Jottings By An Employer's Lawyer

Tuesday, April 08, 2003

Corporate Defendants Have Constitutional Rights As Well - The Supreme Court On Punitive Damages

Since I did not pay nearly as much attention as I should have in my first year constitutional law class, I was relieved at the thought when I graduated and went to work doing labor and employment law, that it was unlikely that I would ever have to deal with what seemed like a specialty utilized in the real world mainly by the criminal and media law bars. Of course, as with many other things I thought right out of law school, I was wrong. And yesterday's Supreme Court decision in State Farm Mutual Automobile Insurance Co. v. Campbell (U.S. 4/7/03) [pdf], proved it again. Although not an employment law case, the Supreme Court's 6-3 decision may have a significant impact on employment law litigation. In one of several major holdings, the Court sets an almost bright line (while specifically saying it is not) of only a single digit ratio of punitive damages to actual damages. For a more general analysis of the decisions check out the usual suspects, How Appealing and SCOTUS, for their usual high quality commentary.

With respect to employment law, I think one effect could be the impact on the decision making process of employers on whether to press forward to trial rather than settle. The threat of an emotionally enraged run away jury, often reflecting as much their personal experience in the work place than the facts of the particular case, awarding an astronomical sum, has often been a contributing factor in making the decision to settle. In some cases, employers have gone even futher and implemented programs of arbitration required as a condition of employment in an attempt to avoid facing juries at all. Although the initial reaction of the business community and the leaders of the tort reform movement is one of elation, it will be interesting to see how it plays out in the employment law world. It might be that it will cause more employers to take chances with cases that they might otherwise have settled. And sometimes when the rules become clearer and more reasonable, the overall effect is that we get more not less. In this case that could mean more punitive damage awards that are within the newly defined limits. As with most changes in the law, the true impact of this decision won't be determined for sometime.

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