HB 1200: Another Small Business Shakedown

by Hans Bader

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 fewer than 15 employees, you usually can’t be forced to pay a worker’s lawyer much at all if the worker sues you.

That would change under a recently proposed law, House Bill 1200. It would subject even small businesses with five or fewer employees to state anti-discrimination laws. And if a worker successfully sued you for discrimination, you would have to pay his lawyer’s bills, too — but if he lost, he wouldn’t have to pay your lawyer’s bills. 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 employers are covered by most federal civil-rights laws, like those banning religious or sexual discrimination. Employers with fewer than 15 but more than five 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 award attorneys fees only out of the “amount recovered,” not on top of them.

By contrast, House Bill 1200 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. But it would also force employers to pay the worker’s lawyers bills in a way that could encourage wasteful lawsuits.

The bill 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 attorneys 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.

Attorneys 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 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 discrimination 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 attorneys fees. It does let attorneys 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 is an attorney living in Northern Virginia. This post was first published in Liberty Unyielding.

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11 responses to “HB 1200: Another Small Business Shakedown

  1. You make a good case that this bill goes too far. This bill will probably be referred to the Courts of Justice Committee. It has been my experience that the attorneys on that committee have been sensitive to the objections that you raised. If the committee reports the bill, it will probably be amended to be more in line with the federal law.

    I am curious about the federal cases that you cited in which attorneys were awarded fees of $40,000 and $1 million, although they found little or no damage suffered by the plaintiff. How could those actions be squared with the federal requirement that attorneys’ fees be reasonable, particularly since the suits seem to have been groundless?

  2. I’d like to see a better environment for workers also with respect to required non- compete clauses. Put all of that stuff in one bill and see if we can find compromise – enough to pass .

    I don’t have any problem with lobbying – I see it as a good thing as long as all interests are represented – especially in a part-time legislature.

    But I object to money to elected – that’s wrong and tilts the scales to the money which basically corrupts the legislative process.

    • As I recall one of the very few good points of Virginia state law is that bills must be single purpose. So, you can’t pile a bunch of different ideas into a single bill. I like this because it prevents stupid addenda being added to important bills thus giving politicians cover to vote for the stupid addenda under the pretext of needing to pass the important parts of the bill. Would love to hear from our legal eagles and those experienced with the ways of the General Assembly.

      • You are correct. That prohibition is set out in the state constitution: “No law shall embrace more than one object, which shall be expressed in its title.” The General Assembly follows this idea pretty closely. Sometimes, someone will try to amend a bill and is challenged under the “single object” rule. It is then up to the Speaker to rule on the legitimacy of the proposed amendment.

        Along these lines, the constitutional provision goes on to set out a very good condition for legislation: “Nor shall any law be revived or amended with reference to its title, but the act revived or the section amended shall be reenacted and published at length.” Without this provision, you would get what you have in federal legislation: “Line XXX of Title XX is amended as follows.”

        This state constitutional requirement is one of the most basic tools of transparency; legislators and citizens know what is being amended and how.

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