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At Least 10 Reasons Why You Should (Almost Always) Negotiate Before You Litigate — PART I

Much of our legal work as executive employment attorneys consists of negotiating individual executive employment agreements and offer letters. These negotiations take place when an executive is being hired or when his or her initial employment is being extended or expanded. These negotiations occur when both sides are happy, optimistic and attempting, within the parameters and constraints of the executive’s and the employer’s respective needs, to reach an agreement which both parties can live with.

The mood is often very different when an executive has been terminated, or a contract not renewed, and we are asked to negotiate the executive’s exit package. Sometimes, of course, the parties are parting ways amicably and the employer is not averse to treating the executive fairly, perhaps even generously, in return for appropriate and reciprocal protections for each of the parties. However, at other times, the circumstances surrounding separation from a valued executive employment situation is decidedly unhappy, the negotiations can be rocky, and the departing executive may feel disappointed, betrayed, angry, taken advantage of, or all of the above. At these times, the threat and possibility of litigation may be real, particularly (but not only) when the executive has reason to believe that there are elements of discrimination, harassment or unfilled promises behind the termination.

Unlike many “transactional” employment attorneys, all of the attorneys in our firm were involved in hard, sophisticated commercial and employment litigation for several decades before turning our full time and attention to the negotiation of executive employment agreements. As a result, our view of the merits and the pitfalls of litigation are based on actual experience, not just theory, since we spent a substantial portion of our professional lives on the actual playing field of litigation, rather than as spectators in the stands.

Here is the take-away: executives, no matter how ill-treated or legitimately outraged at the facts of his or her treatment or termination, should use every opportunity to have their attorneys engage in settlement negotiations rather than rush to bring a court action or commence an arbitration against even the worst “bad actor” of executive employers.

Why do we say this? Consider the following ten reasons why litigation should, in all but a handful of cases, be a last resort for an executive, and why negotiation almost always produces a happier result:

1.     Litigation is extraordinarily, sometimes ruinously, expensive. Few executives, unless they possess independent wealth, can afford the ongoing costs of litigation, which means that the executive must find an attorney willing to undertake the matter on a contingent fee basis.

2.     Bringing legal action rarely if ever provokes an immediate settlement. Clients often believe that commencing a lawsuit is the way to a rapid and better settlement of their claims. That has not been our experience. The fact of litigation puts people’s backs up, and employers often feel the need to defend their actions by mounting a show of strength and focusing on its defenses rather than on settlement.

3.     The employer’s attorneys love to litigate. In fact, the employer’s attorneys make far more money from generating legal fees in litigation than from documenting a settlement agreement, so once an executive has commenced litigation, they often tell their clients that they should not participate in further settlement negotiations until they have demonstrated the strength of their position through the display of a vigorous defensive strategy in the litigation.

4.     Litigation takes forever. Executives usually understand that if they formally challenge an employer in court or arbitration, the employer has the advantage of “deeper pockets.” However, what many executives are not prepared for is how long the process can take, and how many procedural steps, including extensive motion practice, discovery (even in arbitration) and delays along the way, can become barriers to a swift resolution of the matter.

5.     The process often is not as easy as bringing a lawsuit, with its attendant bad publicity for the employer. Many executives come to us thinking that they can threaten or bring a court action against their employers but fail to recognize that their employment agreements, or other company documents to which they have agreed, limit them to having to arbitrate their claims. Arbitration is a form of dispute resolution which often, although not always, favors the employer. When we are negotiating the initial employment arrangement, we make certain our clients know the difference between being able to bring a lawsuit and being limited (by their own agreement) to an arbitration remedy. However, we are surprised at how many clients for whom we did not negotiate their employment agreements, but who only come to us after they have been terminated, have never been told the difference (and, frankly, many attorneys with a pure transactional background do not fully know the difference).

6.     The executive may even have to pay the employer’s attorneys’ fees if the executives loses. The so-called “dispute resolution” clause in many executive employment agreements and offer letters often prescribe a method of resolving disputes, either by arbitration or at least by removing any chance that the executive’s case will be heard by a jury. In fairness, signing on to an employer’s preferred mode of resolving executive employee complaints may be a non-negotiable pre-condition of employment by many sizable employers these days. But these same clauses also often state that the losing party pays the other side’s legal fees (which is the rule in British courts, but an exception to the general law in America). In these situations, the executive can not only lose his or her claim, but depending on the language of the original employment agreement, may have to pay the employer’s (often astronomical) legal fees as well!

[This topic will be continued in our next blog post.]

About the Author

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George Birnbaum

Since 1980, sophisticated business people have relied on George to apply the meticulous preparation, attention to detail, and devotion to his clients he learned from fabled trial lawyer Louis Nizer. A graduate of Harvard College and Harvard Law School, George has over 35 years of distinguished deal-making, litigation, mediation and arbitration experience which he has used to negotiate high-stakes agreements for senior executives and select business clients throughout the United States.