Small business would pay lawyers a lot under new legislation

Small business would pay lawyers a lot under new legislation
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Right now, if you employ five or fewer workers in Virginia, you aren’t subject to most state restrictions on who you can hire. And if you have less than 15 employees, you usually can’t be forced to pay a worker’s lawyer much at all when the worker sues you.

That would change under a recently proposed law, House Bill 1200. It would subject even small businesses with 5 or fewer employees to state antidiscrimination laws, so you couldn’t hire someone who shares your religion or sex. And if a worker successfully sued you for discrimination, you would have to pay his lawyer’s bills, too — but if he lost his lawsuit, he wouldn’t have to pay your lawyer for the money you had to pay your lawyer to represent you. That’s like having someone tell you “heads I win, tails you lose.” Even a small business that never discriminates would find that objectionable.

All employers are already forbidden to deliberately discriminate based on race, by a strong federal law known as 42 U.S.C. 1981. But other types of discrimination by tiny employers aren’t necessarily forbidden.

Right now, only employers with 15 or more employees are covered by most federal civil-rights laws, like those banning religious or sexual discrimination. Employers with less than 15 but more than 5 workers are covered by a state law that says they can’t discriminate — but workers can only sue under that law for lost wages, not emotional distress or punitive damages. And a judge can only award attorneys fees out of the “amount recovered,” not on top of them.

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House Bill 1200 would change that. It would let people sue even the tiniest businesses for discrimination, such as a woman hiring one other woman to work with her, or an Orthodox Jew hiring a fellow Orthodox Jew, or an Amish person hiring another Amish person. It would not only let workers sue for back pay and up to $25,000 in punitive or emotional distress damages. It would also force employers to pay the worker’s lawyers bills — in a way that could encourage wasteful lawsuits.

It provides that “in any case where the employee prevails, the court shall award attorney fees.” But where the business owner prevails, the business owner gets nothing — no attorneys fees at all. That’s not fair.

And nothing in the bill says the attorney fees have to be “reasonable,” as federal law requires in discrimination cases. So if the worker’s lawyers were slow or inefficient, or they duplicated each other’s work, nothing in the language of this proposed law would keep them from collective fees for that wasted time. Under the “reasonable attorney fees” language of federal law, judges typically shave off at least 20% of a lawyer’s billings in civil-rights cases as excessive, wasteful, or duplicative. For example, federal judges wrote off a substantial fraction of my billings, when they awarded my law firm attorneys fees for its successful discrimination lawsuits against universities in Texas and Michigan. That’s because they concluded that my work duplicated what other lawyers were already doing, or did things that didn’t need to be done.

Eliminating excessive attorney fees matters a lot. That’s because the attorney’s fee often dwarfs the size of  what the worker himself gets, encouraging lawyers to sue businesses over trifling violations, or violations that didn’t really harm the worker.

For example, a court awarded a worker over $40,000 in attorney fees even though she suffered only $1 in damages in Brandau v. State of Kansas (1999).  Federal judge Sam Sparks awarded over $1 million in attorneys fees to lawyers after protracted litigation, even though he found that their clients weren’t really harmed by the challenged policy.

Attorney fee awards already encourage lawsuits over minor violations, or where there is no real harm. Awarding attorney fees without any requirement that they be “reasonable” will magnify that problem, and the incentive to bring lawsuits.

It will also magnify the unfairness of the bill’s attorney fee provision. It gives only the employee — not the small business — money for its employer when it wins the lawsuit. If the employer wins, it gets nothing.

That preference in favor of the worker over the employer might be justifiable when a worker is suing a huge company, to help even the scales. Suing a giant company can be a David and Goliath situation, where the worker may need all the help she can get.

But it makes no sense to prefer a worker to a tiny business that is so small that it can be bankrupted by a single lawsuit brought by a worker. Many small business owners are just as much a part of the middle class as the employee who sues them. And it costs them many thousands of dollars to get a lawsuit against them dismissed, even when they are clearly innocent of discrimination.

Years ago, it was estimated to cost $25,000 for an employer to get a very weak discrimination lawsuit against it dismissed at the earliest phase of litigation (“motion to dismiss”), $75,000 to get it dismissed at a later phrase (“summary judgment”) and $250,000 to defeat a lawsuit that makes it all the way to a trial.

Federal law also usually gives attorneys fees only to prevailing workers — not businesses. But federal law only covers larger businesses (those with 15 or more workers) that can better afford an attorney.

And federal law is fairer. It doesn’t categorically exclude employers from recovering attorney fees. It does let attorney fees be awarded to the business if the worker’s lawsuit was either “groundless” or “unreasonable,” (as opposed to merely unsuccessful).

The proposed Virginia law would not even let the employer collect attorney fees in those narrow circumstances. Thus, it would encourage unreasonable and groundless lawsuits.

Hans Bader

Hans Bader

Hans Bader practices law in Washington, D.C. After studying economics and history at the University of Virginia and law at Harvard, he practiced civil-rights, international-trade, and constitutional law. He also once worked in the Education Department. Hans writes for CNSNews.com and has appeared on C-SPAN’s “Washington Journal.”