On July 24, 1995 the New Jersey Supreme Court issued two rulings which reaffirm this State’s commitment to the aggressive pursuit of civil rights claims. The decisions will have particular impact upon employment discrimination suits by allowing for the shifting of larger attorney’s fees to the losing party. New Jersey employers should be on notice that a loss in the already volatile field of employment discrimination may now cost them more then ever before.

Prudence has always dictated considered action when dealing with employee termination and discrimination issues. For public policy reasons, the New Jersey judiciary has decided that an award of damages has not been enough to raise employer consciousness of discriminatory conduct or to encourage the litigation of rightful claims. Our Supreme Court has determined that the pocketbook must be further employed as a tool to bring employers into conformance with the laws of this state.

Although the old “American Rule” - that each side bears his or her own legal fees - is not yet doomed, federal and state courts have increasingly found that shifting fees to the unsuccessful litigant, in addition to the burden of damages, has a strong punitive and preventative effect on wrongdoers. Furthermore, the shifting of fees encourages greater access to the courts for those who might not be able to afford litigation and encourages plaintiffs’ attorneys to take civil rights cases which they might normally find to be too speculative. This public policy decision places the employer - and anyone else who is a defendant in a civil rights lawsuit or any other action involving a fee shifting statute - in a position where attorneys’ fees owed might equal or exceed the damages awarded the plaintiff. Thus, the stakes for losing defendants have been raised dramatically.

The companion cases of Rendine v. Pantzer, 141 NJ. 292 (1995) and Szczepanski v. Newcomb Medical Center, 141 N.J. 346 (1995) were both brought under the New Jersey Law Against Discrimination (“LAD”). In each, female employees were found to have been discriminated against, fired, and subjected to concomitant loss. Both cases discuss the award of reasonable attorney’s fees to the employee’s counsel from the losing employer calculated based upon the “lodestar.” The lodestar is the number of hours reasonably expended on the case, multiplied by the normal billing rate of the attorney.

Under these companion rulings, once the lodestar is determined, the court has the discretion to adjust that figure up or down by multiplying by a factor related to the quality of the attorney’s work, the complexity of the issues and the contingent nature of success inherent in the facts. In Rendine the court held that an enhancement of lodestar fees is appropriate. The New Jersey Supreme Court in Szczepanski relied on the fee determination and enhancement rule in Rendine, and further found that fees ought to be determined by the courts using lodestar calculations independent of prior negotiated attorney’s fee agreements between the employee and his or her attorney.

The teeth of both rulings lies in the court’s determination of what a “reasonable” fee is under the ever increasing number of cases where fee shifting statutes are a factor. “Both as a matter of economic reality and simple fairness, we have concluded that a counsel fee awarded under a fee-shifting statute cannot be “reasonable” unless the lodestar, calculated as if the attorney’s compensation were guaranteed irrespective of the result, is adjusted to reflect the actual risk that the attorney will not receive payment if the suit does not succeed.” Rendine v. Pantzer, 141 N.J. at 338. In Rendine the court noted that enhancements in fee-shifting cases should range between five and fifty percent of the lodestar, with a number somewhere around twenty-five percent as the typical enhancement. Except in cases where the legal, factual and monetary disincentive for the plaintiff’s attorney was inordinately strong, fee enhancements should never approach or exceed one hundred percent.

The Court in Szczepanski rejected a proportionality rule in fee shifting cases where attorney and client had negotiated a contingency fee agreement, noting that contingency agreements often bear no relation to a reasonable determination of fees under a fee-shifting statute. In addition, the court held that contingency fee agreements should not serve as a ceiling on the amount awarded to attorneys for reasonable fees. These two decisions allow New Jersey Courts greater leeway in raising the total amount losers may have to pay.

Regardless of the percentage, the Supreme Court’s pronouncement on fee enhancements should hit loser’s wallets harder than in the past. The rulings should also increase the number of cases filed, and thereby increase the likelihood that an employer will become embroiled in embarrassing, taxing and expensive litigation. In an article immediately following the rulings, The New Jersey Lawyer reported that a poll showed 63 percent of New Jersey employers had an employee lawsuit filed against them within the past year. The number of employee suits has risen steadily, and can be expected to continue to rise as a result of the new rulings.

Employers now more than ever must be aware of the consequences of their actions and take steps to prevent costly discrimination suits. Even discrimination suit brought by an entry level employee, in which employer’s exposure to damages for lost wages may be limited, could easily require hundreds of hours of an attorney’s time prosecuting, as well as defending, the litigation. Under fee-shifting statutes, the added monetary penalty to the losing employer is obvious. With such fees adjusted by the court on the basis of risk, the potential for greater loss rises dramatically. Moreover, the rulings will encourage the litigation of high risk, marginal claims. These claims, which employers might often discount at first blush, are in fact the ones upon which attorney’s fees under the new rulings will potentially be highest. What might appear to an employer to be a groundless or frivolous claim may, after the diligent efforts of an employee’s attorney hoping for an enhanced fee, turn out to be a very costly loss. If there is a lesson to be learned, it is that once a case is commenced, there is little safe haven for employers. The best defense is a careful examination with legal counsel of a corporation’s policies and situations before suits are filed, thus avoiding the potential effects of enhanced attorneys’ fees in the already tenuous area of discrimination and employment cases.

Reprinted with permission from Commerce Magazine.