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Business Law ’98: Fending Off Lawsuits
These articles by Barbara Fox and Phyllis Maguire were published
in U.S. 1 Newspaper on Wednesday, May 20, 1998. All rights
The best way to stave off an employee lawsuit is to
keep your employees happy. So say the trio of consultants who will
give a seminar Friday, May 29, to the Employers Association of New
Jersey. "Take off the blinders and put in some side view
advises lawyer Hanan M. Isaacs. "Be firm, fair, and
advises consultant Joseph Nebus.
"We are striving to create a change in the workplace culture so
decisions are made in a more democratic way, employees have a stake
in the workplace, and projects are managed in a team fashion with
group energy," says psychotherapist Kenneth Lipman-Stern.
The Employers Association of New Jersey features Lipman-Stern, Isaacs,
and Nebus in an interactive seminar on problem solving, conflict
and mediation strategies in the workplace staged by the Freehold-based
Brinkerhoff Group, a consortium of 70 consultants and trainers
Set for Friday, May 29, at 8 a.m., at the Somerset Marriott, the
costs $55 for members, $75 for nonmembers, and includes a copy of
"The New Employment Contract" by John Sarno, the executive
director (see following story). Call 609-393-7100 or 973-239-8600
At this meeting EANJ is unveiling the Management Training Institute
to be managed by the Brinkerhoff Group and directed by Raylie
(732-462-7444). For EANJ’s 1,000 member companies the group is adding
topics in skill development, management development, communications
skills, ISO 9000, and Total Quality Management.
In advocating a democratic system Isaacs calls the hierarchical system
the "thunderbolt" approach: do this, or you get fired. "Do
the thunderbolts work? You bet. But sometimes they burn and explode
and you send messages that it’s the right way to handle conflict
"Our system teaches people empowerment within the organization,
and we are not talking lip service empowerment, we are talking
units and quality counsels, slices of the workforce from every venue
into a representative core that can measure things, give out charters
to every part of the organization, and provide feedback to the board.
It has impact, but it is hard to do."
The trio’s "nuanced approach to conflict management" occurs
from the top down and the bottom up. "It is a reprise of work
that was done in organizational psychology 25 years ago and has fallen
into serious disfavor," Isaacs says. "It’s communications
theory coupled with negotiation coupled with conflict management
with psychological and organizational principles. We need people with
the human tools to help us figure out where we are at every
Isaacs, based at 601 Ewing Street, has a JD from the University of
North Carolina. He practices commercial and family law, personal
arbitration, and is a mediator for the American Arbitration
New Jersey office. He works on New Jersey Supreme Court’s pilot
on civil mediation and on its dispute resolution committee. He is
an adjunct professor at Seton Hall Law School, where he is developing
a model to train CPAs in dispute resolution.
A huge piece of this is how to use facilitation,"
says Isaacs, noting that consultants from American Arbitration
can design a system to mitigate dispute and promote specific process
remedies. So can various consultants and nonprofit groups.
But alternative dispute resolution is different from the arbitration
process, says Nebus: "You get away from a public judge or a
judge, and a neutral facilitator listens to the case to find what
needs to be done."
Nebus went to Siena College, Class of 1965, worked with Hercules Inc.,
was one of the founding franchisees of the Lawn Doctor Company, and
has been doing organizational redesign and ISO 9000 consulting since
1982. His Marlboro-based firm is Improvement through Involvement.
Nebus suggests that organizational redesign is probably needed on
one of three levels:
control," says Nebus. "You set up a system so that
doesn’t fall into that trap again, and you train them and bring their
skills up to where they should be."
are bringing up nonsense cases or managers are not respecting
"then we change the system or look at the system to see how it
can be more effective. Most of the time the trouble is due to issues
of empathy and self esteem," says Nebus.
will do some organizational changes," says Nebus, perhaps by
an employee’s council to forestall the "butting heads"
an ombudsman, setting up a peer system, creating a partnering model
on top of collective bargaining agreement, or simply creating a
statement of goals and desires that will motivate employees.
Nebus cites the success of an employee council at a Trenton firm which
is in bankruptcy but, because it is running on the council system,
can still operate. "Under the old system 40 families would have
been without a paycheck." He also has installed an employee
in a high tech company in Princeton that works with Princeton
and has tripled in size.
He tells a war story about the United Way of Essex and West Hudson
that fell apart when the autocratic executive director was asked to
leave and the fund drive dropped by one-fourth in a couple of years.
"We put in an employees’ council that ran the day-to-day
It had seven people from a vertical cross section of everyone from
the vice president to the elevator operator. The employee council
helped select the new executive director, set up a less costly but
better benefits program, came up with a new employee manual, and
the configuration of the office.
As the psychotherapist of this trio, Lipman-Stern does
the psychological intervention. A philosophy major at Temple
Class of 1970, Stern spent his 20s as a jazz musician in a Latin band
and then earned his master’s in counseling psychology from Temple.
He worked as a mental health therapist from 1984 to 1994 before
up his own practice.
One of his first big collaborative workplace interventions: In 1994
the Gloucester County Board of Social Services had increased clientele
but, thanks to downsizing, fewer staff members. "The union was
going crazy and management was divisive, and I was brought in to
an intervention and improve morale and productivity."
He held a series of town meetings, in groups of 10 for 450 people,
preceded by a 1 1/2 day workshop in communication, conflict
team building. After brainstorming on conflicts and solutions he and
the agency’s HR director built a heterogeneous task force with a cross
section of the agency and began implementing some of the changes.
"It improved morale because the people at the bottom were part
of the decision making process. Those who were really working with
the clientele had a lot of great insights. Until that time it was
the director and bureaucrats in Trenton who were making the
Another intervention involved Hunterdon Medical Center, which had
a $1 million grant to help the nursing staff change to participatory
management, called shared governance. "Nurses aren’t good at
change because they are so used to being nurturers and second
he claims. He gave workshops on recognizing and having power, and
on feeling confident in the decision making role. Six months later
he returned as a therapist to take the pulse of how it was going.
"Think about the ancient village," says Lipman-Stern.
need to feel respected. People need to feel a part of things. If you
could teach people conflict resolution skills, I know that the rate
of lawsuits would go down."
"In any lawsuits, it’s almost never about the money," agrees
Isaacs. "People from the outside always say it is, but it’s always
that somebody got disrespected, somebody lacked appreciation."
— Barbara Fox
Employees are suing their employers at a rapidly
rate. Between 1971 and 1991, says John J. Sarno, author of
Employer-Employee Relationship in the Contemporary Workplace: the
New Employment Contract" and executive director of the Employers
Association of New Jersey. He cites research showing that employment
litigation increased 430 percent in that 20 year period, and that
an additional 10,000 wrongful discharge suits are filed annually.
Sarno effectively summarizes the history of labor law, clarifying
the origin of such frequently used but infrequently understood
as "at will" employment. Except for union or government jobs,
almost everyone is working in an "at will" position, so you
can leave when you want to — but your company can fire you when
it wants to. This employment contract consists of a job offer and
acceptance and is good when compared to slavery but not good for job
"It has become commonplace for employees to think that acceptable
job performance transforms the at-will employment relationship into
an enforceable contract," writes Sarno. "Moreover, in the
absence of a discernible contract, courts have found public policies
favoring continued employment, the violation of which carries
penalties. It is this legal trend of judicial decisions more than
any legislation that has radically transformed today’s workplace."
"But the overwhelming majority of those employees who feel
are not suing their employers," says Sarno. For non-members, the
book costs $19.95; call 609-373-7100.
The Web Network of Benefits Professionals, a national
nonprofit group, provides a chance for executives and practitioners
in all aspects of the employee benefits field — from insurance
to law to human resources — to network with colleagues, learn
from industry experts and government officials, and participate in
The chapter offers handouts derived from past programs on topics
from employee manuals and fiduciary duties to COBRA plans. Iris
Bashi of Iris Bashi Associates LLC will give the next program,
a Form 5500 workshop on the state labor department’s enforcement of
ERISA. It is scheduled for Tuesday, June 16, at 8 a.m. at Arbor Cafe,
16 College Road East. For registration call Stephanie Monique
an attorney in employee benefits at Smith Stratton et al and the
president of the Central New Jersey chapter (609-987-6642 or
Employment Practices Liability Insurance is the hot
item on the business insurance menu. As a type of coverage, EPLI
into existence around 1991. "It is an attempt by carriers to fill
a gap in coverage left by CGL (Commercial General Liability)
says Jonathan S. Reed, a partner with the law firm of Traub,
Eglin, Lieberman & Straus in Hackensack. Reed will be one of several
speakers at the "Employment Practices Liability Insurance"
seminar being held at the Hanover Marriott in Whippany on Saturday,
June 6, from 9 a.m. to 1 p.m. Cost: $109. For information call the
New Jersey chapter of the Institute for Continuing Legal Education,
EPLI coverage indemnifies employers against the generation of lawsuits
that have come of age in the 1990s: wrongful termination, employment
discrimination, and sexual harassment claims, as well as claims
from the Americans With Disabilities Act. These are suits that can
make or break a business: one Bergen County firm with five employees
won an age discrimination suit brought by a fired salesman, but paid
$52,000 in legal fees for the win.
While more carriers now offer EPLI policies and more rate reductions
may be forthcoming, demand is being driven by business owners. For
carriers, these are uncharted waters. "It is a tough area to
says Peter O. Hughes, a partner with the law firm Stanton,
Diana, Salsberg, Cerra & Mariani in Florham Park and another
speaker. "It isn’t like auto accidents or property casualty claims
for which there are established parameters. Some of the verdicts being
handed down by courts for these claims are completely
Both insurers and owners are looking to court decisions. There has
never been a published case interpreting EPLI, says Reed, but two
cases now before the New Jersey Supreme Court will help determine
how effectively claims can be excluded under routine CGL and Workers’
Comp policies. "If the Court says there is claims coverage under
existing policies, there will be less need for EPLI," says Reed.
"If the Court enforces employee claim exclusion and denies
that will be another selling point for EPLI."
But Hughes cautions against finding hard and fast guidelines in
judgments. "One of the major problems with these claims is that
each is unique," he says. "Most determinations turn on
allegations made, and if those allegations don’t apply to another
complaint, the results may be different." And Hughes offers this
warning to New Jersey business owners: "New Jersey law is much
broader and tougher on employers than federal law is."
Hughes and Reed offer these tips to business owners — those with
EPLI, and those without:
prominently displayed in all of your employment literature.
complaints, and make sure employees are aware of them. Not having
such a policy, under New Jersey case law, is in itself evidence of
one, get one written and published. Since, under New Jersey case law,
an employee manual can become a contract between the employer and
employee, termination could become a breach of contract claim.
display in your manual a disclaimer that says it does not constitute
a contract and that, as an employer, you retain the right to terminate
with or without cause.
should be included in employment applications, along with a warning
that false information on the application is grounds for termination.
Check state and federal law for questions that can be included. As
an employer, you may not ask prospective employees about handicaps
or employment claims history. You may ask about prior convictions,
but not about arrest records.
well documented. Since claims come to court years after they are
filed, when managers or witnesses may no longer be employed,
is crucial to an employer’s case. Hughes points out a jury bias he
encounters: "Juries perceive businesses as being very organized,
so when they hear companies making assertions that haven’t been
they tend to believe it didn’t happen."
While the obvious advantage of EPLI is employer indemnification, a
major benefit of the new policies is the educational and procedural
process a business must undergo to qualify. Manuals get overhauled;
office policies may be modified and codified; and training programs
for employees sometimes are established. Instituting preventative
measures for insurance policy compliance creates, says Reed, a better
business environment for both employers and employees.
"The end result of EPLI policies will hopefully be fewer
he says. "Employees will be treated fairly, with fewer cases of
harassment and discrimination, while policy holders will be in the
strongest possible position."
With average defense costs running to $85,000 and jury
verdicts on discrimination and wrongful firing running to $500,000,
you may want to adopt "Prevention is the Best Medicine" as
your firm’s motto. You have some choices:
company do the worrying.
employer organization (PEO) and let it do the worrying.
in several ways, and one of the best is by partnering with a well-run
professional employers organization to outsource all matters that
relate to human resources (HR), says David Flook, a spokesperson
for Employee Management Inc.
Yes, he agrees, you can buy employee liability insurance, but he
the cost is sometimes prohibitive. But if you choose outsourcing,
your money goes to pay for a number of otherwise aggravating tasks,
from keeping track of payrolls to firing a problem employee: "As
a PEO we deal with all the your exposures and headaches — and
because we do it for 13,000 employees, we do it very well."
Because EMI writes so many paychecks, you might say that it is one
of the top 30 employers in New Jersey. It has such well-known local
clients as Harmony Schools, Chubb Computer Services, AlphaGraphics
and 750 other companies
Founded in 1990 by CEO Steven Rosenthal, EMI has offices in
New York and Florida as well as in New Jersey and soon will be in
Philadelphia as well. With over $250 million in revenues and more
than 13,000 employees in its charge, it has more than 750 small and
medium business clients. They range from 2 to 1,000 employees with
the average size of 22 employees.
PEOs started in the south, where some clever accountants first cooked
up the idea to avoid having to pay in on employee pension plans. (That
loophole has since been plugged.) "The very clear trend around
the country is for a significant percentage of the small business
market to partner with a PEO," says Flook. "In three to five
years, 15 to 20 percent of the small businesses in the northeast will
be working with some PEO. That is the reality in the south."
If a client gets into a lawsuit, EMI’s attorneys will represent them
in court. "Unfortunately it is very easy to sue these days,
a lawyer working on contingency will take any and all cases. It is
often the most pragmatic thing to settle. But if the client has done
as we tell them to," says Flook, "they are not going to end
up in court. There has not been a sexual harassment or wrongful
in the history of EMI."
That doesn’t mean there haven’t been problems. "In the nine years
we have been operating we have probably seen it all," says Flook.
Take the client who wanted to fire someone because they had a beard
or didn’t like the way they dressed. "You’d think with an ounce
of common sense they would know not to do this."
The basic common sense things that any business should do:
have one. That is an effective way to address the nuisance type
says Flook. Wouldn’t having a handbook lead to the idea that the
is an implied contract? "Software programs can get you into
but a handbook done properly would not lead to that problem.
dangerous to terminate," says Flook. "If there is a problem
with an employee you need to give them a warning, give them a chance
to correct it, and create a file that shows you made an effort to
communicate with the employee."
are part of a team it is not an us versus them kind of attitude,"
says Flook. "For no additional charge, EMI can send its human
resources advisors to do team building for a client. We have experts
who act as onsite human resources representatives and visit as often
as once a week, not only to help employers or managers but also for
an employee who is having a problem."
of EMI going the last mile: If you have perfectly good employee who
has a personality conflict with a supervisor, someone who would really
be better off working someplace else, EMI could get that employee
hired by another of its clients. "We have a lot of clients with
a lot of performance needs, and we would do it only with the informed
consent of both clients," says Flook, hastening to add, "we
would not move a Problem Person from one client to another."
And what about the Problem Person? "We make sure the steps are
taken to protect against litigation, but we will also do the firing
for our client." So when the going gets tough, just call your
New Jersey’s courts have a reputation for being
friendly to workers suing their employers for causes ranging from
wrongful firing to age and sex discrimination or sexual harassment.
"Part of the problem with employment law right now is that there
so many unwarranted and frivolous lawsuits brought. It reflects
on all the cases," says Perry Warren of Maselli, Warren,
& Lanciano PC, based at 600 Alexander Road. "There are people
who are discriminated against, there are women who are sexually
and the fact that there may be a number of people crying wolf hurts
the perception of plaintiff cases in general. But there are good cases
"Some hostility to Paula Jones has created some skepticism to
sex discrimination cases, but I think that courts are looking more
favorably on race discrimination today and being less tolerant of
overt racism," says Warren.
An alumnus of Colgate, Class of 1984, Warren is an honors graduate
of the University of North Carolina Law School in Chapel Hill and
was an associate at Stark & Stark before leaving that firm, along
with Paul Maselli and Guy Lanciano, to open an Alexander Road practice
focusing on small and medium-sized business interests such as
commercial litigation, and securities arbitration (609-452-8411).
One recent headliner was a New Jersey Supreme Court decision that
single racist remark can create a hostile work environment under the
New Jersey Law Against Discrimination. An African American sheriff’s
officer, Carrie Taylor, filed suit against Henry W. Metzger,
"That case suggested that one isolated comment, if severe enough,
is sufficient to constitute race discrimination," says Warren.
The court’s verdict said that "a patently racist slur, ugly stark
and raw in its opprobrious connotation, in this day and age, society,
and culture, and in this state, an ugly vicious racial slur uttered
by a high ranking official who should know better and is required
to do better, cannot in light of this state’s strong and steadfast
policy against invidious discrimination be viewed as a picayune
The New Jersey Supreme Court sent this case to trial on February 18.
The alternative to lawsuits, arbitration, does not necessarily save
costs, says Warren. "The filing fee for arbitration is often
Depending on the amount of damages you are seeking, an arbitration
fee can run to $1,000 to $2,000 or more. That creates a real barrier
to employees who have lost their jobs and discourages attorneys
taking cases on contingency."
"Even with a panel of three arbitrators, you are dealing with
highly educated employed persons," says Warren, who might be more
sympathetic to an employer. In cases decided by juries, ther
show, employers lose 64 percent of the cases.
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