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Fight or settle?

Strategies for dealing with employee claims.

It’s one of the costliest decisions you’ll ever have to make, and it has nothing to do with food. One of your employees has a gripe, and he’s threatening to sue or complain to a state agency. Should you settle or should you fight?

These days, the complaint is most likely to involve sexual harassment or wage and hour violations, say restaurant lawyers. It’s all too easy to run afoul of laws like the federal Fair Labor Standards Act, for offenses like mistakenly exempting managers from overtime pay, or for working teens too many hours at the wrong times. Less often, the claim could involve discrimination, a workplace injury or the Americans with Disabilities Act.

Whatever the claim, the wrong decision can take a bite from your bottom line. In 2006, restaurants coughed up $17 million in back wages to 29,102 workers, in cases brought by the U.S. Department of Labor. In one case alone, a Burger King franchisee in St. Louis paid $400,000 to seven workers with sexual harassment claims.

“It’s a decision my clients struggle with all the time,” says restaurant lawyer Mark Spring, of Carlton, DiSante & Freudenberger in Sacramento, California. “There are no easy answers. Making decisions on a case-by-case basis is all you can do.”Your gut might tell you to fight every claim, but you’re taking a gamble, lawyers agree. “If it works five times, and the sixth time you spend $200,000 in attorneys’ fees, you don’t come out ahead,” says Richard Rybicki of Dickinson, Peatman & Fogerty in Napa, California.

The best strategy is to have your attorney analyze each case on its own merits, says Spring. Ask three questions before deciding to settle or fight:

What is the likelihood of success? If you’re likely to lose in court, it’s cheapest to settle now.

What will it cost me to get there? Like getting an estimate from an auto mechanic, ask your attorney how many hours and how much money you’ll be out if the case goes to trial.

What are the long-term consequences, if I settle for less? If your staff is close-knit, word might spread, and you might suffer copycat claims. That’s less likely at a typical quickservice restaurant, with high employee turnover. But it might be worth the extra money to add a confidentiality clause to a settlement.

Often, says Rybicki, the best strategy is to fight first and settle later. “You file discovery and force the other side to tell you their evidence. At that point, frequently, parties go to a mediator. The case is over for less money than it would have taken to go to trial.”

Ultimately, you should base your decision on what’s best for your business, says Mark Stumer, of Stumer & Associates in New York City. He cites a restaurant client who got a sexual harassment suit dismissed, but paid him twice as much in attorneys’ fees as it would have cost to settle.

“A good legal decision is not necessarily a good business decision,” says Stumer. “Unless you have a lot of pride or ego involved, it almost always pays to try and settle the case, because of the expense involved, even if it’s a frivolous case.”  

Avoiding claims 

The cheapest strategy on employee claims is to prevent them, says Dorianne Beyer, senior VP of Labor & Monitoring Consultants in New York City. “The only overall rule in this world is that you have to obey the law, so you don’t get caught.” It’s easier than you might think:

Familiarize yourself with state and national labor laws. State restaurant associations can help, and the U.S. Department of Labor lists federal regulations at www.dol.gov/dol/topic/index.htm.

Write and distribute a formal employee handbook, including topics like hours, overtime pay, discrimination and sexual harassment. Designate at least two executives to take worker complaints.

Train your managers and supervisors on how to follow wage and hour rules, how to recognize harassment and how to handle it. You’ll pay lawyers or consultants for a few hours of their time, but it’s money well spent, says Robert Shannon of Hinshaw & Culbertson in Chicago. “As the industry becomes more sophisticated, restaurants have to think about becoming more sophisticated in their employee policies.”

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