The Real Cost of Defense

“Cost of Defense” has become the EEOC’s and the plaintiff employment bar’s most powerful bargaining chip.  Just give us what we want no matter how flimsy the allegations, the argument goes, or else face staggering and non-recoverable defense costs from the attorneys allegedly on your side. This inevitable settlement dialog conjures up scenes from HBO’s The Sopranos, except that it occurs in conference rooms, not vacant warehouses.  In-house counsel and HR practitioners in the trenches routinely complain about these bullying tactics, even in the most frivolous EEOC charges.  And it works. 

Tale of Two ADA Cases

In 2009, the Denver EEOC filed two companion lawsuits against large national retailers involving profoundly deaf employees, EEOC v. Picture People, Inc. and EEOC v. Petco Animal SupplyBoth EEOC prosecutions contained salacious allegations of harassment and mistreatment, followed by brand-bashing press releases.  In EEOC v. Petco, for example, the EEOC alleged that Petco “penalized” a deaf employee for her inability to hear and steered clients away from her in favor of hearing dog groomers.  Likewise, in EEOC v. Picture People, the EEOC alleged (and publicized) that Picture People harassed, failed to accommodate, and discriminated against a profoundly deaf retail sales employee who sought to perform a position requiring “strong verbal communication skills” with rudimentary written notes. 

Less than a year into the EEOC’s prosecution, Petco folded, subjecting itself to the yoke of a three-year EEOC Consent Decree; a $145,000 cash payment to a dog groomer; and another brand-bashing press release announcing the settlement.   BNA’s Daily Labor Report (“DLR”) picked up the story, found here: News Archive> 2010 >July> 07/01/2010 > News> Disabilities: EEOC, Pet Supply Firm Settle for $145,000 Suit Claiming Bias Against Deaf Employee, 125 DLR A-9 (subscription required).   According to the DLR piece,

Petco ‘strongly disagreed’ with the plaintiffs’ allegations but settled to avoid the time and expense of further litigation, said lawyer Margaret Parnell Hogan of Littler Mendelson in Denver, who represented the company. ‘EEOC litigation is expensive,’ she told BNA June 30.

Meanwhile, in EEOC v. Picture People, the EEOC’s prosecution was disintegrating, and worse, revealing that the EEOC was imposing a view of the Americans with Disabilities Act that neither comports with the law nor Congress’ intent.  For less than Petco paid, Picture People proved that the EEOC’s demand—i.e., substituting rudimentary written notes and gestures for its “strong verbal communication skills” job requirement—offended the ADA that Congress entrusted to the EEOC’s enforcement.  Picture People had no choice but to fight: capitulating to the EEOC’s demand to change the job could have ruinous effects on its business model and bottomline.   And so, we litigated lean, making deliberate choices about case staffing, expert retention, and a surgical (instead of “shotgun”) defense strategy.  Picture People prevailed. 

Better, the Picture People prosecution cast considerable doubt on the veracity of “facts” set forth in the EEOC’s complaints and press releases.  One year after a federal judge dismissed the EEOC’s case in its entirety for lack of evidence, the EEOC kept its press release “Picture People Harassed and Discharged Deaf Employee” live on its website and active on Google.   In fact, the EEOC also kept this same press release activated after it declined to appeal the dismissal of the harassment claim, thereby damaging Picture People’s brand without any proof of wrongdoing. 

Could the EEOC’s Petco prosecution have proven as unfounded as the Picture People one?  Quite possibly, but the heartbreaking point is that we’ll never know:  because of the cruel Hobson’s Choice facing Petco, Petco believed that dishing out $145,000 and subjecting itself to an EEOC Consent Decree was preferable to the anticipated defense costs.  Because of those costs, many employers have lost the ability, and now apparently, the will to fight back when an administrative agency entrusted with a public war chest and prosecutorial discretion so clearly oversteps its rightful boundaries as a law enforcement agency. 

The New EEOC “Metric that Matters”: Money

At the EEOC, only things that can be counted count.  The EEOC keeps and maintains a variety of statistics on its website.  It has historically tracked and reported in the press the number of charges and cause determinations to prove that discrimination still pollutes the American workplace.  In more recent years, and following the OFCCP’s lead, however, the EEOC has begun to TOUT the amount of money it has recovered from employers on behalf of “victims of discrimination.”  In FY2011 (the last year currently reported on its website), the EEOC collected the most money in its history, $364.7 million, and no doubt, given its Enforcement arm’s push to resolve charges with some money benefits, the EEOC will report higher collections for FY2012. 

And there’s the rub: because of defense costs, rational employers would rather just settle EEOC charges than fight when they’re right.  As a result, the EEOC and plaintiff’s employment bar react with nearly infantile intractability to any employer with the temerity to say, “but that’s just not the law” or “we did not do anything wrong.”  Why won’t they just settle, they wonder?    

For employers to maintain a culture of accountability among their workforce, employers must maintain the corresponding ability to push back when they’re on solid ground.  And with lean litigation practices and a better, more collaborative working model with outside counsel, it can be done.  But, in the long run, the real costs of defense are the loss of workplace accountability that comes with an established track record of quick, easy, and early settlements, and an emboldened EEOC legislating extensions of its authority under the guise of law enforcement.  For employers today, those costs have become almost too much to bear.