United States: Sue Tsunami: The Rising Tide Of Verdicts And Settlements In California-Based Employment Litigation

Within weeks of each other, two California juries awarded eight-figure verdicts to individual plaintiffs in employment cases. On April 25, 2017, in Babyak v. Cardiovascular Systems, Inc., a Los Angeles jury awarded $25.1 million in compensatory and punitive damages to a former regional sales manager who alleged that he was retaliated against and wrongfully terminated for whistleblowing. Then, 10 days later, in King v. U.S. Bank, N.A., a jury in Sacramento awarded $24.3 million in compensatory and punitive damages to a former U.S. Bank executive who claimed the bank mishandled a specious sexual harassment complaint made against him and wrongfully terminated him before he qualified for a large performance bonus.

While to a casual observer, it might be tempting to dismiss these verdicts as anomalies and their proximity in time a mere coincidence, they are not. They are indicative of a trend in employment litigation in California that has been incubating over the last decade and has ripened into full bloom over the last year or two. This trend is the inflation of jury awards and, consequently, settlement values (and, therefore, obviously the costs of defense). (This phenomenon is so well established that retired Los Angeles County Superior Court Judge, and now mediator, Jeff Winikow recently wrote an article about it in the California State Bar's Labor & Employment Section publication.) There are multiple drivers of this phenomenon, but we focus here on three primary causal factors.

First, a handful of prominent plaintiff-side employment attorneys, names many of you would recognize, have made a career decision to try cases . . . and lots of them. Quite simply, the group we reference have made substantial sums though trials, have the liberty to try cases without any personal economic pressure, and enjoy the trial experience far more than the mundane elements of pre-trial work. This group has scored multiple seven- and some eight-figure verdicts over the last decade, with increasing frequency over the last several years. If they lose, well . . . so be it. To be clear, there is a concentration of particularly skilled plaintiffs' side attorneys who do not want to settle cases they believe are strong; they want to try them and view their recent successes as vindication of what amounts to a lifestyle decision.

While that alone has driven a market appreciation, the real influence has been on the next generation of plaintiffs attorneys who now feel that they MUST try cases to establish credibility and open the ability to obtain high-value referrals. Referrals at the eleventh hour for 50% of the fee further drive up settlement values and embolden non-trial lawyers to take aggressive stands. This trend translates into demands at mediation which are routinely multiples of what they would have been even three or four years ago. It also means that a lot more cases are tried.

Second, over the last five years, the California judiciary has demonstrated a willingness to issue large attorneys' fee awards to prevailing plaintiffs in employment cases. Where historically fees were less than the jury's verdict, that is emphatically no longer the case. A well articulated theme that the plaintiff's bar assumes all the risk of contingency litigation and that civil rights litigation inures to the benefit of society as a whole has resonated with the bench, and seven-figure fee awards have become far more common. For instance, in a well-publicized 2014 sexual harassment trial brought by a former server against a celebrity-owned Beverly Hills restaurant, Los Angeles County Superior Court Judge Michael Linfield awarded the plaintiff $1.49 million in attorneys' fees on a $106,250 verdict. Pause for a moment and consider the seismic impact that had on observers among the plaintiff's bar. Fees were almost 15 times the verdict amount. As a result, settlement values have increased as the plaintiff's bar has taken a risk-tolerant position: "Hey, if I recover anything from the jury, I'm going to get a huge fee award."

Third, there has been a spate of challenges to sitting California Superior Court judges in the last several election cycles (it used to be that a sitting judge was almost never challenged in an election). In at least one instance, the sitting judge was defeated. This has made Superior Court judges even more reluctant to grant summary judgment because if such a grant is reversed, it becomes fodder for a challenger to exploit. 

In light of this hyper-inflation of verdicts and settlements, an employer's ability to effectively manage the risk of employment claims has become more important than ever. It is imperative to take a comprehensive approach to risk management and consider whether your insurance, policies and procedures, and HR staff are commensurate with your needs. It is also critical to engage skilled employment counsel to assist in navigating employment decisions which will clearly implicate material risk.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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