The Cost of Defense Settlements for Businesses

Farhad Novian | May 16, 2024 | Employment Law

In business, a defense settlement happens when a business decides to resolve a legal dispute outside of court. It usually happens through negotiations between the involved parties. Businesses often choose to do this to avoid the uncertainties and costs of a trial. Typically, defense settlements can occur in cases like employment disputes, contract issues, liability claims, etc. 

On average cost of a settlement in California is around $75,000 and can vary widely depending on the specifics of the case. However, this is not the end of the costs a business may need to pay during the settlement process.

These hidden costs could involve legal fees, settlement amounts, court costs, etc. All these can impact a company’s cash flow and financial planning. 

At Novian & Novian, we have employer defense attorneys who are ready to help businesses through civil litigation and defense settlements. For more than 30 years, we’ve successfully helped in simplifying legal processes for business owners and helping them attain a favorable defense verdict. Schedule a free consultation with us today to discuss how we can support your business through legal challenges. 

In this blog, we will talk about the types of legal disputes faced by businesses and their cost implications. We will also discuss risk management strategies for defense settlements. 

Types of Legal Disputes Faced by Businesses

Some of the typical legal disputes that a business is likely to face includes: 

• Contract Disputes: These disputes happen when parties disagree over the terms or execution of a contract. It is usually prevalent between businesses and vendors or employers and employees. Costs for such disputes can include legal fees, lost business, and damages if the dispute leads to a breach. 
• Employment Disputes: Such disputes include wrongful termination claims, discrimination and harassment lawsuits, etc. The cost to defend these claims can vary, particularly if the case goes to trial or involves complex legal issues like those outlined in the Wrongful Termination Statute of Limitations.
• Intellectual Property Disputes: These involve issues such as patent infringement or trademark disputes. The defense costs can be high due to the need for expert witnesses and the complexity of evidence.
• Product Liability Cases: Businesses may face claims if their products cause harm or don’t meet safety standards. These cases can involve significant settlement amounts and high defense costs.
• Regulatory Compliance Issues: These are disputes with government agencies over violations of regulations. They can result in fines, penalties, and legal costs.

Factors Influencing the Cost of Defense Settlements

The average cost to defend an employment lawsuit can be influenced by several factors like the nature of the legal issue, duration, local laws, etc. Keep in mind that more complex issues require more resources and higher attorney fees. 

Furthermore, local laws may dictate specific procedures or standards that can prolong a case. Longer litigation processes increase costs not just in terms of legal fees, but also in business disruption and ongoing expenses such as court fees and document management.

In addition, the ability to negotiate effectively can significantly affect the expected value. Typically, skilled negotiators can reach a settlement more quickly. This helps to reduce costs and legal fees.

Contract Disputes and Cost

Contract disputes occur when there is a disagreement between parties regarding the interpretation, performance, or breach of contract terms. The resolution of these disputes can involve negotiation, arbitration, litigation, etc. 

The cost of defense in contract disputes varies based on the complexity of the case, the jurisdiction, and the parties involved. However, the average cost generally ranges between $10,000 – $20,000. Legal fees constitute a major portion of these costs, with law firms charging either on an hourly rate or a fixed fee basis. Defense costs include not only lawyer’s fees but also expenses related to gathering evidence, court fees, and costs associated with expert witnesses.

Intellectual Disputes and Cost

Intellectual property (IP) disputes involve conflicts over the use, ownership, or infringement of intellectual property rights. These include patents, trademarks, copyrights, and trade secrets. 

The cost of defending against IP claims can be considerable, largely due to the complexity of the law and the need for expert testimony. The cost ranges between $300,000 – $900,000. Legal fees for these disputes include charges for lawyer’s services, document preparation, court appearances, etc. 

Intellectual property disputes are among the most expensive legal challenges a business can face. The average cost of a defense settlement can vary widely, often running into hundreds of thousands or even millions of dollars. It depends on the scope of the dispute and the value of the IP involved.

Employment Law Disputes and Cost

When involved in an employment dispute, it costs about $75,000 to engage the services of an employment defense lawyer. Employment law disputes usually consist of issues ranging from wrongful termination to wage and hour claims.

A Wrongful termination claims occur when an employee believes they have been fired in violation of legal provisions or company policy. Businesses and employers can seek the help of a wrongful termination defense lawyer in navigating these cases. Costs for wrongful termination cases typically include legal fees, potential settlement amounts, and sometimes punitive damages, depending on the jurisdiction and specifics of the case.

Regulatory compliance issues also fall under employment disputes. These disputes happen when businesses fail to comply with labor laws and regulations. The costs to defend these claims can vary greatly depending on the scope of the alleged non-compliance and the regulatory body involved. Settlements might involve not only monetary payments but also agreements to change business practices, which can incur additional operational costs.

Another common example of employment law disputes would be discrimination disputes. This includes claims of workplace discrimination based on race, gender, age, etc. It is always important for businesses to defend themselves in these matters to maintain their reputation. To do this, you would need to engage the services of a workplace discrimination defense attorney. 

Under employment law disputes, we also have sexual harassment disputes, one of the most sensitive employment law issues. It usually leads to substantial settlements or judgments. The cost of defense and settlement can be high, reflecting the serious nature of the allegations and the potential damage to an organization’s public image.

Additionally, wage and hour claims are also part of employment law disputes. They involve allegations such as unpaid overtime, misclassification of employees, and other wage-related issues. As a business owner who faces such claims, you should consider consulting with a California employer defense attorney for wage and hour claims to help you efficiently handle these disputes. 

Components of Defense Costs in Settlements

The cost of defense settlement hinges on components like legal fees, court costs, settlement amount, ancillary costs, etc. Legal fees could be retainers, hourly rates, or contingency fees. Some law firms require a retainer fee upfront. This is a pre-payment that the client deposits into a special account. However, many attorneys bill by the hour for their services. The rate varies based on the lawyer’s experience, complexity of the case, geographical location, etc. But in some cases, particularly in personal injury cases, lawyers work on a contingency fee basis. This means they receive a percentage of the settlement value only if the case is successful. 

Court costs would usually include filing fees, administrative fees, etc. Filing fees are required to file documents with the court and initiate legal proceedings. On the other hand, administrative fees cover costs incurred for the processing of court documents and other administrative tasks performed by the court. Other charges might include costs related to jury service, copying and disseminating court documents, and other miscellaneous expenses that arise during litigation

The settlement offer usually varies, depending on the nature of the dispute, the evidence available, and the jurisdiction. For instance, settlements in intellectual property cases may be higher than those in contractual disputes due to the potential for significant lost profits and punitive damages.

When dealing with a defense settlement, you also have to make provision for ancillary costs. This includes expert witness fees, arbitration costs, mediation expenses, etc. Typically, many cases require the testimony of experts, who charge for their time to examine evidence, prepare reports, and testify. This can become one of the more significant expenses in a defense budget. Also, if a case goes to arbitration rather than trial, it may incur costs associated with hiring arbitrators and paying for a venue. Similar to arbitration, mediation involves fees for the mediator’s time and, potentially, for the location where mediation takes place.

Risk Management Strategies

To prevent cases of needing defense settlement, you should conduct period legal audits. It helps you identify potential legal issues before they escalate into disputes. These audits involve reviewing contracts, compliance policies, and other legal documents to ensure they are up-to-date and comprehensive. Furthermore, it is important to have strong internal policies in place within the workplace. Clear policies not only reduce the likelihood of disputes but also strengthen the company’s position should litigation occur.

It is also important to choose the right legal representation if you find yourself involved in a defense settlement case. In choosing a law firm, lawyer, or attorney, check their expertise in specific areas of law and also their track record in specific cases. You should also consider the structure of their fees (hourly rates, fixed fees, or contingency fees), and their approach to client relationships. These can influence the possible outcomes of the litigation and the costs involved. 

Various types of insurance, such as professional liability, general liability, and directors and officers (D&O) insurance, can play a critical role in risk management. These policies can cover defense costs, settlement amounts, and even punitive damages. Thus, reducing out-of-pocket expenses for the company. It is important for businesses to assess their insurance needs based on potential risks and ensure they have adequate coverage to handle possible claims.

Keep in mind that effective negotiation is key to managing litigation costs and outcomes of settlement discussions. Some helpful techniques include understanding the opponent’s position, offering creative concessions, using mediation, and presentation of evidence. 

Need a Business Defense Lawyer?

As a business owner, it is best to avoid employment disputes as it puts a dent in your pocket and affects the reputation of your company. Therefore, carrying out regular legal audits and having strong internal policies are helpful in identifying potential issues early and mitigating risks before they escalate into costly disputes. In addition, employing strategic negotiation techniques can help resolve disputes efficiently and potentially reduce the costs associated with litigation.

If you’re facing legal challenges or want to ensure your business is protected, Novian & Novian can help. As experienced business attorneys who run one of the best Los Angeles employer defense practices, we provide the expertise you need to navigate the complexities of business law. 

Schedule a free consultation with us today to discuss your specific legal needs!