Employee Lawsuits Research Articles

Employee lawsuits and business downsizing: Evidence from labor unions

In this paper, we examine how employee lawsuits are related to firms’ business decisions. By using union-filed lawsuit data, we document that litigation increases the likelihood of firms downsizing their businesses. Furthermore, cases filed by unions lead to an increase in both the number of store closures and the number of employees affected by these closures. We demonstrate that violations related to labor have a significant negative impact on operating performance. Our findings reveal the fact that the cost of labor, damage to reputation, legal liabilities, and diverted resources resulting from litigation damages firms’ new business opportunities. Overall, our results highlight the importance of employee treatment at the workplace, which affects corporate decisions.

From Discrimination to Dismissal: Navigating Obstacles on the Path to Workplace Justice

Abstract This article explores the challenges faced by employees in the Czech Republic when seeking legal redress in cases of discrimination and unfair dismissal. It emphasizes the importance of accessible legal recourse as a means to rectify individual grievances and reinforce equitable employment practices. In the context of discrimination, the article discusses challenges such as low awareness of anti-discrimination rights and the ancillary nature of sanctions. Recommendations include aligning the Anti-Discrimination Act with the Civil Code, empowering NGOs or the Ombudsman to initiate lawsuits in the public interest, and raising awareness among potential victims. In the section on unfair dismissal, the article outlines the complex process involved in disputing terminations from an employee’s perspective. It discusses obstacles such as complex, costly, and lengthy legal procedures and the requirement for reinstatement. These challenges contribute to the low number of employment lawsuits in the Czech Republic. Recommendations for improvement include enhancing the visibility of court actions, providing free or subsidized legal advice, shifting the focus of lawsuits towards monetary compensation, promoting mediation, and expediting proceedings. The article identifies common challenges in discrimination and unfair dismissal cases in the Czech Republic, highlighting the need for reforms to improve access to justice, reduce financial barriers, expedite legal proceedings, and enhance the dissuasive impact of remedies. These reforms are seen as essential for creating a fair and equitable workplace environment for all employees in the country.

When Employees Go to Court: Employee Lawsuits and Talent Acquisition in Audit Offices

ABSTRACTI examine whether employee‐initiated lawsuits against an audit office adversely affect its ability to attract high‐quality talent and deliver quality audits. I posit that employee lawsuits erode prospective employees’ perceptions of an office, diminishing their willingness to join. Using a comprehensive data set of individual auditor profiles, I find a decline in the quality of newly hired auditors following an employee lawsuit. Cross‐sectionally, the adverse effect of employee lawsuits on talent acquisition is more pronounced when an office is undergoing higher growth and when a case receives greater media attention. Conversely, this adverse effect is less pronounced when an audit office is larger or offers more competitive wages within the local area. When an audit office is unable to recruit high‐quality talent, its audit quality is likely to suffer. Consistent with this, I find a deterioration in audit quality provided by an office following an employee lawsuit. Overall, this study underscores the importance of human capital management and employer reputation for audit offices that operate in competitive labor markets.

Corporate Governance in the # MeToo Era: A Compact, In‐Class Case*

With the rise of the #MeToo movement, workplace harassment has become an important board issue. Despite this, little has been written on the role that boards, and governance in general, should play in reducing the potential for employee harassment in the workplace. This compact, in-class teaching case, which is based on an actual employee lawsuit in Canada, fills this gap by reviewing the role of the board in addressing employee workplace harassment. The case takeaways focus on the steps boards should take once they receive an employee harassment complaint, the policies and procedures boards must ensure are in place to protect their employees from workplace harassment, and the options available for students if they encounter workplace harassment in their future careers. The case concludes by reviewing best practices for recruiting board members as well as deciding on the future of the organization's president.

Race, gender, and place: How judicial identity and local context shape anti-discrimination decisions

AbstractWhile federal anti-employment discrimination laws have helped diminish inequality at work, discrimination persists, in part perhaps due to unequal handling of equal employment lawsuits. Prior research demonstrates that the definition of discrimination can vary based on local normative ideas, while another line shows that a judge's race or gender can shape how related lawsuits are handled. In this article, I draw on a set of EEOC workplace discrimination cases prosecuted in Federal Court and combine it with locality data, to analyze: (1) the impact of local context, specifically rurality, local political context, and southerness and; (2) how judges' race and gender interact with the local cultural-milieu. Findings reveal that plaintiffs of colour in race discrimination cases fair worse in rural courts or before white judges. Meanwhile, white judges in conservative areas are more defendant friendly than those outside the in more liberal areas. Black judges, in comparison, are more plaintiff friendly in conservative areas when compared to black judges in more liberal areas. While female judges are generally more plaintiff friendly than male judges in sex cases, location has no discernible effect.

Employee relations and stock price crash risk: Evidence from employee lawsuits

In this paper, we examine the effect of firms' employee relations, measured by the number of employee lawsuits divided by the total number of employees, on stock price crash risk. Firms with higher employee lawsuit ratios tend to have higher stock price crash risk. Our results are robust after addressing possible endogeneity and using alternative measures of employee relations and stock price crash risk. We also find that the association between the employee lawsuit ratio and stock price crash risk is less prominent for state-owned enterprises, for firms with stringent external monitoring, and for firms with positive earnings news. Finally, earnings aggressiveness appears to be the channel through which the employee lawsuit ratio affects stock price crash risk. Collectively, our study is in line with the stakeholder theory, and highlights the importance of employee lawsuit for preventing crash of stock price.

Company Ownership Structure, Legal Compliance and the Probability of Winning an Employment Lawsuit in China

Abstract This paper investigates empirically whether firm ownership structures contribute to varying levels of legal compliance, which ultimately influence the likelihood of winning a lawsuit. I hypothesize that private companies are more likely to lose employment lawsuits because the rule of law within the company is rarely established. Using collected 2756 employment judgments decided by district courts in Beijing between 2014 and 2018, I test this hypothesis against three other types of ownership structures in China: state-owned enterprises, wholly foreign-funded companies, and partly foreign-funded companies. The statistical result confirms that private companies are more likely to lose cases, thus supporting the proposed hypothesis. In addition, the company’s scale and the company’s life span also have a significant influence on the employment lawsuit result.

Labor lawsuits and debt maturity

PurposeThis paper aims to investigate how firms’ relationships with employees define their debt maturity. The authors empirically test the role of employee litigations in influencing firms’ choice of short-term versus long-term debt. The authors study employee relations by analyzing the importance of the workplace environment on capital structure.Design/methodology/approachThe author’s test hypotheses using a sample of US publicly traded firms between 2000 and 2017, including 3,056 unique firms with 4,256 unique chief executive officer, adopting the fixed effect panel model.FindingsThe authors document that employee litigations have a significant negative effect on the use of short-term debt and a significant positive affect on long-term debt. Employee litigations, along with legal fees, outcomes and charging parties, matter the most in explaining debt maturity. In addition, frequently sued firms abandon the short-term debt market and use less shareholders’ equity to finance their operations while relying more on the longer debt market.Originality/valueTo the best of the authors’ knowledge, this is the first study to examine the role of employee mistreatment in debt maturity choice. The study extends the lawsuit and finance literature by examining unique, hand-collected data sets of employee lawsuits, allegations, violations, settlements, charging parties, case outcomes and case durations.

State Immunity and the Rights of Employees: Lights and Shadows of the Strasbourg Court’s Jurisprudence

This paper analyzes the case law of the European Court of Human Rights on the relationship between state immunity and the foreign state employees’ right of access to a court, protected under Article 6 of the European Convention on Human Rights. While acknowledging that the case law of the Strasbourg Court has in many respects contributed to providing employees of foreign states with broader access to the courts of the receiving states, the paper submits that the Court’s handling of labor cases presents some major flaws. Namely, it is argued that (i) the Court’s assessment of the norms of customary international law in the area of state immunity from employment lawsuits is ill-proven and largely unconvincing; (ii) this flawed assessment of custom has had a negative impact on the scope of the employees’ right of access to a court; and (iii) under the approach followed by the Strasbourg Court, certain categories of state employees may be left without any judicial means of obtaining redress. It appears crucial that the Court addresses such flaws in future cases.

Guess Again: Revisiting the Last Major US Apparel Union Campaign at 25

Abstract This year marks the 25th anniversary of the last major union organizing drive in the United States apparel sector. unite ran a difficult five-year campaign against Guess jeans, the largest apparel label in Los Angeles’s then powerful apparel industry. Though the union used a complex web of strikes, boycotts, and employment law suits, victory eluded unite. This article recounts the multi-year fight through interviews with key union-side figures, supplemented with an analysis of contemporaneous press clippings and legal documents. Findings challenge existing scholarship on the campaign. The union was more innovative in fighting Guess than is often acknowledged, but failed to follow up on its efforts in the la sector, abandoning apparel workers to a race to the bottom. The piece also finds evidence that the core strategy of Guess might have been successful in mitigating effects of globalization on sectors with extensive supply chains.

The influence of CEO political ideology on labor relations and firm value

PurposeThis article aims to examine the influence of chief executive officer (CEO) internal political beliefs on labor relations. Prior research has paid little attention to channels through which the internal personal value system of managers enhances or deteriorates firm value. The authors provide evidence consistent with CEOs adopting labor policies impacting incumbent management–labor relationships based upon their political ideologies.Design/methodology/approachThe research design tests the impact of CEO political ideology on labor relation using an individual CEO’s personal information and firm affiliation, employee lawsuit information, financial contributions to candidates and committees, and firm financial information. The authors compiled a sample of 4,354 unique CEOs from 2,558 US firms that are covered by ExecuComp and used 18,404 firm-year observations for the study’s analysis. A Heckman two-stage estimation process is used to address a potential sample selection bias and match the requirements of exclusion and relevance criteria.FindingsFindings indicate that firms led by Republican-leaning CEOs are more likely to be sued by their employees, especially for violating union rights. Moreover, the findings of the study uncovered that Republican-leaning CEOs have fewer cases dismissed or withdrawn compared to Democrat-leaning CEOs and are also less likely to settle court cases prior to trial. Results indicate that Republican-leaning CEOs are associated with more substantial decreases in firm value compared to Democrat-leaning CEOs when facing labor allegations. The authors further show that firm value is lower for all firms facing litigation, with the magnitude of the decrease being more pronounced for firms with Republican CEOs.Research limitations/implicationsFirm affiliations are identified using ExecuComp, employee lawsuit information from the National Labor Relations Board (NLRB), financial contributions to candidates and committees from the Federal Election Committee (FEC) website, and financial information from Compustat. To the extent that these websites are inaccurate, such as financial contributions being underreported, the findings reported here may understate the relationships reported in this article.Practical implicationsThe authors capture CEO political ideology using political contributions. There may be other means, such as physical space and personal effort, by which one could also estimate the party and intensity of CEO political ideology. This information is unavailable.Social implicationsWhile presidential politics has four-year cycles, managerial finance is a daily activity. While political affiliation is most clearly measurable through monetary contributions, one can see implications of manager political leaning through their relationship with labor throughout the election cycle.Originality/valueThe analyses of this study indicate that labor unions are more likely to sponsor lawsuits and stronger allegations in firms with Republican CEOs and show that withdrawal, settlement or dismissal rates are lower when firms are managed by Republican managers, resulting in higher subsequent legal costs and potentially damaged employee morale. Also, this paper investigates whether lawsuits have a greater negative consequence on firm value when the firm is run by a Republican CEO. The authors find that lawsuits significantly lower Tobin's Q for Republican-led firms compared to companies with Democratic and apolitical CEOs. The authors further show that firm value is lower for all firms facing litigation, with the magnitude of the decrease being more pronounced for firms with Republican CEOs.

Institutional monitoring and litigation risk: Evidence from employee disputes

AbstractIn this article, we investigate how institutional investors help mitigate business‐related risks in a corporate environment. Using a large sample of employment disputes, litigations, and court cases, we find that institutional investors play a significant role in reducing employment litigation. We observe that firms with larger shares of institutional ownership have a lower incidence of employment lawsuits and that long‐term institutional investors are more effective at decreasing employee mistreatment. Our results suggest that institutional investors can improve the employee work environment and help mitigate future employee litigation. The improvement in employee work conditions has been shown to increase a firm's value through increased employee output, reduced litigation, and direct and indirect costs. Our results shed light on the effectiveness of institutional monitoring on a firm's litigation risk.

Institutional Ownership and Labor-Related Misconduct: Evidence from U.S. Federal Violations

We examine shareholder influence over workplace misconduct. We find that institutional ownership is negatively associated with portfolio firms’ likelihood to violate federal labor laws. Additional tests using an instrumental variables approach suggests a causal relation. We document evidence consistent with institutional investors’ aversion to poor employment practices being financially motivated: labor law violations are associated with negative stock returns and a higher likelihood of lost or settled employee lawsuits in subsequent years. Moreover, the effect of institutional ownership on workplace misconduct is stronger in portfolio firms with greater reputational concerns. We find results consistent with shareholder monitoring and voice as channels of investor influence. Institutional investors improve portfolio firms’ employment practices via decreased employee workload and increased workforce investments.

Do overconfident CEOs stay out of trouble? Evidence from employee litigations

PurposeThe authors study the relationship between CEO overconfidence and litigation risk by examining employee-level lawsuit data. The purpose of this paper is to better understand the executive characteristics that potentially affect the likelihood of employee litigations.Design/methodology/approachThe authors employ a unique data set of employee lawsuits from the National Labor Relations Board – “Disposition of Unfair Labor Practice Charges” – which includes complaints, litigations and decisions. The data spans the years 2000–2014. The authors employ the option-based CEO overconfidence metric of Malmendier et al. (2011) as the primary explanatory variable.FindingsThe authors find that overconfident CEOs are less likely to be subjected to labor-related litigations. The authors document that firms with overconfident CEOs have fewer lawsuits opened by both labor unions and individuals. The authors then investigate the effect of employee litigations on firm performance to understand why overconfident CEOs are less prominent among lawsuits. The authors show that litigations lower corporate investment and value of capital expenditures for responsible firms, which may limit overconfident CEOs’ ability to invest. Therefore, the results may reveal the fact that overconfident CEOs may prefer to align with the interest of their employees to avoid reduced investment opportunities.Originality/valueThe paper makes three main contributions. First, it provides the first large-sample evidence on CEO overconfidence and labor relations. The authors employ data on firm-level labor litigation that contains both the case reason and case outcome. Second, this paper adds to the growing literature of CEO overconfidence and governance practices in the workplace. Finally, the study highlights the importance of employee treatment and explores the impact of labor lawsuits on firm value.

Correction to: Corporate governance and employee treatment: Evidence from takeover defenses

This study investigates if antitakeover provisions are a value-enhancing indicator of corporate governance by estimating the effect of takeover susceptibility to labor litigations. Using a unique hand-collected dataset of employee lawsuits, we find a positive relationship between employee litigation and takeover protection. We document that employee lawsuits increase a firm’s susceptibility to a hostile takeover. In addition, we document that higher costs of litigation, measured by fees and case duration, increase the firms’ suitability to takeover. Our results indicate that takeover protections may decrease corporate attention to employees. This effect may be because entrenched managers may avoid long-term investment in stakeholders and enjoy “the quiet life” following the reduced threat of a hostile takeover.

Workplace environment and payout policy

Firms that encounter lawsuits are subject to unforeseen costs when a case is ruled in favor of the plaintiff. We examine the impact of lawsuits brought against firms and whether this affects the firms’ dividend policy, using unique hand-collected datasets of employee litigations and disputes that include court settlements for employee dispute cases in the United States. We find that lawsuits lower a firm’s payout ratio, and an increase in lawsuits for a firm lowers the likelihood of the firm to pay out dividends. The payout ratio also declines for firms following a litigation year: this effect of a lower payout ratio is more pronounced for smaller firms. These findings provide evidence that firms adjust their dividend policy when facing employee lawsuits.

Corporate governance and employee treatment: evidence from takeover defenses

In this study, we use a unique hand-collected dataset of employee lawsuits to understand the effect of litigation on CEO turnover. We gather 28,258 employee disputes (after initial court hearing) dating between the years 2000 and 2014 to test the relationship between executive turnover following employee allegations. We find increased turnover of CEOs following labor lawsuits. Additional analysis suggests that, following the lawsuits, CEO compensation decreases and becomes more sensitive to cash holding. Our results show that employee lawsuits have an impact on CEO turnover, regardless of the case outcome or motivation. Overall, we document the importance of employee treatment in the workplace. We conclude employee treatment may impact both the tenure and future job prospects of a CEO.

Employee disputes and CEO turnover: Evidence from labor lawsuits

AbstractIn this study, we use a unique hand‐collected data set of employee lawsuits to understand the effect of litigation on CEO turnover. We gather 28,258 employee disputes (after initial court hearing) dating between the years 2000 and 2014 to test the relationship between executive turnover following employee allegations. We find increased turnover of CEOs following labor lawsuits. Additional analysis suggests that, following the lawsuits, CEO compensation decreases and becomes more sensitive to cash holding. Our results show that employee lawsuits have an impact on CEO turnover, regardless of the case outcome or motivation. Overall, we document the importance of employee treatment in the workplace. We conclude employee treatment may impact both the tenure and future job prospects of a CEO.

Employee relations and firm risk: Evidence from court rooms

In this study, we examine the relation between employee lawsuit and risk in U.S. public firms. We hand collect more than 20,000 employee lawsuits and find that labor-related allegations significantly affect firm risk after controlling for various firm characteristics. We document that a greater number of employee litigation increases firm risk. Our results remain robust when we use alternative measures of employee lawsuits, including other work-related complaints, violations, disputes, and allegations. Our study reveals that case characteristics - charging parties, outcomes, and duration - play a significant role in defining the firm risk. Our results show the importance of employee treatment which may have important implications for policy makers and business owners.

Employee lawsuits and capital structure

We examine the effect of litigation on corporate capital structure by using a unique, hand-collected dataset of 30,841 employee disputes (after initial court hearings) between 2000 and 2015. We find that employee lawsuits increase firms’ leverage ratios, and firms with frequent employee allegations maintain high leverage ratios. The positive relationship between employee allegations and leverage also exists when we use other workplace-related violations, inspections, and complaints. Overall, our findings highlight the importance of employee treatment in the workplace environment.