A purpose or motive alleged or an appearance assumed in order to cloak the real intention or state of affairs.
HR Law Insider’s most recent article discussed the benefits of employee discipline. Implicit in the discussion is that discipline must be legitimate and proportionate. This article discusses when discipline is pretext: a bogus reason to get rid of a good employee.
Earlier this year a Staples employee was awarded 26 million dollars by a jury after it concluded that Staples’ reason for firing him was pretext. It was the largest award of its kind in Los Angeles legal history. The jury appears to have been incensed by an employer that was looking for a reason to fire an employee with a perfect track record. Staples purportedly fired the employee for “theft.” The jury concluded that this was not the real reason the employee was fired.
PRE-TERMINATION QUESTIONS EVERY EMPLOYER SHOULD ASK
A business can always find a purported “reason” to fire an employee. Before that decision is made, however, the business should consider:
- What is the employee’s past work record? If it is good, then the termination may be deemed pretext.
- Is there any record of the employee complaining or uncovering improper conduct by the company? If so, the risk of a pretext finding rises dramatically.
- What are the chances the now ex-employee will bring a lawsuit against the company? What sort of claims can be brought and what is the company’s potential exposure?
- How will the ex-employee appear before a jury? Does he or she have an exemplary past?
- How will your own employees and ex-employees appear? Do they uniformly support your position or will some provide evidence against you?
- What will it cost in dollars, time, and bad publicity to defend a lawsuit?
- Can there be collateral damage (lost contracts/clients, penalties, etc.)?
Failing to identify and correctly answer these questions can result in massive pain.
SUNK COST FALLACY: DO NOT COMPOUND A BAD DECISION WITH ANOTHER BAD DECISION
Staples compounded a bad decision – the discharge of the employee with the good work record – with a worse decision: defending the bad decision. Defending the bad decision cost Staples not only hundreds of thousands of dollars in its own attorneys’ fees, but a gigantic jury verdict and horrible publicity.
Staples was guilty of “sunk cost fallacy” thinking. This occurs when one (a) reasons that a further expenditure of time or money is warranted based on past expenditures or to defend past positions but (b) fails to take into account potential losses involved in the further investment.
Toughness is a virtue. There is, however, a fine line between bravery and stupidity. “Digging in” often deepens the hole of a bad decision or poor investment. Once a business has made a decision or investment it cannot take back, it should determine the best way forward. Sunk cost fallacy thinking can be very expensive.
I WON’T BACK DOWN
This edition’s video was recorded 10 days after September 11, 2001. As sadness, anger, pride, and revenge occupied many of our of hearts and minds, Tom Petty and the Heartbreakers performed a song that fit the day: “I Won’t Back Down.” 13 years later we continue to grapple with the events of 9/11, the wars that ensued, and whether our politicians have engaged in sunk cost fallacy thinking.
HISTORICAL POSTSCRIPT: REMEMBER THE CONCORDE JET?
The sunk cost fallacy is sometimes known as the “Concorde Fallacy.” It refers to the British and French governments’ continued funding of the Concorde jet even after it became apparent that there was no longer an economic case for the aircraft. The project was regarded privately by the British government as a “commercial disaster” which should never have been started, and was almost cancelled, but political and legal issues made it impossible for either government to pull out.