There are many potential factors that employers may need to consider when deciding whether or not to offer a settlement in an employment lawsuit.  While every case is different, here are a few factors that employers should keep in mind:

  • Strength of the Claims and Defenses:  Whether or not an employer can win is one of the most important considerations.  If the asserted claims are unsupported by evidence or contrary to law, the employer will have the upper hand in negotiations and can take a firmer position against settlement.  If there is evidence of unlawful conduct, the plaintiff may have more leverage in negotiations.
  • Cost:  The cost of a settlement versus the cost of litigation is a fundamental consideration for employers.  When a lawsuit can be settled for less than the cost of litigation, there may be a strong business justification for pursuing settlement.  On the other hand, if the plaintiff’s demands greatly exceed the cost of litigation or the strength of the claims, this factor may weigh against settlement.
  • Employee Morale:  Many employment lawsuits involve challenges to the conduct or decisions of managers or employees who are still with the company.  In some cases, demonstrating that the company supports the challenged conduct or decisions may be a factor that weighs against offering a settlement.  In other cases, litigation may become so stressful and burdensome on the individuals involved that settlement is the best option for the company to move forward.
  • Business Necessity:  Some lawsuits may challenge policies or practices that are necessary for the business to be profitable.  When this occurs, the company may be better served by prevailing in litigation to establish that its business model is legal.  Alternatively, if there is a risk that a judicial decision will invalidate the company’s business model, a settlement may be preferable.
  • “Me Too” Lawsuits:  In certain cases, offering a settlement to one former employee may provoke other disgruntled employees to come forward with similar claims.  If this is a likely outcome, an employer should carefully consider the risks of additional claimants when determining whether to offer a settlement.
  • Public Relations:  Public relations are a key consideration when a plaintiff makes inflammatory or unflattering allegations that could hurt the company’s image.  In some cases, the best response to this kind of case may be to settle and avoid the bad PR.  However, in other cases, protecting the company may require engaging in litigation to disprove the allegations.
  • Principle:  Sometimes it’s worth it to stick up for principle and not offer a settlement merely because it is expedient or less costly.  Other times, it’s not.  The primary downside to fighting for principle, of course, is that it may be costly and harm the company’s bottom line.

Takeaways:  These are just some of the factors that employers may need to consider when determining whether to offer a settlement in an employment lawsuit.  Because every case is unique, there is no one-size-fits-all rule for when a settlement should be offered.  Each case needs to examined and considered on its own merits.