An Employee Threatened to Sue Me: What Do I Do?
An employee (current or former) told you they are going to sue you. Maybe they said it in anger. Maybe they put it in writing. Maybe they mentioned a lawyer. Whatever the context, your instinct might be to panic, to fight back, or to try to resolve it informally. Here is a more productive approach.
Do Not Panic: Most Threats Do Not Become Lawsuits
The vast majority of employment-related legal threats never result in actual litigation. Employees who threaten to sue often do so in frustration or as a negotiating tactic, not because they have a lawyer ready to file a complaint Monday morning. That said, you should not ignore the threat or dismiss it, because some of them do result in actual legal action, and how you respond in the early stages can affect the outcome significantly.
Step 1: Do Not Retaliate
This is the most important step and the one most employers get wrong in the heat of the moment. The moment an employee signals that they may be asserting legal rights, whether by threatening to sue, filing a complaint with HR, or contacting the EEOC, they are engaging in protected activity.
Any adverse action you take after that point, such as discipline, termination, schedule changes, exclusion from meetings, or a sudden negative performance review, can be characterized as retaliation. Retaliation claims are the most common type of employment complaint filed with the EEOC. And critically, a retaliation claim can succeed even if the underlying complaint that triggered it was without merit.
Continue treating the employee exactly as you would have treated them before the threat. Document everything, but change nothing about how you manage them in response to the legal threat. If a termination was already in progress before the threat was made, the process for handling it correctly is covered in How to Conduct a Termination Meeting.
Step 2: Preserve Documents
When litigation is threatened, your obligation to preserve relevant documents begins immediately. Do not delete emails, text messages, performance records, timesheets, or any other documentation that could be relevant to the dispute. Do not instruct others to delete documents. The destruction of potentially relevant evidence after litigation is threatened is called spoliation and carries serious legal consequences.
Notify anyone who might have relevant documents (other managers, HR, payroll) to preserve those records as well.
Step 3: Consult an Employment Attorney
This is the step many small business owners delay because of the cost. Do not delay it. An early conversation with an employment attorney, even an hour, accomplishes several things: it helps you assess how serious the threat is, it gives you guidance on what you can and cannot do going forward, and it establishes attorney-client privilege over the communications.
If you have employment practices liability insurance (EPLI), notify your insurer. EPLI policies often provide both defense coverage and access to employment counsel.
Step 4: Review Your Documentation
Now is the time to assess honestly: how strong is your documentation? If the employee is claiming wrongful termination, do you have performance records, written warnings, and a documented disciplinary process? If they are claiming harassment, do you have records of the complaint, the investigation, and corrective action? If they are claiming wage theft, do you have accurate time records and pay stubs?
Strong documentation does not guarantee a favorable outcome, but it is the single most important factor in your ability to defend against an employment claim. If your documentation is weak, that is information you need to have before the situation escalates. If you are realizing your documentation has gaps, How to Write a Progressive Discipline Policy is a good place to start closing them.
What You Should Not Do
• Do not contact the employee to discuss the legal threat without counsel
• Do not make promises or offers to settle without understanding the legal implications
• Do not involve other employees in discussions about the threat
• Do not express anger or frustration about the threat in any written communication that could be discovered later
Get a Progressive Discipline Policy Template
Consistent documentation through a clear discipline process is your best protection when employment claims arise. Our template gives you the framework to document performance and conduct issues properly from the start.
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