Tips on how to avoid employment-related lawsuits.

What leads to employment-related lawsuits? Are U.S. companies really such horrible places to work? Or are employment laws so complex that no one can weed through them to manage employees effectively?

An average of 1,486 wrongful termination, harassment and discrimination cases are filed in federal courts, state courts and administrative agencies every day, says Brian T. McMillan, a partner in the law office of Littler Mendelson, San Jose, Calif. McMillan spoke at a workshop at the American Supply Association's Convention in Chicago.

These suits can have serious financial consequences for some businesses. However, the main problem is not with existing laws, he says, but rather the conduct of supervisors and managers evaluating or disciplining employees.

"Simple, common mistakes are made everyday that, if handled differently, could have either prevented a lawsuit from occurring in the first place or put the company in a better position to defend against a claim when it arose," he explains.

These six "litigation landmines" are easy to step on if you are not aware of them, he says.

1. Failure to document. "About 90% of employment lawsuits would go away if the supervisor or manager had appropriately documented a conversation, a meeting or an incident with an employee," McMillan says.

2. Grade inflation. A common problem is not evaluating employees honestly, McMillan says. If you don't inform an employee that he received a lower raise because of less-than-adequate work, he won't see the need to change his behavior. Clearly communicate your expectations, and evaluate the employee against those expectations.

3. Failure to train. "Make sure all employees have the necessary tools to perform their jobs and provide appropriate training," he says. Make sure that the training occurred and follow up with employees who did not attend the training.

4. Failure to keep evidence. Keeping evidence of shoddy work and inappropriate behavior in an employee's personnel file can sometimes prevent a claim from ever arising, McMillan says. Again, share with the employee and give him another opportunity to change his conduct or work practices.

5. Inappropriate comments or e-mail. Many people don't understand that e-mail messages can be retrieved from a computer system even after the employee has deleted it from his mailbox, McMillan notes. E-mail can be used as evidence against you in a suit, so be sure to use e-mail for appropriate business use and not to pass along gossip or dirty jokes.

6. Trying to disguise termination. Instead of dealing with a performance problem head on, some companies may transfer the employee to another location or lay off the employee. Consider company policies and investigate the facts before taking any type of termination action, he says.

An ounce of prevention

Taking the time to carefully evaluate employees and document their conduct when disruptive is a good start. But there are other, more proactive measures a company can take to protect itself from employment-related lawsuits.

Review hiring procedures. Using a comprehensive application form allows a company to specifically state its hiring policy, McMillan says. The application should include an Equal Employment Opportunity statement, an expiration date (after which the prospective employee must re-apply), employment- at-will language, a statement about the company's background check policy and a certification that the information is accurate and complete.

A company's interviewing procedures must be examined. Make sure that managers or supervisors responsible for interviewing applicants are trained on what they can and can't ask. "A lot of needless cases arise when inappropriate statements are made during the interview process," McMillan explains.

When making an offer, send an offer letter. This letter gives the company the opportunity to spell out the terms of employment, including the employment-at-will provision. Have the employee acknowledge the basic terms by signing the letter and returning it to the company.

Conduct proper and thorough background checks. Look for not only gaps in employment, but check with prior employers. "You may believe it's a waste of time, but in the law's eyes, you still have to act as a reasonable employer and see whether that applicant has any history of violent conduct or harassment," McMillan explains. "If you don't investigate and an incident arises with that employee, you can be hit with a claim of negligent hiring, where you hired an individual without acting reasonably in checking that person's background." Make sure you document your efforts to get that information.

Review the company's employee handbook. And have it reviewed by experts, McMillan says. If you don't have a handbook, put one together. It can include policies that provide protection to a company, such as a comprehensive EEO statement setting forth the company's commitment against discrimination; an anti-harassment policy covering not just sexual harassment, but harassment by race, religion and sexual orientation; an employment-at-will policy; and complaint-reporting procedures not just for harassment, but for any type of concern the employee has that he can bring to the company's attention.

Include an acknowledgment form in the handbook. Not only does the employee acknowledge receiving the handbook, but that he read it, understood it and is willing to comply with its terms. Have the employee sign and return the form.

Provide proper training. And not just job training, but employment law training, McMillan says. Managers and supervisors need to know how to evaluate employees, how to hire and fire employees and how to discipline them without incurring liability. Some states require harassment training for all employees, he adds.

Consider binding arbitration. It may not be right for all companies, McMillan says, but there are alternative dispute resolution mechanisms, such as mediation or arbitration, where you can send some of these employment disputes and avoid going through the cost of litigation.

Consider employment practice liability insurance. The coverages are broad enough and include defense costs, damage awards and settlements.