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Litigation has become an expensive and prominent component of our economy. There are too many excessive damage awards and too few controls on the length and expense of court proceedings. The author examines product liability and employment contract law and recommends ten specific reforms. 5 pages.
Just a few decades ago, the legal remedies available to a complaining individual in the American economy were few and constricted. If the individual was terminated and without a written employment contract, his only option was to look for another job. If the individual was injured on the job, his rights to compensation were restricted to a percentage of lost wages and payment of medical bills. If a product purchased by the individual was defective, he had to first overcome numerous hurdles, like assumption of the risk and contributory negligence, before becoming entitled to damage recovery. Remedies for workplace improprieties and discrimination were few.
In short, the legal environment far the individual as consumer and employee held few options. From the standpoint of individual power to determine workplace conditions and compensation, the legal world was a limited one. Most rights to make workplace decisions, however arbitrary they might have been, rested with the employer. Here was a legal world which matched quite closely the very old-fashioned concept of the "free market" – a market dominated by employer decisions on what to produce, whom to hire, and what to pay.
Today, the legal environment for the individual consumer and employee is dramatically different. A discharged employee has the option of pursuing an implied contract claim for wrongful discharge. An injured employee can recover for workplace injuries by claiming product defect or intentional tort. A consumer has the "right" to expect a perfect product, protecting the individual even from his own misuse or inattentiveness. Remedies in the workplace and the retail outlet have proliferated, with numerous statutes and new common law causes of action offering opportunities for litigation. In today's legal environment, individual rights to suit have taken a predominant place, limiting the options of the employer to decide on the nature of his product, the employees he will work with, and how those employees will be compensated.
Until quite recently, this shift in legal entitlements was viewed by the great majority of legal commentators and the many well-compensated lawyers who speak for the legal system as an example of "progress" – of good triumphing over evil. Indeed, since most of us are likely to see ourselves first as individual consumers and employees, our first reaction is more than likely to be one of approval for this growing legal ability of the "little guy" to stand up to the "big corporation".
Recently, however, new voices have come forward to question this presumption of legal "progress". These voices are pointing out that "we" as collective consumers and individuals are not necessarily always benefited from the growing ability of the few to sue and recover from the employer. These voices have recognized that the legal system and litigation is not an unalterable one-way progression toward more and more "rights" for individuals, but instead a delicate scale, in which the "rights" of all individuals are intertwined and kept in balance. This is not a simple struggle between individuals at one end and big corporate owners an the other, but instead a complex balancing act, in which employers often represent the collective interests of the broad consuming and working public.
From this point of view, the "free market" is not a harsh landscape where powerful corporate owners impose their self-interested will on workers and consumers. Quite on the contrary, the "free market" is an economy where all individual participants have maximized freedom of choice and minimized conflict – a balanced scale where individual rights to suit and employer rights to make basic economic decisions work hand-in-hand to provide the maximum collective benefit to all.
Is this "free market" scale in balance today? It is the purpose of this study to argue that the balance has been lost. Thanks to a concerted effort on the part of activist legislators, creative lawyers and ideologically-committed judges, the American legal system has fallen out of balance. The scale of legal rights is currently loaded too heavily in favor of individual remedy and against employer discretion, and this imbalance is having a profound negative impact on the ability of the American market economy to function freely. The development of numerous and easily accessible new causes of action and rights to damage recovery has had the practical effect of eliminating basic employer decision-making ability to such an extent that the market is in fact no longer truly "free".
Litigation has become too expansive in substance, and too prominent a component of the economy. There is simply too much litigation. There are too many legal remedies, too many high and uncontrollable damage awards, and too few mechanisms to control the length and expense of courtroom activity. This virtual legal explosion of rights, remedies and courtroom access has resulted in an artificial, socially-destructive limit on the market's ability to allocate resources efficiently and serve the interests of the collective public.
In the following pages, we will discuss the general nature and purpose of litigation within a market economy, and then look specifically at some of the impact of litigation on employer discretion within the market. We will begin by looking at how litigation has grown, particularly in the field of tort law, and how such growth has had an impact on the production of consumer goods. Specifically, we will look at how the increase in product liability has limited the ability of the employer to determine what products he will produce, and the availability of such products (with the resulting impact on the ability of the employee consumer to have a choice) in the market.
From the ability of the employer to chose what he will produce, we will then shift our attention directly into the workplace to show how the increase in litigation and individual remedies has affected the fundamental rights of the employer to choose whom to hire, whom to work with, how to run the workplace, and how to compensate his employees. We will use the state of Michigan as an example to show how the Judiciary has systematically increased the remedies available to complaining employees at the expense of employer decision-making, and how this pattern of judicial expansionism threatens stilt more erosion of employer discretion in the near future.
This study will conclude with a discussion of steps that can be taken to restore the balance between individual rights to sue and employer rights to make basic economic decisions. We will discuss ways to limit both the nature and the amount of litigation, looking at how to reduce the number of causes of action, put limits on the scope of remedies, and limit courtroom activity.
The purpose of this study, through the presentation of statistical and case law examples, is to raise awareness of the consequences that litigation and litigiousness have on the most fundamental economic rights we possess and to urge more extensive statistical analyses on how everything from where and how we work to what products we buy is being fundamentally altered by the judicial revolution of the past three decades.
What is the role of litigation in a free market economy? Litigation has certainly become a very expensive component of doing business, whether the cost be for insurance premiums or for self-insurance set-asides or for attorneys fees or for actual damage award payouts. Out-of-pocket litigation costs have become as common a factor in the calculation of business costs as advertising, overhead and basic labor costs. What purpose does this expensive system fulfill?
The purpose that comes to mind most immediately is conflict resolution. Litigation is the fault line of the economy, where conflicting claims are resolved. A mechanism must exist in society to arbitrate between conflicting claims, whether those conflicts arise between competing businesses or between an employer and his employee or between a manufacturer and his customers. This purpose of litigation is the most obvious.
But litigation does more than just resolve conflicts. Much more importantly, litigation shapes the behavior of market participants. In the establishment of rights and remedies, the legal system prescribes basic patterns of behavior. For example, a business obeys the criminal law in order to avoid prosecution. It avoids environmental pollution in order to escape government-imposed regulatory civil penalty. It negotiates with unions in particular ways in order to avoid unfair labor practice claims. It treats non-union employees in specific ways in order to avoid legal claims for reinstatement or back pay or distress damages.
Every time a new cause of action is established, whether by statutory law or expansion of the common law, the behavior of both the benefited and the regulated participants in the market is shaped accordingly. If you permit an employee to sue for wrongful discharge, you change the way employers treat their employees, and the way employees respond. Workplace rules change, communication between employers and their employees changes, the role of the union is refocused toward other aspects of the workplace life, etc. Theoretically, after the new law takes full effect, employers will no longer "wrongfully" discharge their employees, and litigation only comes into play in those rare instances when there is disagreement between the employer and the employee about whether a discharge has been wrongful.
Likewise, as you expand the ability to sue for injuries involving products, you change the nature and availability of those products. In theory (or so plaintiffs' attorneys will argue), products will be safer due to the expansion of product liability. More safeguards will be placed into the product design. More effective warnings will be given for use of the product. The best contemporary technology will be put to use in the composition of the product. If the product is unsafe, it will no longer be manufactured.
This behavior modification is the most critical and important aspect of litigation. Civil law and access to the courtroom are tools of behavioral manipulation just as much and just as effectively as any criminal or other regulatory edict of government. With one stroke of the pen, a judge can change the common law or reinterpret a statutory cause of action so as to fundamentally reshape the day-to-day behavior of millions of employers and their employees.
It is therefore a grave mistake to underestimate the power of litigation. It determines winners and losers on the battlefield of discretionary rights and intimidates the non-combatants into conforming behavior. Since it is economically wise to avoid the battlefield of litigation, a wise employer will make basic business decisions with the likelihood of exposure to litigation firmly in mind.
In analyzing the impact of the legal system on economic behavior, it is important to keep in mind not just the substance of the litigation (what is being litigated about), but also the amount of litigation (how easy it is to sustain an action in court). Since litigation constitutes an absolute additional, non-productive expense, attempts will always be made to either avoid it or minimize its impact. The easier it is for someone to sue you for a particular act, the more cautious you will become to avoid having someone claim that you committed such an act. If you are subjected to a lawsuit anyway, the longer the plaintiff has the ability to sustain the lawsuit, the more willing you will be to settle tile claim in order to avoid the legal expense and risk of a bad outcome. In short, the mere availability of litigation will produce more cautious behavior and willingness to incur settlement costs, regardless of the "rightfulness" or "wrongfulness" of your behavior or your product.
The behavioral impact of the legal system of rights arid remedies affects every aspect of every citizen's daily life. It determines where you work, what conditions you work under, what you work on, and what products you buy. The money that goes into litigation cannot be used for your wages and benefits. The employment position protected by legal entitlements cannot be opened up for your job application. The product made more expensive due to "safety" features or litigation-expense set-asides may no longer be affordable to you.
Does this mean that litigation is anti-"free market"? In one sense, the answer is yes. It certainly limits the right to choose. Without product liability law protection, the free market should still theoretically weed out the unsafe product, since consumers should carefully weigh safety with cost and buy the most efficient product for their needs. If a product is insufficiently safe, the consumer will simply switch to a superior competing product. Likewise, if an employer behaves unfairly toward his employees, a prospective job applicant will look to more fair employers. Without unjust discharge protections provided by law, employees may choose to seek out employers more willing to provide written contracts for employment protection (as is provided by the collective bargaining agreement). Litigation narrows this field of choice. It causes most products to be alike. It forces most employers to behave in similar ways. What was once choice instead becomes a dictate of law.
At the same time, we cannot go entirely without litigation. After all, we do not live in a society of perfect information, where all consumers know the merits of all products and all employees know the behavioral proclivities of ail employers. Everyone does not have equal power to make free choices. We live instead in a society with limited information and imperfect distribution of the power to make choices. In this less than perfect world, some people are so devoid of information and choice that society chooses to legally step in to help them. For example, looking at things very practically, we cannot permit severe injuries to persons who use clearly unsafe products just to protect freedom of choice. We cannot subject injured or unfairly treated workers to jobless economic impoverishment just to protect freedom of choice.
It is therefore necessary to strike a balance. Some rights of the individual employee/consumer must be established by law at the expense of employer discretion and collective freedom of choice in order to avoid undue harshness in our society. To some extent, the legal system must act as a tool of behavioral manipulation in order to satisfy our sense of justice. The question every society must ask is where to strike that balance. Since the world of litigation plays such an important role in establishing where the balance is struck, society must pay particular attention to what is happening in that world. If judicial decision-making is causing the balance to be struck too far in one direction or the other, the public must step in and redirect such decision-making, whether through a change in judicial membership, or through legislation, or through private efforts to redirect conflict resolution away from the courtroom. But as a first step, we must at least realize the critical role that litigation plays in the balancing process.
It is the purpose of this study to suggest that the expansion of the individual's right to successfully sustain a law suit at the expense of the employer's ability to make basic business decisions has gone too far, thereby limiting to a far-too-great extent the ability of the free market to function fairly and effectively in the distribution of resources and opportunities. The ability of the employer to determine what he produces and how he runs his workplace has been limited too severely by a concerted judicial effort to provide court access and remedies to employees in the workplace and as consumers. As a result, we as a collective society have been harmed. Our collective ability to choose the best and most creative products, to choose the most challenging and promising jobs, to take advantage of workplace and marketplace incentives, to make tile most of the resources society makes available to us, has been severely constrained. The growth of litigation is destroying the free market, and consequently our freedom of choice.
Litigation is exploding in our society, both in terms of the number of cases being filed and the substantive costs associated with litigation (such as settlement costs, damage awards, attorneys fees, etc.) For example, the federal courts have seen an amazing increase in civil litigation. While criminal case filing have remained relatively stable since 1970 (39,959 were filed in the 12-month period ending June 30, 1970, while 41,490 were filed in the same 12-month period ending June 30, 1986), the number of civil case filings has absolutely mushroomed. Using the same periods ending each June 30, the number of civil cases filed in U.S. District Courts in 1970 were 87,321. By 1980, this number had grown to 168,789. In 1986, the number had grown to 254,828 (a staggering 192% increase in case filings compared to 1970). [1]
Private party litigation in the federal courts increased by 57,837 case filings per year in just the six-year period from 1980 to 1986. Within that period, contract cases went from 24,989 to 40,095; personal injury cases went from 21,505 to 32,741; labor cases went from 6,399 to 11,600; civil rights cases went from 11,485 to 17,872. The reasons for this increase are complex and varied, but the sheer size of the increase gives credence to the claim that there is a "litigation explosion" in contemporary American society.
Similar results are being found at the state level. A study comparing the 1976 and 1985 annual reports of the Judicial Council of California revealed that the number of personal injury, death and property damage lawsuits filed in California between 1974 and 1984 increased 55.3% while the population of the state increased only 21%. [2] According to a 1986 Time report, the number of civil lawsuits in state courts grew four times as fast as the American population from 1977 to 1981. [3] In 1984 there was one private lawsuit for every 15 Americans, with 16.6 million private civil suits filed in state courts. [4]
It should come as no surprise that this "litigation explosion" has been accompanied by a dramatic surge in the number of practicing lawyers. As of December of 1988, the American Bar Association estimates that there were 713,456 active practicing attorneys in the United States, compared to 326,842 in 1970 and 574,810 in 1980. Since 1950, the number of lawyers has increased at a rate twice as fast as the nation's population. Since 1970, that increase has been at a rate more than six times as fast. Approximately 35,000 new lawyers now enter the profession every year. Lawyers seem to be everywhere, with approximately one lawyer for every 350 Americans. Ofthese practicing attorneys, the number of trial lawyers engaged in litigation appears to be increasing with particular rapidity, if membership in the Association of Trial Lawyers of America is any indication. Since 1970, membership in that organization has more than tripled. [5]
In 1986 and 1987, a group of senior federal executive branch officials representing eleven federal agencies, including seven serving as chief legal officers for their agency, (Working Group) issued two reports on insurance availability which exposed the tremendous increase in tort litigation. [6] The Working Group found the role of tort law central to the crisis in insurance availability, citing the shift toward liability without fault, the undermining of traditional concepts of causation, explosive growth in damage awards, and excessive transaction costs. The group seemed to run out of superlatives, citing the "extraordinary growth in damage awards", the "massive increase" in tort lawsuits outside the automobile accident area, and the increase in "immense punitive damages awards".
A look at some of the specifics reveals trends which are indeed shocking. Here is litigation which does not grow incrementally, but exponentially. The Institute for Civil Justice (Institute) released a study in 1987 summarizing civil jury verdicts over a 25-year period in two jurisdictions, Cook County, Illinois, and San Francisco, California. [7] The Institute found that the average personal injury jury award (in inflation adjusted dollars) increased in Cook County from $59,000 in 1960-64 to $187,000 in 1980-84 (an increase of 217%). The increase in San Francisco was 358%, going from $64,000 to $302,000. The rate of increase was most dramatic in the 1980's. Within a mere 5 years, the average personal injury award increased by $57,000 in Cook County and by $169,000 in San Francisco.
Simultaneously with the increase in jury awards, the Institute found increases in the number of cases where plaintiffs prevailed with juries. Focusing on product liability and medical malpractice, the analysis revealed that for products in Cook County and for both in San Francisco, plaintiffs doubled the percentage of tried cases in which they prevailed (from approximately one-quarter in 1960-64 to one-half in 1980-84).
One of the most valuable calculations made by the Institute was to show the increase in "expected jury awards" (the average jury award multiplied by plaintiff's likelihood of success). This is the calculation which most effectively shows the trend of rapidly increasing jury awards and its potential cost and behavioral impact on defendants. Using inflation-adjusted dollars, the expected award for personal injury jury verdicts increased from $28,000 to $114,000 in Cook County (an increase of 307%) and from $33,000 to $181,000 in San Francisco (an increase of 448%). Again, the most dramatic portion of this increase was in the early 1980's, with the increase being double or triple the entire increase in the previous twenty years.
The substantial increase in the size of awards has been compounded by the growing willingness of juries to award punitive damages. The original Institute analysis and a follow-up study [8] show a dramatic increase in the size of punitive damages. The Cook County average punitive award in a personal injury lawsuit went from $28,000 in 1970-74 to $1,934,000 in 1980-84. The number of Cook County punitive awards increased from 3 in 1960-64 to 75 in 1980-84, while San Francisco punitive awards in the corresponding period went from 14 to 51. In San Francisco, almost one out of every seven plaintiffs' verdicts in the 1980-84 period included a punitive damage award.
The willingness of juries to award spectacularly large damages to plaintiffs, primarily through non-economic and punitive awards, creates an uncertainty that makes the settlement of cases that much more expensive. Nearly 92% of all cases filed in the legal system settle prior to verdict [9] and the dramatic increase in average jury awards naturally has a corresponding impact on the settlement value of cases. As the Working Group noted, "settlements by their very nature reflect the range of verdicts available to tile plaintiffs. Thus, as jury verdicts skyrocket, so do settlements." The Working Group concludes that the most accurate measure of the rate of increase of settlements probably is provided by the expected jury award, which as indicated previously, is climbing at percentage rates in the hundreds.
The numbers associated with litigation growth are almost too large to comprehend. All sense of proportion and balance between loss and award seems to have been lost. If one looks at just one particular defendant (in this case, the largest of them all – the United States Government), the sheer magnitude of the problem is sobering. According to the report of the Working Group, on October 1, 1985, the Torts Branch of the U.S. Department of Justice (which handles all civil actions filed against the government) was defending 11,000 lawsuits seeking a total of $200 billion in damages.
What are the direct economic costs of this litigiousness? A 1986 report by the Institute for Civil Justice [10] indicates that total expenditure nationwide for tort litigation in 1985 was between $29 billion and $36 billion. This figure includes compensation paid to plaintiffs, legal fees and related expenses, insurance company claims processing costs, value of litigants' time spent in litigation, and court operating costs, for the approximately 866,000 tort lawsuits terminated in state and federal courts of general jurisdiction in 1985. Of this amount a remarkable $16 billion to $19 billion was spent on the non-compensation costs of the tort litigation system – this in order to produce $14 billion to $16 billion in net compensation. Taking out non-litigant expenses, plaintiffs received only approximately 56% in net compensation. The percentage goes down to 43% if you exclude auto torts. In short, only about half the costs that go into tile litigation system are actually used to compensate the injured party.
One should note in particular the costs of the courtroom incurred by defendants. In 1985, defendants' legal fees and related expenses ranged from $4.7 billion to $5.7 billion. The average tort lawsuit resulted in an estimated $5,400 to $6,600 in legal fees and related expenses. Such figures are important in analyzing tile behavioral impact of litigation on businesses, since such casts must be avoided by either avoiding the lawsuit entirely or by settling the lawsuit as soon as possible, before the legal fees and expenses can accumulate to a value greater than the settlement amount.
What do these figures reveal? Why assault the reader with so many statistics? The answer in part lies in the demands that supporters of the current litigation system have made on critics. These supporters insist that anecdotal evidence – the singular case with a particularly large damage award, the establishment of a new cause of action under particularly grievous case facts, the application of non-economic or punitive awards to a deep-pocket defendant with minimal fault – is insufficient to demonstrate a change in the nature of the litigation system. These supporters demand "facts" (i.e., statistics) demonstrating patterns of substantial change. However much the statistical research into contemporary litigation may be in its infancy, the figures already solidly confirm what concerned legal scholars and businessmen have been saying about the "litigation explosion". Statistics also avoid the charge that the "litigation crisis" is a mere fabrication by the insurance industry, or (even more devilishly, the result of an international insurance industry conspiracy), since they look directly at the litigation experience, and not the indirect costs charged by insurance companies for such experience. The crisis in litigation, with explosive growth in case filings, plaintiff verdicts. jury damage awards, and settlement values, is very real.
If we want to see the impact of litigation growth in a specific area of law, an excellent place to begin is with product liability law. No other area of contemporary litigation more graphically demonstrates the destructive impact litigation growth has had on the free market. As product liability law has shifted the balance from employer decision-making authority to the complaining individual's right to suit and recovery, the consuming public has suffered a measurable lass of freedom of choice both in terms of product availability and job availability.
The increase in the number of product liability lawsuits in recent years has been particularly staggering. According to the Working Group [11], the number of product liability cases filed in federal court alone increased from 1,579 in 1974 to 13,554 in 1985 – a 758% increase. Even if one removes the large number of asbestos-related cases from this statistic, as suggested by supporters of the current litigation system (and even though there is no sensible reason for doing so), the increase would still be well over 500%, which is an equally absurd figure. Indeed, the fact than the 12-month period ending June 30, 1985 saw the filing of over 9,000 non-asbestos product liability law suits in federal court (when the traditional place of filing has been in state court) is more than enough to demonstrate a contemporary case filing frenzy in the product liability area. According to the analysis by the Institute [12], product liability cases now account for about 30 percent of all federal tort filings.
As the number of product liability cases has increased, so has the size of the verdicts. A 1986 Study by Jury Verdict Research, Inc. (Jury Verdict) revealed that the average jury verdict in a product liability case had increased from $393,580 in 1975 to $1,850,452 in 1985. The median verdict had increased over the same period from $121,475 to $550,000. [13] These figures, and particularly the more meaningful average figures (which reveal the real potential for out-of-pocket liability) should send terror into the heart of a11 manufacturers.
The Institute study of Cook County and San Francisco [14] confirms the current popular perception that product liability awards are among the largest and that they continue to increase at among the highest rates. The average product liability award. adjusted for inflation, increased by 212% in Cook County and by 1,016% in San Francisco between 1960-64 and 1980-84. Over the same period of time, the expected product liability jury award went from an inflation-adjusted $76,000 to $414,000 in Cook County, and from $56,000 to $575,000 in San Francisco.
One of the most interesting statistical analyses performed by Jury Verdict compares the Annual Deviation in Award Size to the Consumer Price Index and Total Health Care spending. Without product liability awards included in the calculation, the average overall increase in verdict awards for the entire 1980-84 study period was 12.7°l°, compared with 12.1% for health care costs, and a mere 6.9% for consumer prices. However, if you include product liability verdicts in the total, the average annual deviation goes up to 20.8%, a very dramatic increase. This analysis demonstrates clearly the prominent role played by product liability in the litigation explosion. The phenomenon of disproportionately high product liability litigation growth cannot be explained by merely pointing to more severe injuries in product liability cases. Even after accounting far more severe injuries and larger special damages in product liability cases, the Institute study found that awards to plaintiffs with similar injuries and losses were up to four times larger in product liability cases (and also medical malpractice cases) than in other tort cases. For example, the median award for a plaintiff who lost two limbs in a workplace injury and sued the manufacturer under product liability law exceeded $750,000, but was only $200,000 if the injury occurred in an auto accident.
A noteworthy factor which may contribute to high product liability awards (and the overall litigation growth crisis in general) is that juries appear to have a natural bias in favor of individuals over business entities. They make particularly large awards against business defendants, with the average award totaling over six times the amount paid by individual defendants. According to the Institute study, the average award against a business defendant was $120,000, while hospitals and nonprofit organizations paid an average of $97,000, government agencies paid an average of $38,000, and individuals paid an average of only $18,500. Some of the difference in average awards is due to a few extremely large awards given against business defendants in cases of severe injury. Yet, even the median or typical award against corporate defendants was four times as large as that against individuals.
One way businesses defend themselves against the worst risk of astronomical awards is by settling cases early, regardless of the "fault" associated with their products. Although statistics about settlements are closely guarded by corporate attorneys wary of prompting plaintiff attorney discovery motions, the impact of frequent and high jury awards is still occasionally revealed. Testifying before the Michigan Senate Commerce Committee in 1987 hearings on proposed product liability statutory reforms, the self-insured corporations Lear Siegler and Whirlpool testified that the settlement value of product liability cases had increased by as much as 300% to 400% in the previous five years alone. Such an increase should come as no surprise in the context of the statistical evidence on jury verdicts, and such increase is of great importance when one considers the 92% settlement figure for liability cases.
What are the consequences of this product liability litigation explosion? How do businesses react to the unpredictable quilt of jury decisions and changes in remedy entitlement law? What actions do they take (or refuse to take) in order to come to terms with ever-growing case filings and damage awards? It is in answering these questions that the real significance of the contemporary litigation system becomes clear. At that point, it is no longer just a question of cost to a particular company, but also an issue of substantial impact on the very nature of doing business for all businesses. The impact is felt at the most fundamental level, in terms of what products to produce, how many of those products to produce, what kind of safety features to employ, what standard of technology to make use of, what price to charge the consumer, and what number of employees to maintain.
If the production of a consumer product creates a substantial risk that product liability settlements and jury verdict losses might be so high that they wipe out profit on the product, the product will not be produced, no matter how beneficial the product may be to millions of consumers. If the avoidance of product liability risk necessitates the incorporation of expensive safety features, the cost of the product will be marked substantially higher, even if the product then becomes out of reach to millions of potential consumers. If research and development will put you at an evidentiary disadvantage should the product be involved in personal injuries, then research and development will be avoided, even if the result is less long-term safety for millions of consumers. The list can go on and on, theoretically leading to that point in time when all production ceases.
Such a pattern of business reticence strikes at the very heart of the free market. It constricts the creativity and freedom of the entrepreneur, saps the ability of market prices to act as a competitive tool within the economy, and severely limits the options and opportunities of the employee/consumer. In exchange for a system of liability without fault, where any individual can recover sizable damages under numerous theories of recovery, society as a whole is forced to live with less choice, less creativity, less opportunity.
Product liability has become a pervasive fact of business life in the American economy. In a 1988 survey of 500 Chief Executive Officers by The Conference Board [15], product liability proved to be a prominent player in the corporate boardroom, perceived as stifling their production, innovation and competition. Four out of ten CEO's found that the product liability system was having a major impact on their companies, affecting how they plan and do business. Only 20 percent of the companies studied said that the product liability system was having a minimal impact on their particular companies. Most remarkably, one-third of the surveyed firms had canceled introduction of new products because of liability risks, with more than half of those reporting a major impact having discontinued one or more product lines. The survey uncovered particular unease with the uncertainty of the product liability system. The chairman of one multinational company described product liability quite accurately as a "lottery with no consistency."
Much of this uncertainty can be traced to the revolution in product liability law in the 1960's, when the law began to shift from standards of negligence toward the concept of strict liability. [16] As product liability law has since evolved, a jury can take any aspect of a product, whether that be Its operation, its design, or its packaging (including instructions and warnings) and find a "defect", thereby permitting imposition of liability. Wrongful conduct is no longer the issue, just the abstract concept of "defect" – might tile product have been safer, might the product have been differently designed so as to have avoided the particular injury in question, might the product have had different words of warning on the package which would have caused the immediate plaintiff to have acted differently? If the answer to the "might" question is yes, there is liability.
Liability can be imposed regardless of the product's age. Liability can be imposed even though the product might have the potential to injure only one person in a million. Liability can be imposed even if the product has been carefully tested and approved by experts under government authority. Liability can be imposed even if the injury is due to complete lack of care by the complaining party. Liability can be imposed even if the injury is caused by the wrongful acts of third parties or the plaintiff himself, such as with the alteration of the product or the removal of safety features. Is this a chapter out of "Alice in Wonderland"? No – it is the reality of modern day product liability law.
In such a world, research stops, innovation stops, products disappear, industries disappear. At the most fundamental level, progress in the manufacturing of products stops. For example, surveys of consulting engineers are now revealing a startling aversion to the development of new products. Old products are being favored over newer designs merely because of the greater risk of liability. In one survey of engineers, 63% responded that liability concerns were inhibiting their specification of new products. [17]
The list of examples of products no longer sold or never developed is growing rapidly in the current litigation environment. For example, the Monsanto company developed a phosphate fiber which is safer and possibly more effective than asbestos, but decided not to sell it or develop it further, because the company was not prepared to accept the potential liability risks, and in spite of the fact that its research showed the product to be safe. [18] Unison Industries Inc. of Rockford, Illinois, developed a solid-state electronic ignition system for piston-engine aircraft, but dropped the product after prototype testing. The company explained that it had been sued over crashes involving aircraft on which its products were not even installed, and the risk of selling the new product was too great, given the high cost of proving safety and seeking removal from spurious suits. [19]
Contraceptive research and development has been greatly impeded by product liability concerns. In the early 1970's, there were 13 pharmaceutical companies actively pursuing research in contraception and fertility. Now, only one U.S. company conducts contraceptive and fertility research. [20]Contraceptive research in the U.S., once a leader in the field, has plummeted 90 percent, and the stories of lost research and development opportunities are endless. For example, a new and effective IUD, the Copper-T 380A, was approved by the Food and Drug Administration, yet no major company was willing to market it for years after its approval. Only in 1987 was one very small company (going without liability insurance) willing to sell the IUD at a price vastly above the cost of manufacture. One observer noted, "a pharmaceutical company would have to be altruistic to the point of suicidal to market an IUD today." One pharmaceutical company president asked, "Who in his right mind would work on a product today that would be used by pregnant women?" [21]
Some of the most severe impact on research and innovation has come in the field of medical products and new medical technologies – a field the very aim of which is to aid the health of the public. Innovative new products that could help millions of individuals are not being developed or are being withheld from the market because of the liability risk. A survey of biotechnology companies revealed that over two-thirds of these companies consider product liability to be a central factor in the decision-making process on whether to proceed with commercial introduction of a product. [22] Such a decision-making process can have serious, if not devastating, impact on the health and safety of collective society.
A subsidiary of The Dow Chemical Company, Merrell-Dow Pharmaceuticals, produced a drug, Bendectin, which was given to 33 million women throughout the world to provide relief against debilitating morning sickness. A number of lawsuits alleged that Bendectin was responsible for birth defects. Despite winning all but four lawsuits (which are all on appeal), including one backed by 1,160 plaintiffs, the company withdrew the product from the market. As a result, millions of women and children are now subjected to significant health risk. [23] Faced with the enormous cost of defending more than 700 cases (which the company was confident it could have won), the company instead created a $120 million settlement fund. [24]
Vaccines have performed one of the most important medical contributions to public health in this century, yet vaccines have been particularly vulnerable to product liability law suits under the strict liability legal scheme. Vaccines have saved thousands of lives and reduced misery and suffering far millions, yet between 1965 and 1985, the number of U.S. vaccine manufacturers was reduced by half. By 1986, the nation depended on a single supplier for vaccines against polio, rubella, measles, Mumps, and rabies, and only two for whooping cough. Only two major companies, Merck and Lederle Labs, were still investing heavily in vaccine research. [25] Why? Because over the last 10 years, the number of liability suits filed against vaccine manufacturers has increased significantly. These suits have also resulted in vaccine price increases that greatly exceed the inflation rate. [26]
The manufacturer of a vaccine for Japanese encephalitis discontinued its distribution in this country because the risk was impossible to insure, thereby subjecting individuals traveling to the Asian continent to the risk of developing this serious disease. Says a report by the American Medical Association addressing the impact of product liability on new medical technologies, "(i)t would be a travesty to have product liability concerns adversely affect the continued development and utilization of this life saving technology." [27]
The lives of thousands of individuals are at stake because of the potential for a law suit by just one of them. The so-called "orphan drugs", which combat rare diseases, have become particularly hard to insure, and so are slipping from the market. The few hundred American children that suffer from cystinosis (a fatal kidney disease), tile 2,000 adults that suffer the motor function impairing disease of Charcot-Marie-Tooth, the 1000 persons who develop leprosy, and the victims of numerous other "orphan" diseases, may or are already being denied therapies and drugs and are being subjected to shortened lives or agonizing disability because any jury under current law can devastate the developer of that therapy or the manufacturer of that drug. [28] Is this the greater safety that the revolution in product liability law was supposed to bring about?
It would seem from the above evidence that the contrary is true – that safety is being limited by the growth of product liability litigation – and this is really only common sense. It is research and innovation that advances safety and health. Progress in the quality of products comes from development, and from the exploration of new ideas and opportunities. Yet the current product liability system represses this very stimulus for improvement. As Peter Huber, a senior fellow at the Manhattan Institute for Policy Research paints out in his pathbreaking book on litigation and liability:
No wonder the strong temptation today is to leave well enough alone in the hope that somehow the courts then will too. The pattern is consistent: a shift in the jury's focus from negligence to design defects; a legal obsession with perfectly phrased and endlessly detailed warnings; a rigid demand for universal, special-purpose accident insurance: the use of remedial efforts in the aftermath of an accident to indict whatever came before; and no effective time limit on litigation, so that even the normal pace of technological evolution becomes legally dangerous to the technologists. No one could have brought together five elements better calculated to entrench the status quo and scare off innovators of every description. [29]
Products of every kind are affected, from machine tools to appliances to automobiles. The high cost of product liability insurance, the expense of defending lawsuits (regardless of their merit), and the investment in risk prevention and minimization have caused at least 13.5% of machinery companies to drop product lines and at least 11.5% to decide against development of particular new products. [30] The Merchant's Corporation of America failed to market a new infant car seat, which they claimed would be the highest quality unit available, because of the potential liability risks. [31] The sporting industry has been particularly hard hit by the product liability lottery, since sports by their nature involve occasional injury. There are no longer any domestic producers of trampolines, inflatable balls or ice hockey equipment. [32]
The football helmet, the very purpose of which is to protect athletes from injury, may soon no longer be available. But for the availability of helmets made by foreign competitors, there might soon no longer be any football played, or at least no safely-played football. Rawlings Sporting Goods Company, a leading manufacturer of competitive football equipment for over 80 years, announced in 1988 that it would no longer manufacture or sell football helmets, despite having spent more than $1 million on research and development into football helmet improvements in the previous ten years. With that announcement, 18 of 20 domestic manufacturers had dropped out of the football helmet business. Can there be any wonder: there had been at least 25 helmet liability verdicts in U.S. courts since 1973, with jury awards totalling $46 million, and another 50 helmet liability cases in progress. [33]
The classic example of product liability taw progressively destroying an industry is in the field of aviation. In 1977, small-plane manufacturers paid $24 million dollars in liability claims; in 1985, their payout was $210 million. [34] In 1980, Beech Aircraft Corporation had eleven manufacturing plants; by 1987 they had only three (and those with curtailed operations). The main plant in Wichita, Kansas employed 7,600 workers in 1980; by 1987 there were only 4,900 employees. In Wichita, over 25,000 people have been laid off from their aviation industry jobs. Cessna Aircraft Co. laid off 900 employees in 1986 and halted production of its piston aircraft. Overall employment is down 70% in the aviation industry. In 1979 the aviation industry produced nearly 18,000 planes. By 1986, the number had decreased to less than 1,500. [35]
It is quite easy to understand why the aviation industry has been so severely impacted by the new product liability preference for the complaining individual. Because of the complex nature of an airplane, juries can virtually always find a "defect" somewhere and therefore impose liability. The more technologically advanced the product, the more difficult it becomes to protect that product from product liability.
This litany of technological regression, industry timidity, and product stagnation could go on, but the impact should be clear by now. The expansion of liability for products is having a devastating effect on the ability of the market to operate freely. Employers are no longer able to freely choose what products to make. They are no longer able to freely use rational considerations of quality, safety and price. Their profits are going into the payment of settlements, jury verdicts, and attorney fees, and the prospect of even more such expenditures is causing them to avoid the development of new products and the continuing production of perfectly safe existing products.
And what about the employee/consumer. Is he safer? Is he better off in the market place? Clearly, the answer is no. The employee is losing his job. His health and safety options are being narrowed. When he goes into the consumer market, he finds vital products no longer available, or at such high prices that he can no longer afford to buy them. The progress in product safety and utility that he had come to expect from our free market economy is no longer happening. In short, the free market is disappearing in a maze of lawsuits and industry fear,with society as a whole the clear loser.
Product liability law offers the clearest contemporary example of how the growth in litigation and the ability of the complaining individual to recover damages at tile expense of free market efficiency and choice. The raw statistics and clear evidence of market consequences are numerous, making this field of law an excellent starting-off point in any study ofthe imbalance currently gripping our legal system. However, tile limitation on the ability of the employer to make economic choices is not limited to the question of what products to manufacture and sell.
Employer decision-making authority has been limited just as severely within the employer's place of work. The ability of the employer to make choices about the operation of his workplace, in terms of whom to hire, whom to discipline or promote, and how to organize the workplace, has also been severely narrowed by the legal system's shift in favor of the complaining individual. Little statistical research has been done in the area of employment rights litigation, but the impact of litigation on this area of market decision-making can be easily surmised by studying the case law expanding individual suit rights.
This study will investigate the impact of litigation growth on employment-setting rights by focusing specifically on one state. The state we will examine is Michigan, one of the great American industrial states that has slipped into economic decline with the advent of the "rust belt". Michigan has one of the nation's highest percentages of union membership, wages, and costs of doing business and is consistently ranked low by businesses as a place to expand or locate. [36] A significant factor in the general distrust of the business environment is attributable to the Michigan legal environment, which exhibits as strongly as that of any state the judicial favoring of the complaining individual at the expense of employer discretion.
The statutory context for Michigan's judicial decision-making climate is noteworthy. Michigan's compiled laws are filled with employer restrictions and prohibitions. The employment law area finds numerous taws binding the hands of the employer, including a discrimination law which has additional protected categories beyond those provided by federal law (such as marital status, weight and height), a strict affirmative action handicapper discrimination act, a state payment of wages prescription, an act providing complete employee access to his files, a polygraph protection act, a whistleblowers' protection act, as well as very generous and costly workers' compensation and unemployment compensation entitlements, to name just some of these laws. [37] These statutes create a fabric of litigation entitlement for the employee which far exceeds that provided by most states.
The existence of these statutes is of course not the focus of this study (although it would make an interesting companion study, especially in the context of current political pressures to mandate employee benefits in many new areas such as parental leave, child care, and medical insurance). The existence of these statutes is nevertheless important, since it provides one of the avenues in the which the court has the opportunity to expand individual rights and compensation. Many of these statutes are enforced through litigation, and it is only in the interpretation of the statutes that they come to have much significance. As a portion of the following discussion will reveal, the Michigan judiciary has taken the existence of statutes providing individual rights in the employment setting as a key opportunity for advancing the shift away from employer discretion.
Employment rights case law in Michigan reveals a fairly consistent orientation, systematically applied, toward the establishment of individual remedies against employer decisions. Both in the expansion of common law rights and in the interpretation of the scope of employment statutes, the Michigan courts have provided a full plate of employee remedies. As a result, the fundamental rights of the employer to chose with whom to work and under what conditions have become significantly limited, to the point where some employers would claim that the workplace is no longer their own.
The question here is identical to the one posed earlier as to employer rights to make market decisions with regard to their products. Has the expansion of the employee's right to sue and recover from his employer gone too far, so as to impose too severe a limit on the ability of the free market to function effectively? In an effort to answer this question, we will look at some of the specific examples of the shift in employment rights, and then conclude with suggestions on how a more equitable, free-market-favorable balance between employee and employer rights within tile litigation setting might be achieved.
Prior to looking at specific Michigan employment rights cases, it is instructive to step back for just a moment and look at a Michigan case that affects liability litigation more generally. This is the case of Placek v. City of Sterling Heights [38] where the Michigan Supreme Court replaced the common law doctrine of contributory negligence with the new doctrine of comparative negligence. The case is significant because of the judicial philosophy it exhibits, what changes it makes in the common law, and also what changes it fails to make.
The theory of contributory negligence was part of a great traditional common law liability balancing scheme. A plaintiff could recover his full damages against any negligent defendant as long as he was not negligent himself. If there was more than one defendant, the plaintiff could recover his full damages against any one of the defendants (the common law doctrine of joint and several liability). If a plaintiff's negligence contributed to the plaintiff's injury, he could no longer recover. For nearly two centuries, this was the basic common law scheme. However, as the legal system in this country began to focus more favorably on the individual's right to sue, this scheme became more and more unpalatable. Especially in the legal atmosphere of the 1960's and 70's, contributory negligence came to be seen as unfair.
With Placek, the Michigan Supreme Court decided to become the fourth supreme state bench to do away with contributory negligence and replace it with a more plaintiff-friendly doctrine. The court immediately revealed its attitude by announcing that "(t)here is little dispute among legal commentators that the doctrine of contributory negligence has caused substantial injustice". However, the court failed to follow up this statement with an analysis of why contributory negligence causes injustice. Instead, the doctrine is simply done away with, as if the shift to comparative negligence was the only natural and fair thing to do.
What is even more interesting is the kind of comparative negligence the court decided to adopt. The court stated that it was adopting "pure" comparative negligence, where the plaintiff always recovers for the defendant(s) percentage of fault, regardless of how much fault the plaintiff bears. Under this so-called "pure" scheme, if a plaintiff is 25% at fault and the defendant(s)' fault is 75%, the plaintiff recovers 75% of his damages. Likewise, if the plaintiff is 75% at fault and the defendant(s)' fault is 25%, the plaintiff recovers 25% of his damages.
However, this is not really "pure" comparative negligence at all. That is because it is comparative negligence for the plaintiff only – it is not comparative negligence for the defendant(s). Each defendant still has the burden of joint and several liability. The plaintiff can still collect his full damages against any one of the defendants, regardless of tile percentage of fault that particular defendant may have. Thus, if the plaintiff and each of three defendants is 25% at fault, tile plaintiff can still collect the full 75% from any of the three defendants. To this day, the Michigan Supreme Court has not seen fit to eliminate joint and several liability for defendants.
The fact that the court would correct a perceived unfairness to plaintiffs, without providing an equal correction for defendants, is instructive, The court destroys a carefully developed common law balance to favor plaintiffs, but takes no corrective measures to establish a new balance. The consequences of the adoption of only a partial comparative negligence scheme have, to no one's surprise, been dramatically pro-litigation growth. Plaintiffs have a much easier time maintaining a law suit, since their own negligence no longer impedes their suit, yet they can still go after numerous defendants, regardless of the tatters' percentages of fault, and collect their full damage entitlements from any of them. With contributory negligence no longer legally standing in their way, yet with joint and several liability still fully protecting them, plaintiffs are given a powerful invitation to pursue as many suits and as many defendants (particularly of tile "deep pocket" variety) as possible. (And, as was discussed earlier, it is not just important what subject matter a person may bring a lawsuit under, but equally important how much litigation exists in sheer volume. General litigiousness can be just as constraining on tile free market as the number of causes of action that a court will recognize.)
No common law subject area shows more clearly the judicial bias in favor of tile plaintiff than the adoption of only partial comparative negligence. The court is here demonstrating that it is only interested in protecting the compensation rights of tile complaining individual, without giving any regard to the unfair consequences to defending parties and society as a whole. It is with this spirit that Michigan's courts have functioned in the last two decades, and the employment rights cases of the 1970's and 80's reflect and bask in that spirit.
The most spectacular Michigan example of the shift in favor of the individual's right to sue may be found in the field of employment contract law. Michigan is one of the nation's leading states in the development of common law wrongful discharge rights. The case which created a revolution in common law employee rights is Toussaint v. Blue Cross & Blue Shield of Michigan. [39] This case is justifiably credited with creating a tidal wave of litigation in the employment contract law field, encompassing discharges, compensation, benefits, demotions and promotions, and numerous other conditions of employment.
In order to fully understand the import of this case, one must briefly review general employment contract law prior to Toussaint. For over a century, the basic common law rule for employment was "employment-at-will." Under this doctrine, an employer could terminate any employee without good cause at any time, in the absence of a specific written contract providing employment for a specified period of time. The only exception to this rule was a somewhat esoteric theory practiced in some jurisdictions that prohibited terminations which were against "public policy", and of course specific statutory prohibitions against termination or other employment action on the basis of prohibited categories, such as race, religion, sex, being handicapped, refusing to work in an unsafe environment, etc. In short, the power to determine the employment relationship on such fundamental issues as length of employment, compensation, promotions, etc., rested almost entirely with the employer.
Toussaint changed all that. The facts in the case were relatively simple. Plaintiff Toussaint was hired as a financial analyst by the defendant in 1967. During the course of his preemployment interviews, Toussaint asked about job security and was assured that he would be with the company "as long as I did my job". Toussaint was also handed a personnel policy manual which stated in part, "it is the policy of the company to treat employees leaving Blue Cross in a fair and consistent manner and to release employees for just cause only." In addition, the policy provided for complaint procedures and disciplinary procedures. When Toussaint was terminated in 1972, he brought suit claiming that he had relied on these employment promises and that the company had violated a good cause termination employment contract.
In a decision as revolutionary as any in the history of Michigan jurisprudence, the Michigan Supreme Court concluded that Toussaint had made a valid contract claim. Said the court, "We see no reason why an employment contract which does not have a definite term – the term is "indefinite" – cannot legally provide job security." The court announced:
We hold that employer statements of policy ... can give rise to contractual rights in employees without evidence that the parties mutually agreed that the policy statements would create contractual rights in the employee, and, hence, although the statement of policy is signed by neither party, can be unilaterally amended by the employer without notice to the employee, arid contains no reference to a specific employee, his job description or compensation, and although no reference was made to the policy statement in preemployment interviews and the employee does not learn of its existence until after his hiring.
Where is the employee's consideration (the employee's end of the bargain) for this contractual right? The court finds that merely being in employment is sufficient consideration to support the contract. The court also makes clear that the contractual rights established by employer promise may cover any and all components of the employment relationship, including rights to bonuses, pensions, and other forms of compensation. And what standard will be applied to determine breach of contract? The employer's? Why, of course not. "If the jurors would not have fired the employee for doing what he . . . did, the employer may be held liable in damages although the employee was discharged in good faith and the employer's decision was not unreasonable".
This is really a quite remarkable decision. With one excruciatingly broad decision, the Michigan Supreme Court overturned decades of carefully developed common law balances. Suddenly, any employee could sue for any term or condition of employment so long as the employer had at some time, somewhere, somehow promised it, and the employee could reasonably have relied upon the promise. Any statement by a manager, any comment on a piece of paper, any pamphlet or employer handout could give rise to a contractual right.
The Michigan Bar responded to this decision with a vengeance. Within just a short span of years, Toussaint has given birth to a major, substantial field of trial law. Thousands of cases are filed every year claiming employment contract rights based on employer promises. Such suits find promises not just in overt statements, but also in patterns of discipline of other employees, in patterns of promotion for the complaining employee, in job evaluations, in broad policy documents – in a sense, anywhere a judge may decide to find it.
The impact of this revolutionary change in the common law has been dramatic. Employers are not just inundated with numerous suits (and the tremendous litigation and compensation costs this entails), but are also completely reshaping the way they deal with employees. The freedom they once knew to deal with particular individuals and particular situations in immediate, fact-specific ways has been significantly limited. Employee relations have become tentative and cautious. Disciplinary actions designed to produce the most effective business results are no longer being taken. Every employer must ask himself such questions as, "will this particular employee sue me if he is terminated?", "have I said or done anything in writing or verbally or in evaluating the employee that could possibly form the basis for a contract?", "what have my managers said or done that could be seen as contractual?", "is the risk of suit worth procuring a better employee?", "how sympathetic will the jury find the individual?". "how much am I willing to settle for in case of a law suit?", etc. In this atmosphere, managing the business becomes much more difficult.
A hint of the impact of Toussaint in Michigan may be gleaned from the results of a 1988-89 national survey of 225 U.S. firms in which 40% of the firms maintained that the threat of litigation hinders supervisors' ability to manage. The survey revealed that in just the previous two years, 27% and 20% of the firms respectively had wrongful-discharge claims filed against them. [40] If one then takes into account that Michigan is nationally recognized as the leader in providing wrongful-discharge protections to its employees, one can at least sense the dimensions of the management dilemma Michigan's employers face.
The question here as elsewhere is whether such as shift in favor of the employee's ability to sue the employer is not a good thing. Do we not want tile employer to be more "fair" to his employees? The answer of course is yes, but that does not necessarily mean that we should compel such "fairness" by taw. In a free market economy, employees confronted with unfair employers can after all seek out fairer employers elsewhere to work for. The real question is to what extent the law will intercede to compel "fairness" and punish employers who behave less than fairly (as seen in the eyes of the jury). The danger is that we have gone too far in the utilization of the legal hammer, creating an employment rights environment so constricted that society as a whole is no longer able to reap the benefits of free market decision making.
By permitting an employee to sue on virtually any statement or policy or practice, the ability of the employer to control his own granting of rights and benefits in the workplace is severely limited. By declaring any employee claim of contract to be a question of fact for trial resolution, you subject the employer to substantial legal costs, nuisance settlement costs and compensation risk in every single termination case, every single promotion dispute, every single disciplinary action, regardless of the merit of the employer's actions.
Take the following example: Under Toussaint, a terminated employee could sustain a lawsuit on a claim that a supervisor who is no longer with the company made a verbal employment promise ten years earlier, even though there was no written evidence available anywhere to support that claim. Such an easy ability to Sustain a claim all the way through a jury trial can easily be seen as having too severe an impact on the ability of the employer to manage his business. There is simply no way to escape cost in such a situation. If you keep the employee, you lose your desired improved managerial effectiveness in the workplace. If you settle the case, you lose the money you settle for. If you go to trial, you have to pay attorneys a lot of money and you incur the risk of a jury verdict against you. You as the employer are in effect optionless at that point.
It is at this point, when the employer has lost the ability to make fundamental decisions about the most productive and successful way to run his business, that the contemporary judicial fondness for the complaining individual access to the courtroom has gone too far. At that point, the benefit to the suing individual comes at the expense of society as a whole, because the market has lost the freedom to allocate resources efficiently and effectively.
One way an employer can try to protect himself from the high expense and jury unpredictability of courtroom litigation is to establish an alternate dispute resolution procedure, either in-house or through other organizations. Grievance and arbitration procedures provide a quick and efficient means of resolving disputes without the large attorney fees, court costs, time expenditure and risk potential of the courtroom. Such procedures form a basic and successful part of the collective bargaining relationship. However, this basic tool of the employer was severely limited in Renny v. Port Huron Hospital. [41]
The plaintiff Renny was a registered nurse with the defendant hospital. She was discharged for operating room irregularities. White employed, she signed an Acknowledgement and Agreement stating that she had received a copy of the hospital employee handbook, had read and fully understood the contents, and agreed to abide by the rules and regulations contained therein. Employees were expected to read the handbook carefully and become familiar with its contents. Among the provisions in the handbook was an optional grievance procedure. Renny agreed to used that procedure to appeal her discharge. Her appeal ended with a peer review committee consisting of three supervisory and three non-supervisory employees which she selected from a group of qualified volunteers. Renny lost the peer review appeal, and proceeded to file a wrongful discharge suit in court.
The hospital argued that Renny was bound by the grievance procedure she had voluntarily agreed to abide by, and therefore could not pursue a case in court. The Michigan Supreme Court disagreed. The court decided that the grievance procedure used by the hospital was not fair enough – that it did not sufficiently resemble rights at trial, with full evidentiary presentations, rights to cross-examination, extensive discovery rights, etc. Therefore, Renny was not bound by this procedure. She could disregard the whole grievance process she had voluntarily agreed to use and start all over again in court.
In coming to this conclusion, the court used extraordinary circularity of reasoning. The handbook had provided a number of explicit statements reserving to management "the sole right to manage and operate the hospital". But the handbook did not contain an explicit statement that employees were still terminable at will. This is understandable since the hospital was providing an extensive series of disciplinary steps and grievance procedures. The court found that the existence of the disciplinary and grievance procedures created a good cause employment contract, and that such a contract required more procedural rights and protections than those provided by the hospital. In short, the existence of the procedures created a contract which made use of the procedures improper!
As a result of the Renny decision, a vital litigation-controlling option for both the employer and the employee was significantly limited. Due to this decision, the employer has to chose between providing no procedures at all, which means the employee only has the option of going to trial right away, or complex procedures resembling a trial. The court intimates that an impartial outside decision-maker must be used, limiting even further the efficiency of the procedure. Amazingly, even though the promises made by an employer in a handbook create the contractual right, the handbook cannot determine the terms of the contract. With Renny, even the right of the employer to establish the terms of the contract with her employees is taken away.
The decision also creates a distressingly unfair procedural imbalance between employees and their employer. Since the court has reserved the right to determine which grievance or other dispute resolution procedures are "fair", the employee always gets "two bites at the apple" when challenging the employer. If the employee loses in the grievance process, he can always go to court and claim that the process was "unfair", and thereby get a second chance to win his claim. Merely by establishing a grievance or other procedure, the employer has provided the employee with two opportunities to challenge the employer.
The natural behavioral consequence of such a procedural imbalance is that most employers willnot create an alternate dispute resolution mechanism in the first place. This harms not just the employer. It also harms employees who have disputes with their employers, since such employees will usually be given no option but to litigate in court, with all of the accompanying expenses and emotional turmoil.
The implications of the Renny decision from the standpoint of employer discretion are serious. First, the ability of the employer to resolve disputes in the workplace setting becomes very limited, with the legal system requiring a mandatory process of great complexity, high cost, and significant duration in time. Second, the ability of the employer to at least make a conscious attempt to set the conditions of the employment relationship is limited. The Renny decision in effect says, we the court, using our common law powers, are going to enter your workplace and tell you what the content of your employment relationships will be. If you do not contract with your employees exactly the way we demand, we will permit those employees to come to us to seek damages. In a small but significant way, the court becomes the employer; employer discretion has given way to court discretion at a most fundamental level of the employment relationship.
Much of the system of legal entitlements consists of balances carefully crafted over time. Many of these balances exist within the common law (such as, for example, the balance between contributory negligence and joint and several liability described earlier). Others are established by statute, especially if there is a political sense that the existing common law scheme distributes legal entitlements too unevenly. The classic example of a statutorily-imposed balance is the system of workers' compensation.
Prior to the advent of workers' compensation, an injured employee had to prove employer negligence in order to recover for injuries on the job. In bringing such a suit, the employee faced numerous difficult hurdles, such as assumption of the risk, contributory negligence, and the fellow-servant doctrine. Of course, if the employee succeeded in overcoming those hurdles, the employer could be held liable for full damages. The employer also faced the prospect of a possible full law suit every time one of her workers incurred an injury at work. The system seemed inequitable in its response to workplace injury. Most injured workers could not recover from the employer, while a few could recover substantial damages. The employer was faced with the constant threat of escalating legal costs.
In response to this perceived lack of proper legal balance, legislatures throughout the nation decided to establish a special balance of their own – workers' compensation. Under this system, employees would always recover for workplace injury, regardless of whether the employer had fault or not. In exchange, the employer would only be liable for medical costs and lost wages (with the latter capped at legislatively set limits). The entire dispute resolution system would be taken out of the courtroom and placed into an administrative setting that could operate more swiftly and simply. In order to make this system work, workers' compensation would become the exclusive remedy for the employee to recover for workplace injuries.
For the most part, this carefully developed balance has remained intact. In recent years, employees have found a way to get extra recovery for workplace injuries by suing third parties contributing to the injury, such as manufacturers or architects. There was also a mostly-theoretical, seldom-used intentional tort option available to the employee in grievous circumstances where the employer intentionally hurt the employee on the job. But in everyday practice, the employer was protected from suit outside of the workers' compensation system due to the exclusive remedy provision – until, that is, tile case of Beauchamp v. Dow Chemical Company. [42]
Plaintiff Beauchamp claimed physical and mental impairment due to exposure to the "agent orange" chemical manufactured by Dow, Using a standard "kitchen sink" approach to suit (where a plaintiff uses every conceivable theory of recovery in his complaint), Beauchamp claimed fraudulent concealment, breach of an implied contract to provide safe working conditions, assault, and intentional infliction of emotional distress. Beauchamp hit paydirt with the intentional tort claims. In reaffirming the intentional tort exception to the exclusive remedy clause in workers' compensation, the court established a standard so broad that it had the potential to include virtually any workplace accident involving employer negligence.
The Michigan Supreme Court established this broad standard by adopting the "substantial certainty" test for intentional tort, as opposed to the "true intent" test. The Court of Appeals had applied the latter standard to the case, under which "the plaintiff must allege that the employer intended the injury itself and not merely the activity leading to the injury." But the Supreme Court rejected this strict standard, preferring instead the following:
If the actor knows that the consequences are certain, or substantially certain, to result from his act, and still goes ahead, he is treated by the law as if he had in fact desired to produce the result. It does not matter whether the employer wishes the injury would not occur or does not care whether it occurs. If the injury is substantially certain to occur as a consequence of actions the employer intended, the employer is deemed to have intended the injuries as well.
In adopting this standard, the court was fully aware of the dramatic difference between "true intent" and "substantial certainty". Citing the facts in an Arkansas case where the "true intent" standard was applied to deny liability, the court admitted that the case would probably have been decided differently under the "substantial certainty" standard. In the Arkansas case, the employer had ordered a protective grate removed from an auger. The surface near the auger sloped toward the opening and was usually slippery because of grain particles and residue resting thereon. The plaintiff employee was placed by the employer near the auger. The plaintiff slipped, fell into the auger and was mangled. Under the "substantial certainty" test, the employer would have been found guilty of an intentional tort.
The court also cites the facts in an Arizona case, where two men were killed when a ditch caved in and buried them alive. Inspectors had warned the employer that the sides of the ditch were not sloped properly, the side was sandy, more shoring was needed, and escape ladders should be placed every 25 feet. The employer had ignored all of these warnings. As in the Arkansas case, the employer did not intend to injure or kill the plaintiffs. Yet, under the "substantial certainty" test, the court intimates, defendant employer would have been found liable.
By citing these factual examples, the court makes clear that it consciously wants to shift the concept of intentional tort toward something looser and more readily accessible to plaintiffs. In fact, intentional tort is really no longer intentional at all, but more akin to gross negligence, without calling it that. Why is the court making this shift? The answer appears to be simply, 1) to expand the ability of individuals to recover in court, and 2) to manipulate the behavior of employers so that they act more the way the court would like them to act.
The problem with the "substantial certainty" test is two-fold. First, it permits any employee with a modestly colorable claim of employer negligence to maintain a lawsuit outside of workers' compensation. Every case where the employer might have been even slightly wrongful in her behavior will end up in court. Second, "substantial certainty" has to be decided by a jury, which will usually have a very hard time denying an injured plaintiff compensation against a business if the jury detects any negligence at all an the part of the business.
If a machine is not functioning properly and the employer asks a worker to use the machine, is a resulting injury not substantially certain to occur? If a particular work setting has produced injuries in the past and is not changed by the employer, is any subsequent injury not substantially certain to occur? If the employer receives a complaint about the operation of his business, and a subsequent injury can be tied to the object of the complaint, was the injury not substantially certain to occur? In the eyes of a sympathetic jury, the answer almost always will be yes.
It is at this point that the protection afforded the employer by workers' compensation is completely destroyed. The very purpose of the exclusive remedy provision is destroyed. Instead of a balance between employee and employer rights, we have instead a one-way street: If the employee is injured due to his own negligence or tile negligence of a fellow employee, the injured employee recovers workers' compensation. If the employee is injured due to employer negligence, the employee recovers even more by filing a separate lawsuit.
The reaction of the plaintiffs' bar to the Beauchamp decision was swift and uniform. Within weeks of the decision, scores of intentional tort claims had been filed for workplace injuries; within months, the courts had hundreds of case filings. To some extent, plaintiffs' attorneys representing workers injured on the job were obligated to file these suits in order to avoid possible malpractice claims. The Michigan Supreme Court had opened a litigation door so wide that it was impossible for attorneys not to enter. The decision created such a litigation crisis that the Michigan Legislature responded in just five months to partially restore the exclusive remedy provision within the workers' compensation act. Because of the need for political compromise, however, it was not possible to completely restore the exclusive remedy provision to its former position, leaving Michigan with a curious hybrid somewhere between "true intent" and "substantial certainty." [43]
As has been discussed earlier, with the exception of intentional tort and workers' compensation, the employment relationship has traditionally and in general been litigated within the common law contract setting, not within the tort setting. If an employer was perceived as discharging an employee wrongfully, the question of remedy was generally pursued within the context of the employment "contract" between the employee and the employer. Such is the case with Toussaint, for example. However, in recent years, the plaintiffs' bar has been aggressively pursuing new tort theories for recovering on a wrongful discharge claim, and is starting to have success.
Tort claims in the employment setting may include such elements as tortious interference with contractual relations, fraud, intentional infliction of emotional distress, and defamation. For a while during this decade, the Michigan courts had also opened up a major new tort theory for negligent breach of an implied contract (in a sense, a tort cousin to Toussaint), focusing on negligent evaluation of the complaining employee. But here, for once, the court thought better of it after some consideration, and closed off this cause of action. [44]
However, while staying relatively reserved in the traditional line of tort cases, the Michigan judiciary opened up a new tort cause of action centered on "public policy" considerations that has very troubling implications. In Goins v. Ford Motor Co., [45] the Michigan Court of Appeals decided that a discharged employee could bring a tort action claiming that the employer unlawfully discharged the employee for exercising public policy rights in a setting unrelated to the immediate employment setting.
Plaintiff Goins was hired as a tabor relations employee at defendant's Woodhaven plant in 1977, but discharged 5 months later. Prior to applying at the Woodhaven plant, Goins had applied at defendant's world headquarters and other sites, each time informing Ford on its medical history forms that he had sustained a work-related knee injury while employed for General Motors in 1971. Each time, Goins failed to get the job. At Woodhaven, plaintiff did not provide this information. When Ford discovered the falsification of the medical history form, Goins was fired. Gains subsequently brought suit against Ford claiming wrongful discharge for filing a workers' compensation claim while employed at General Motors.
The court found for the plaintiff, citing "public policy". Pointing out that it is contrary to public policy for an employer to discharge an employee in retaliation for filing a workers' compensation claim, the court found no reason "to limit this rule only to employers who fire employees who file claims against them rather than against previous employers. The public policy extends to situations . . . where the employee argues an unlawful or retaliatory discharge because he or she filed a worker's compensation claim against any employer, including a previous employer." The court saw no manifest injustice in the failure of the trial judge to instruct the jury that plaintiff could not invoke a public policy ground for wrongful discharge if he was found to have lied on his medical history form.
This ruling is troubling from a number of perspectives. First, the practical result of the decision is to effectively prohibit an employer from inquiring about a job applicant's workers' compensation history. This results because any employer inquiry into an applicant's workers' compensation history creates a question of fact for jury determination, should the employer subsequently fail to hire the employee. The employer must refrain from inquiring about previous workers' compensation filings or risk a certain jury trial, should a job applicant decide to sue. But such a result seems unfairly confining upon the employer. After all, the information concerning an applicant's workers' compensation history would seem to be quite valuable for reaching judgement on whether or not to hire the applicant and for what type of work to hire an applicant. Should employers be denied this information simply because the filing of a workers' compensation claim is a public policy right? If the answer is yes, then the employer has been denied the important discretionary right to make a decision on whom to hire based on physical fitness. This aspect of Goins is troubling enough.
Much more significant is the potential new avenue of litigation Goins opens up in general. The decision extends the prohibition on employee discharge for exercising public policy rights from the immediate employer/employee setting, where it is basically contained and at least partially controllable by the employer, to a wide open area where anything in the employee's past or present is relevant. In effect, as soon as the employer has knowledge about any employee or applicant activities with "public policy" qualities, the employer may be subject to a tort claim, should he decide to terminate or discipline or fail to promote or fail to hire an employee or applicant. It becomes irrelevant at what point in time the employee or applicant engaged in the exercise of a "public policy" right, or whether that exercise had anything to do with the employer. As long as the employee or applicant has an "aura" of "public policy" surrounding her, the employer faces a potential tort claim.
Does the "public policy" exercising employee gain special status? In practice, the answer is yes. Just as if the employee belonged to any other protected category (race, religion, sex, handicapper-status, etc.), the employer must take extra caution, extra care, in making management decisions with regard to that employee. And how does the employer do that in an area as indeterminate and subject to change as "public policy"? After all, actionable exercise of "public policy" can encompass just about anything, depending on the particular philosophy, politics, or whim of the judge before whom a case is tried or the appeal panel before which the case is reviewed. "Public policy" is a term so open to the judicial winds of change, that the potential for protected actions seems endless.
The employer is essentially faced with a potential cause of action which he cannot effectively control. It would be difficult enough to make decisions when the exercise of "public policy" relates directly to the immediate employment relationship. It becomes virtually impossible when the "public policy" activity took place somewhere else, such as with a previous employer. When the employer loses control, a natural response is managerial timidity – over-caution in organizing the workplace, over-caution in making personnel changes (whether they be for the better of the business or not, whether they be for the better of the individuals involved or not), over-caution in hiring. Better to hire the most bland employee than ask tough questions which could result in a lawsuit somewhere down the line. Better to make promotions with mathematical routine, than reward the best and risk a lawsuit by those viewed as less effective employees. Better to avoid individualized attention to employees in the workplace (regardless of its managerial benefits), than to have that special attention turned into a fault at trial.
Such employer timidity harms everyone except the potentially complaining individual. The efficiency and effectiveness of the business is hurt, which harms not just the business owner, but also the business' employees and consumers of the business' products or services. Employees are forced to work in a more impersonal, inflexible environment, where managers are discouraged from knowing too much about their employees. Good employees have reduced opportunities for promotion ahead of less competent individuals. Creative new ideas for organization of the business are less likely to be tried.
If the employer's ability to make basic personnel decisions is so significantly limited by the risk of litigation that only general managerial timidity is the result, what possible goal can perpetuation of the cause of action have? At that point, the cause of action seems to exist merely to provide yet one more possible avenue for individual compensation. All pretense of causation or encouragement of desirable employer behavior is lost, leaving only raw redistribution of wealth.
Goins is just a slice, but also a very representative one, of the judicial expansionism that has consumed the Michigan legal system in the last three decades. By creating the broader public policy tort for employment decisions, the court is giving itself the opportunity to intervene at any time to stop an employer decision it does not like. If the court does not like the reason for a discharge or a promotion or a failure to hire, it always has the option of saying that the particular reason used by the employer is a violation of public policy. The court in effect always has the opportunity to supersede the employer in an employment decision. In substitution for a free market, we have a court-controlled market.
Decisions like Goins and Toussaint and Renny establish a theory for the substitution of court discretion for employer discretion, where the only thing keeping the courts from taking over completely is their own sense of reserve. Based on what we have already seen, that reserve offers little comfort. Indeed, the desire for social manipulation and market control exhibited by Michigan's judiciary is so strong that remedial action restoring a more free market is absolutely essential.
The illustrative court decisions cited above help show how the legal balance between the individual's ability to sue on the one hand and employer's ability to make basic decisions about how to run his business has tipped too far in the direction of the former. The courts have been too determined to assist the complaining individual and find remedies for his perceived wrongs. They have lost their sense of perspective – the need to look at the consequences of lost employer discretion. The ability of the employer to make the most fundamental decisions about his business, from what products to market, to what persons to hire, to what workers to promote, have become so severely constricted that the market is no longer able to cope with the imbalance. As a consequence, good products are lost from the market, reward of worker performance is less often possible, and efficient management is much more difficult. And when such an imbalance burdens the economy, all of us are hurt, whether we are consumers, employees or business owners.
We must all step back from current litigation assumptions, whether as judges, legislators, attorneys, or publicly active citizens, and ask whether a superior equation between individual and employer rights is not needed. This study has tried to make the point that a "retreat" toward greater employer discretion is necessary in order to permit the free market to function most effectively, for everyone's benefit. Litigation and litigiousness must be reduced and/or rechanneled.
What steps can be taken to achieve a better balance? Simply taking away individual rights to access and compensation is not necessarily the answer. Wholesale reductions in rights do not by themselves produce a better legal environment. It is wiser to look at the margins, where the expansion of individual rights and litigation has gone just that little bit too far or has produced particular unfairness for the employer. It is in the spirit of looking at these margins that the following suggestions of where to begin reform are made.
Courtroom litigation is time-consuming, expensive and unpredictable. Devices such as grievance hearings, arbitration, and mediation of disputes should be encouraged as ways to escape this long, expensive, unpredictable process. A grievance can be heard right away, while memories are fresh and all relevant personnel are at hand, and the process can be tailored to avoid the many expensive legal motions, discovery, evidentiary rules, and other requirements of the courtroom. Arbitration offers the advantages of impartial decision-making and tried rules developed over years of experience. Mediation permits the parties to sit down at the table and talk things out, which often can resolve the dispute early and amicably.
In Michigan, limited attempts at arbitration have already been placed in the law. The Health Care Arbitration provisions of Michigan's Revised Judicature Act permit parties to a medical malpractice dispute to submit their dispute to a three-person panel with expertise in this complex field of law. [46] Experience here has shown that the average award does not differ substantially from that given in courtroom litigation, but that the extreme awards are seen less often. [47] Such a system offers less risk, and requires less time and litigation expense. Arbitration by experienced individuals mutually agreed to by the parties has now been made available to workers' compensation disputants, permitting an escape from the delays and backlogs of Michigan's administrative workers' compensation system. [48] Mediation has become an effective first step in many of Michigan's Circuit Courts, encouraging settlement of disputes by having three-member panels propose award evaluations, with penalties if the evaluations are rejected and subsequent court procedures demonstrate their accuracy. [49]
Such alternate dispute resolution techniques can and should be used in more statutorily defined area of law. For example, arbitration could be mandated to resolve wrongful discharge and other condition-of-employment disputes. Such arbitration could resolve any dispute with sufficient speed to permit quick remedial action on the part of the employer, thereby minimizing economic loss to both the employer and the employee.
In addition to providing out-of-court mechanisms to resolve disputes, efforts should also be made to define rights in such a way that individuals will be encouraged to arrange their relationships so that disputes do not arise in the first place. In short, the law should encourage individuals to spell out their rights in explicit contracts, instead of waiting to resolve such disputes through litigation. For example, to the extent that you were to require that conditions of employment, such as wages and benefits, be in writing and signed by the parties, you would force employees to negotiate and determine those conditions prior to the commencement of the employment term. Disputes about conditions of employment would thus be more precise and occur less often. The parties, by being forced to confront the issues in a negotiating setting, would then have resolved many possible areas of dispute before they happen.
A more modest approach might be to limit the right to sue for wrongful discharge or other conditions of employment to instances where the right is stated in writing (in short, by applying the statute of frauds to employment contracts). Any writing might suffice to demonstrate a contractual right, regardless of whether it is signed or not. Thus, employer manuals and pamphlets and written evaluations could still provide contractual rights. By establishing such a rule of law, employees would be encouraged to demand that key employment rights be placed in writing. Employers would be better able to control the rights they grant their employees by avoiding the dangers of verbal contracts. Such a scheme would not reduce rights, but simply rechannel where the rights are formed, changing the forum from the courtroom to tile workplace negotiating table.
Another example of such rechanneling would be to grant special status to standards and determinations made in non-courtroom proceedings. For example, employers could be freed from product liability if their products met governmental standards, such as the pre-approval given drugs by the federal Food and Drug Administration after careful testing and review by experts. In such a case, governmental approval constitutes a contract with the manufacturer that includes freedom from outside liability. By giving such standards determinative status in litigation, the focus on the safety of products would shift from the thousands of individual injury cases in court to one forum where careful deliberation and expertise could be applied to the question of what is and is not defective. The safety concerns supposedly addressed by the litigation system would be just as well served, yet the amount of actual litigation would be dramatically reduced.
The balancing of interests exemplified by the workers' compensation system should be respected and, if possible, replicated in other areas of law. The courts make a mistake if they focus on only one side in the conflict of rights, such as they all-too-often have in recent years by favoring individual recovery and courtroom access without any regard to the consequences for employers and society as a whole. If the courts or the legislature find the legal results in particular areas of law to be inequitable, the answer should be to seek new balances between the competing interests, so that all rights are at least partially served.
For example, the results in the field of wrongful discharge appear to be most inequitable in their impact on employer discretion. One possible balancing of rights that would even out the impact on individuals and employers would be to establish a system such as that found in the province of Ontario, where all individuals are entitled to a reasonable notification period for termination (the length depending on such factors as length of service, ability to find a new job, promises made by the employer), but the notification period is capped at two years. A similar balance could be struck in Michigan, whereby all employees are given some form of "good cause" protection, but the amount of damages the employer could sustain would be strictly limited. Such a system would give all "unjustly" discharged employees some compensation, but would at the same time permit the employer to make rational cost decisions in the management process.
Such a system would of course need to be the exclusive remedy for wrongful discharges. Any substantial availability of legal circumvention would make such a system untenable. Indeed, just as in the case of the workers' compensation system, the courts must respect exclusive remedy clauses (or legislatures must impose such respect) in order to make the balancing of rights viable and fair.
One of the principles which has suffered the most in the judicial rush to compensate the individual is causation. The focus of the courts has been almost exclusively on compensation of the individual, not on the question of who caused the injury. If employers are going to be treated fairly by our system of law, the principle of causation must be restored to its former preeminence. First and foremost, this means abolition of joint and several liability. In this era of pursuit of the deep pocket, the imposition of 100% liability on parties with marginal fault is inexcusable. If juries are permitted to let their hearts speak for them by assigning tiny percentages of fault to rich defendants, so that plaintiffs can recover large damages, then the system must respond by limiting liability to the percentage of fault each defendant is responsible for.
More modest changes are also possible here. For example, manufacturers should not be held liable for injuries which are due to alterations of their products. The pretense that a product maker should be held liable for a plaintiff's injuries because the product maker should have anticipated tampering with the product and done something to ensure that such tampering does not succeed is a compensation-oriented fallacy, pure and simple. It has nothing to do with causation, and everything to do with redistributing wealth from "big" companies to "little" consumers and employees.
The responsible employer can control only those aspects of his business where there is cause and effect. He cannot control the behavior of wrongful third parties that alter products, remove safety equipment, fail to maintain products, or become insolvent. The responsible employer should not be held liable for the conduct of such wrongful third parties.
This is a companion concept to the restoration of causation. Our current litigation environment has been teaching the members of our society that they are no longer responsible for their own actions. Someone else is always to blame. If a person gets hurt, it becomes a scramble to see how many others can be named as the guilty culprits. No matter how much the plaintiffs' attorney may have to stretch, someone else with a lot of money will always end up paying in the end, or so the contemporary litigation ethic goes.
This view of liability must be corrected, and the key place to start is with the individual. The individual must learn to take care of himself, to watch out for his own safety. The legal system must craft rules under which individuals who fail to look out for their own safety carry the consequences of the actions by themselves, instead of shifting them to other parties. For example, plaintiffs should not be able to recover damages due to injuries caused by obvious dangers. If a product has risks that are obvious to a reasonable prudent product user and which are of common knowledge to persons in a similar position to that of the plaintiff, the product should not be deemed "defective" on the pretense that it failed to warn of the obvious risk. A knife manufacturer should not need to warn product users that a knife can cut. Manufacturers should not be required to be universal insurers for even the most irresponsible members of society.
A legitimate question to ask is whether a plaintiff primarily responsible for his own injury should ever be permitted to recover against a defendant. In many states, comparative negligence is not applied when the plaintiff is more than 50% at fault. Such a scheme could be used to limit liability, as opposed to the institution of complete comparative negligence (abolishing joint and several liability). By using the 50% cutoff, all members of society would know that recovery is not available for injuries that are primarily attributable to the injured party, thereby promoting greater individual care and reducing litigation in an area where plaintiffs' claims are least compelling.
Effective mechanisms must be in place which permit the termination of cases which cannot be sustained during the trial process. For example, summary judgment must be made available and consistently applied when a plaintiff has failed to establish fundamental components of proof. Such strict proof burdens could be established through modest changes in the law. If the earlier discussed writing requirement were imposed for wrongful discharge cases, for example, this would at least permit summary judgment in those cases where the plaintiff is unable to even produce a piece of paper to support his contractual claim.
More issues could also be set aside for judicial determination, as opposed to jury determination. When the Michigan Legislature partially restored the workers' compensation exclusive remedy, it designated the judge as the determiner of whether an act was an intentional tort. [50] Similar designation of issues as questions of law, as opposed to fact, could be statutorily established elsewhere, permitting the resolution of such questions before the expensive and unpredictable process of jury trial takes hold. As was discussed earlier in this study, employers are often compelled to settle even the most flimsy cases in order to avoid the costs associated with trial. By making access to trial less automatic, this particularly unfair impact of litigation would become less severe. Fewer cases would be filed merely for their nominal settlement damages, and more employers might be willing to stand up for their rights through tile stage when the judge makes his legal determination.
One of the most effective means for eliminating court disputes is to carefully spell out sharply defined rights and procedures in statute, thereby removing those particular issues from the ebb and flow of common law decision-making. Statutory law can be instructive, telling employers and individuals what their rights are, what things they can properly do, and what things they cannot property do. Although court interpretation will inevitably stilt be necessary, carefully crafted legislation can limit the field of legal questions quite substantially.
An example of an area where statutory definition might prove helpful is in the field of substance testing. The courtrooms of this country are packed today with challenges to employer drug and other substance testing (such as pregnancy testing, testing for AIDS, etc.). What type of testing procedure is proper? What degree of confidentiality is necessary? What chemical tests are sufficiently accurate? What substances may the employer test for? These and many other questions must be litigated in an endless series of common law cases, all the while producing uncertainty and inviting still more legal challenges. A carefully crafted statutory scheme could reduce the amount of this litigation by spelling out the confines of proper testing. The statute could act as instruction and provide confidence to employers using its prescriptions. At the same time, many of the protections sought by individuals through the litigation process could be explicitly spelled out by statutory law instead. Although the statute would require interpretational cases, the number of lawsuits and the scope of court inquiry could be significantly reduced.
As the number of individual rights of access to remedy has increased, the ability of the employer to make rational choices between competing interests has decreased. Very often, protection of one employee's interest requires denigration of another employee's interest. If both employees have the ability to bring legal action, the employer is caught in a "catch-22" where either choice has negative legal consequences. Such situations must be avoided.
For example, employers are finding themselves caught between competing interests in the context of job references. If the employer gives an honest but negative assessment of an employee interviewing with another business, the employer subjects himself to suit by his employee for tortious conduct, such as defamation. If the employer withholds important negative information about his employee from the other business, he subjects himself to suit for injurious consequences incurred by the other business. Both kinds of lawsuits are becoming more common. It is essential that the legal system make a choice between the two competing interests, so that the employer is not caught with almost certain liability. The choice is also necessary to facilitate open and honest communication in the employment setting. If liability dilemmas force employers into complete silence, no one (neither the job-seeking employee nor prospective employers) is benefited.
Within the workplace, the employer may find similar dilemmas. If he has an employee diagnosed as having the psychological potential to cause harm to fellow employees, the employer is faced with a wrongful discharge or other employment claims from the individual in question, if he takes protective action, or a possible intentional tort claim from any other employee hurt due to the first employee's predicted behavior, if he fails to take protective action. No employer should be put in such a predicament.
Even in hiring, employers are facing untenable choices. If a job applicant has a greater likelihood of injury due to some physical characteristic, but is capable of doing the applied-for job, the employer must choose between a potential handicap discrimination claim if he fails to hire the individual, or a greater likelihood of workers' compensation liability if he does hire the individual. The legal system should make a choice and indicate clearly to employers which interest has greater priority.
The time has come for the courts to call a ceasefire in their cause of action war against the employer. In the past three decades, virtually every conceivable theory of liability has been espoused by the plaintiffs' bar and explored by the courts. If the courts have not seen fit to create the cause of action yet, it may be time to say enough just for the sake of creating some stability within the field of employment rights.
We must be particularly wary of creating new causes of action within the tort common law, where there is not even a pretense of having to find an agreement between the parties. The rights existing under current contract law provide more than enough remedies for correcting perceived wrongful employer behavior. The argument against use of tort law in the employment rights setting was recently cogently made in (of all places) a California Supreme Court decision, Foley v. Interactive Data Corp. [51] In Foley, plaintiff attempted to establish a tort cause of action in the employment setting for breach of the implied covenant of good faith and fair dealing. Noting that tort law is primarily designed to vindicate "social policy", the court held that contract law was quite sufficient to provide remedies for wrongful employer actions in the employment setting, and that such limitation was essential to provide commercial stability. The court cautioned, "(t)he expansion of tort remedies in the employment context has potentially enormous consequences for the stability of the business community" – consequences collective society cannot afford to incur.
We must reject the notion that every perceived "unfairness" requires compensation. It is not the job of the law to punish all perceived unfair behavior and dictate all conduct to the point where the entire world is "fair". Just because an employer may do certain things we don't personally consider nice or fair does not mean that the law should step in and rectify the perceived problem. Once, a majority consensus reigned in our society that such unfairnesses would ultimately be corrected by the free market and the ability of individuals to choose what they buy and for whom they work. Now, the new majority consensus seems to have shifted that corrective function onto the legal system. But do we want individual judge and jury preferences to determine what is "fair"? Imagine if you were subjected to this standard in your daily life – if you could be hauled before a judge for every act, intentional or not, which someone might deem "unfair". Should that judgment not be left to the collective public functioning within a free market? To the extent that we prefer the latter, we must pull back from the reliance on the litigation system and its causes of action.
This may be the most important recommendation of all. The greatest contributor to instability within the litigation system has been the growth of outrageous, huge jury awards based on nothing but feelings and sympathy and the desire to punish. In area after area of law, juries have received judicial permission togo beyond real damages (like loss of income, out-of-pocket medical and other expenses, loss of income-earning potential, etc.), to the mushy world of "pain and suffering", "mental anguish", and punitive awards against "bad faith" employers. All sense of proportion has been lost in many of these cases, as multi-million dollar judgments are issued by zealous jury members.
A recent issue of the American Bar Association Journal, reporting on the 10 largest jury verdicts of 1988, detailed awards ranging from $30.4 million for the estate of a Georgia woman killed by a truck with a stuck accelerator to $14 million for an aspiring male model injured in a car accident. In each case, punitive and/or non-economic damages constituted a major (and often the major) portion of the award.[52] The Michigan Court of Appeals was recently reviewing a case in which plaintiffs representing four individuals killed when their coffee machine caught fire due to a defective switch were awarded $42 million by a Wayne County (Detroit) jury. Defendants and additional parties filing briefs with the court argued in their appeal that the award had reached a point where it was "so excessive as to 'shock the judicial conscience.’" [53] Unfortunately, this case was just recently settled before the court could address the issue.
Plaintiffs' advocates have often urged that the pain, anguish and suffering incurred by individuals harmed by wrongful conduct "cannot be measured". A proper response to such an argument might well be, "if it cannot be measured, don't award it". The extravagant lavishing of huge damage awards for non-real, immeasurable damages fails to fit any of the traditional purposes for awarding additional sums. Does it make injured plaintiffs more whole? Does it produce deterrence of wrongful behavior? Does it make the larger community more responsible? At some point, after damages have reached a certain level, the answer has to be no. After that point, there is mere redistribution of wealth, mere punishment, mere expression of unrestrained sympathy. The American system of law cannot sustain itself much longer if this trend continues, because the market will no longer engage in sufficient money-producing activity to afford such absurdly high costs.
It is essential that reasonable limitations be set on non-real damages. If that requires absolute damage award cutoffs or long schedules of damages for various particular types of injury, then such must be the course taken, however "cruel" it might seem in any one particularly grievous case. If the courts are unwilling to show the necessary restraint, then the legislature must act by passing statutory limitations on damages in civil cases.
These ten suggestions for litigation reform, if carefully considered and judiciously applied as the dictates of fairness warrant, might begin a process of restored balance between the rights of complaining individuals and the rights of employers. The goal must be equity – a fairness where no rights are given overriding prominence at the expense of other equally valid rights. We must realize that the granting of favorite status to particular rights does not take place in a vacuum. It has significant behavioral consequences that can in the long run produce much more harm to everyone in the system than the original isolated perceived problem that one at first wished to correct.
We must regain our faith in the basic equity produced by a free market. Although we must protect the most defenseless members of our society from severe harm, we cannot override the entire market in order to impose our sense of public good. We cannot let judges and juries impose their sense of "fairness" on every individual in our society, when collective society is much better equipped to impose such judgment. Litigation should not be our savior, but only a "necessary evil" we are forced to live with because of the inevitability of some conflict. The litigation system should exist as the option of last resort, intervening in the most grievous instances, while the economy of free choice governs the general progress of our society.
The Federal Civil Justice System Bureau of Justice Statistics Bulletin, July, 1987
Journal of Commerce, June 10, 1986
Time, March 24, 1986
Issue Alert, "Small Business and the Liability Insurance Crisis", United States Small Business Administration, March, 1986
American Bar Association Information Services
Washington Post, March 5, 1986
Report of the Tort Policy Working Group on the Causes, Extend and Policy Implications of the Current Crisis in Insurance Availability and Affordability, February, 1986; An Update on the Liability Crisis, Tort Policy Working Group, March, 1987
M. Peterson, Civil Juries in the 1980s: Trends in Jury Trials and Verdicts in California and Cook County, Illinois, The Institute for Civil Justice, 1987.
M. Peterson, S. Sarma, M. Shanley, Punitive Damages – Empirical Findings, The Institute for Civil Justice, 1987
Claim File Data Analysis: Technical Analysis of Study Results, ISO Data, December, 1988
J. Kakalik, N. Pace, Costs and Compensation Paid in Tort Litigation, The Institute for Civil Justice, 1986
Tort Policy Working Group, see footnote 6
Civil Juries in the 1980s, see footnote 7
Injury Valuation: Current Award Trends, Jury Verdict Research, Inc., 1986, 1987
Civil Juries in the 1980s, see footnote 7
The Impact of Product Liability, The Conference Board, Inc., 1988
For a history of product liability law, see the Mackinac Center Report by Bradley A. Smith, TortLaw and the Products Liability Insurance Crisis, 1988. For a thorough exploration of the theory of litigation and its impact on society, see Peter W. Huber, Liability – The Legal Revolution and Its Consequences, Basic Books, Inc., 1988. This extraordinary study, written by one of the nation's leading scholars and proponents of litigation reform, offers the most complete analysis to date of the relationship between individual/societal behavior and the litigation system. My study is particularly indebted to the analysis of the consequences of high product liability exposure detailed in Chapter 10, "What is Deterred" (pages 153-171).
Engineer Perspective 1986, Research and Management Foundation of the American Consulting Engineers Council, December, 1986
Insight, "Liability's Creative Clamp Holds Firms to the Status Quo", August 29, 1988
Insight, Id.
R. Lincoln, L. Kaeser, Family Planning Persp., "Whatever Happened to the Contraceptive Revolution", 1988
Huber, see footnote 16
G. Burrill, Biotechnology, "The Keys to Commercialization in Biotechnology", 1987
Insight, see footnote 18
Wall Street Journal, February 4, 1986
Huber, see footnote 16 Wall Street Journal, January 21, 1986
Impact of Product Liability on the Development of New Medical Technologies, Report of the Board of Trustees of the American Medical Association, 1988
Impact of Product Liability, id.
Huber, see footnote 16
Huber, direct quote from page 160, see footnote 16
The Liability Crisis and its Impact on the American Consumer
American Tort Reform Association, 1987
Tort Policy Working Group, Update, see footnote 6
The Liability Crisis, see footnote 30
Sports Liability News, Aug.-Oct. 1988
Huber, see footnote 16
The Liability Crisis, see footnote 30
See for example the annual study and rankings by Grant Thorton International
Michigan Elliott-Larsen Civil Rights Act of 1977, MCL 37.2101 et seq.
Michigan Handicappers' Civil Rights Act, MCL 37.1101 et seq.
Payment of Wages and Fringe Benefits, MCL 408.472 et seq.
Bullard-Plawecki Employee Right to Know Act, MCL 423.501 et seq.
Polygraph Protection Act of 1981, MCL 37.202 et seq.
The Whistleblowers' Protection Act, MCL 15.361 et seq.
Worker's Disability Compensation Act of 1969, MCL 418.101 et seq.
Michigan Employment Security Act, MCL 421.1 et seq.
405 Mich. 638, 275 N.W.2d 511 (1979)
408 Mich. 579, 292 N.W.2d 880 (1980)
Individual Employment Rights,
The Bureau of National Affairs, Inc.
Labor Relations Reporter, January 31, 1989
254 Cal.Rptr. 211 (Cal. 1988)
427 Mich. 415, 398 N.W.2d 327 (1986)
MCL 418.131
The cause of action was established in Schipani v. Ford Motor Co., 102 Mich.App. 606, 302 N.W.2d 307 (1981) and Chamberlain v. Bissell, Inc., 547 F.Supp. 1067 (WD Mich 1982). But more recent cases have strictly limited this potential cause of action. See Loftis v. GT Products, 167 Mich.App.787, 423 N.W.2d 358 (1988); Struble v. Lacks Industries, Inc., 157 Mich.App.169, 403 N.W.2d 71 (1986); Haas v. Montgomery Ward & Co., 812 F.2d 1015 (CA 6, 1987)
131 Mich.App. 185, 347 N.W.2d 184 (1983)
MCL 600.5040 et.seq.
Journal of Legal Medicine, "Medical Malpractice Crisis the Second Time Around – Why Not Arbitrate", Vol. 8, No. 2 (1987)
MCL 418.864
Michigan Rules of Court, 2.403
MCL 418.131
254 Cal.Rptr. 211 (Cal. 1988)
American Bar Association Journal, "The 10 Largest Jury Awards in 1988", March, 1989
Becco v. A.J. Foland Co., Court of Appeals Case Nos. 102415-18 and 10230-33
Jurgen Skoppek is an attorney and Senior Policy Analyst with The Mackinac Center for Public Policy. He has practiced law in the labor, employment and product liability fields and advises the Michigan Legislature on these matters.
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