certain reason, and you can prove the reason, the department of labor will most likely follow your handbook guidelines if you appeal an unemployment claim.

Write both a discrimination and sexual harassment policy and make sure everyone has access to incident reporting forms and how the investigative process works. If someone does file an incident claim, make sure you investigate the claim and follow your policies. If you’re unsure how to do this, we have a free template of both discrimination and sexual harassment policies along with an incident reporting form in our Media Gallery.

If You Do Get Sued

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In some cases, no matter how many records you keep or how diligent you are about documentation, you could still find yourself in the middle of an employee lawsuit. Before you panic, do the following:

  • Call an Attorney – If you’ve received service or notice that a suit has been filed, call an attorney that is versed in employment law.
  • Don’t Call the Employee – Don’t call or engage in any contact with the employee, no matter how tempting it may be. If you become angry during a confrontation, this anger could be used against you, so let your lawyer and their lawyer handle all the communicating.
  • Collect Documentation – If you’ve received a lawsuit, you will know why the employee is suing you. Based on what’s contained in the employee lawsuit, gather all the documents you think your attorney may want along with witnesses who support your side.
  • Call Your Insurance Carrier – Most business liability carriers do offer employee lawsuit coverage. If you don’t have this on your policy, buy it, it’s worth the cost. If you do have this type of coverage the insurance company will pay your attorney and court costs whether you win or lose, and are even able to offer settlements.
  • Review Policies – If you are being sued by an employee, then it’s time to review your employee policies. Do consider employment contracts with mediation and arbitration clauses; they’re cheaper than going to court.

In today’s world, almost anyone can be sued for almost anything. Be prepared and keep calm if you become involved in an employee lawsuit. Protect you and your company by posting the required employment posters, setting policies, following federal and state guidelines, having appropriate insurance in place and holding safety meetings. Documentation and policy awareness and procedures are essential in avoiding employee lawsuits as well as other state or federal agency investigations. If you don’t have these in place, do so before you are sued by an employee.

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