Colorado employers fear crippling lawsuits if discrimination bill passes

Mar 4, 2013

Staff / Colorado Public Advocate

While business leaders, trial lawyers and lawmakers lock horns at the Capitol over legislation that would make Colorado’s employers pay out a lot more on discrimination claims, Linda Kaufman is still reeling from her own real-life experience with a lawsuit by a disgruntled ex-staffer at her rural charity.

The policy debate in the statehouse over House Bill 1136—which critics say will unleash a torrent of business-busting lawsuits— has been intense, but in some ways it pales next to Kaufman’s ordeal in tiny Westcliffe. There, her shoestring-budget operation, which serves financially strapped pregnant and new moms in southern Colorado’s sparsely populated Wet Valley, weathered a costly, grueling and disillusioning legal battle after budget constraints forced it to lay off its only two paid employees. Although the Lighthouse Resource and Pregnancy Center ultimately prevailed in court against the one employee who sued—it won a summary judgment on Jan. 18—two years of litigation nearly sank the entire endeavor.

“It’s been incredibly difficult. Anxiety. Lost sleep,” she said, adding that she and her board members spent “hundreds and hundreds of hours” preparing their defense. And that’s not to mention legal costs.

“We knew we had done nothing wrong, but we had to go through the legal process to prove it,” Kaufman said. The plaintiff had named not only Lighthouse itself but also Kaufman personally as well as every board member in the suit.

“We could have each been hurt personally, individually, financially. To think that you’re a volunteer in a nonprofit, and it might cost you everything you have,” she said. “Luckily, we had insurance, or we would not have been able to afford it.”

She added, “We would have had to close our doors.”

Now, Kaufman fears the same could happen to the many other hard-pressed nonprofits on which rural Colorado communities depend for wide-ranging social services—if a measure like HB 1136 winds up instigating more lawsuits against them.

The pending legislation would mean a big shift in the way Colorado deals with employment-discrimination claims. People who believe an employer was motivated by discrimination in denying them a job, a raise or a promotion, or in otherwise mistreating them, would be able under state law to seek compensatory damages, like pain and suffering, as well as punitive damages.

At present, Colorado statute allows those claiming discrimination to seek back pay, projected future pay, interest on back pay, reinstatement, compelled hiring or other equitable relief.

While some of the remedies that the bill would enact in state law already are available under federal law for plaintiffs suing employers with 15 or more workers, the measure also would extend its remedies to plaintiffs who are not now covered by federal law at all—those suing small businesses with fewer than 15 employees. That means that for the first time, plaintiffs suing even the smallest employers for discrimination would be able to seek compensation for claims like pain and suffering, loss of enjoyment and embarrassment. It is especially that scenario that has raised an outcry in the business community and has small-business owners and advocates fearing an onslaught of specious discrimination claims.

“This bill paints a target on the backs of small business,” said Tony Gagliardi, state director for the National Federation of Independent Business in Colorado. The group is the leading forum for Colorado’s estimated 124,000 businesses with under 500 employees.

Gagliardi points out that the vast majority of discrimination cases reviewed by the Colorado Division of Civil Rights—where all such claims are investigated before they can go to court—are found to have no probable cause for further action. In 2011, the latest year for which data is available, 313 of 335 cases that went before the agency —93 percent—were found to have no probable cause.

Of course, such a finding cannot by law stop a claim from going to court anyway, and plenty do. Gagliardi fears there will be a lot more such groundless discrimination claims against small businesses with the added financial incentive that would be created by HB 1136.

Meanwhile, attorneys representing employers say if the bill becomes law, expect a flood of claims against large employers, too. They say plaintiffs’ attorneys feel Colorado’s swamped, resource-strained state court system is friendlier to their clients. Among other considerations, they’re likelier to get to a jury, where they say it’s easier to stigmatize employers. So, even though remedies in the state and federal systems would be comparable for large employers under HB 1136, state courts would be more inviting.

“Putting it in state court puts employers in a far more precarious position,” said Denver attorney Merrily Archer, who represented Kaufman and Lighthouse.

Archer also noted, however, that making it all the way to trial is rare: “Settlement is the name of the game.”

Supporters of the legislation counter that it caps total damages awards at $50,000 for the smallest businesses—an amount small-business advocates say is still crippling—and directs judges to consider a business’s amount of assets, as well as the egregiousness of the alleged incident of discrimination, in awarding damages. Plus, they say, if cases truly are groundless, they will be adjudicated as such at some point in the process, and the employer won’t have to pay.

Yet, the bill’s critics say that argument not only is naïve but also misses the point. The most acute and crippling impact of even the most insubstantial employment-discrimination claims, they say, is in the sheer toll they take on employers, including in legal fees—regardless of whether the employers prevail.

“Even if the lawsuit never goes to trial, you’re going to be facing $50,000 to $75,000 in legal expenses,” Gagliardi said. He said if a case does go to trial, over a period of two to three years, the cost can climb to $175,000.

“Most small businesses today, their doors are going to be shut before they get to that figure,” he said.

It may have been the sheer size of 730-employee RK Mechanical, Inc., that spared it that fate when an employee sued after being fired for insubordination. The Denver-based commercial plumbing, heating and air-conditioning contractor went through three years of litigation.

“We got hit with four different lawsuits. She went after me personally. She said I was out to get her. None of this made sense,” said Jon Kinning, a senior exec and co-owner in the family business.

“She threw the kitchen sink at us,” Kinning said. “They brought videographers to our office. I don’t even know what they were looking for.”

Kinning says the plaintiff’s legal claims had no merit, and the courts evidently agreed.

“They took this to the appeals court. They lost everywhere. Everywhere they went,” he said. Finally, the state Supreme Court sided with RK as well.

Yet, even though the firm won in court, it also lost big.

“It was a huge distraction,” he said. “It took a ton of time. There were depositions. It affected morale at some point.”

It also cost $25,000 in legal fees, and the company’s liability insurance deductible leapt from $25,000 to $100,000.

Kinning says the irony of it all is that his company is considered a top-flight place to work. For two of the last three years, the Denver Business Journal ranked it one of the top 10 large employers to work at, and it offers its employees perks like a full-time wellness coach and health screenings.

While critics of the bill feel as Kinning does—that it’s about “generating more legal fees”—its backers insist it is about fighting for civil rights.

“The goal is not to land people in court. The goal is to end discrimination in the workplace,” said Senate Majority Leader Morgan Carroll, D-Aurora, the measure’s lead Senate sponsor. “We do still have people whose civil rights are being violated at work.”

Carroll said the bill is needed to close the “gap” that leaves employees at small businesses with no ability to sue for discrimination under federal law and too few legal remedies under state law. She acknowledged most businesses, including small employers, do their best to avoid discrimination, but she said when it does happen, it needs redress.

“It’s rare but it’s wrong,” Carroll said.

Yet, Archer said the legislation never will achieve its goal even as it racks up costs for employers. She points to statistics that show how discrimination claims filed under federal law have continued to climb more than 20 years after the federal statute itself was enacted.

“If enhancing penalties…worked, show me the progress,” Archer said. “If we really care about inclusiveness (in the workplace), as I do, we have to start thinking about innovative solutions.”

She also said the current system has become little more than a cynical “wealth-redistribution process” in which employers pay insurers to settle with plaintiffs and their attorneys simply to contain costs and cut losses—regardless of whether a claim has any merit.

“Usually reinstatement is not an option,” she said, “so what happens is a bunch of money has changed hands.”

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Tags: Colorado Civil Rights Division, employment discrimination, Inc., Jon Kinning, Lighthouse Resource and Pregnancy Center, Linda Kaufman, Merrily Archer, National Federation of Independent Business, RK Mechanical, Senate Majority Leader Morgan Carroll, Tony Gagliardi