VOL. 32, NO. 3
WINTER 2006
Employee
Relations
L A W
J O U R N A L
1
From the Editor—
Birds, Eggs, and Horns
Steven A. Meyerowitz
3
An Ounce of Prevention May Be Worth a Pound of Cure:
How Employers Can Prepare for an Ailing Workforce in the
Event of an Avian Flu Outbreak
10
Walking on Eggshells—Avoiding Retaliation Claims When an
Employee Who Files a Discrimination Complaint Does Not Leave
14
Legal Remedies for Workplace Bullying:
C. W. Von Bergen,
Joseph A. Zavaletta, Jr., and Barlow Soper
Grabbing the Bully by the Horns
41
Ensuring Fair Play: Using the Common Law to Protect
Against Unfair Competition from Former Employees
48
Seeking a Definition of “Supervisor”—A Critical Issue in
Sexual Harassment Cases Donald
59
Where There’s Smoke: Employer Policies on Smoking
77
The Law of Criminal Background Checks
97
Lex Mentis
107
Employee Benefits
Anne E. Moran and
Karen Tucker
119
ERISA Litigation
Craig C. Martin and
William L. Scogland
Amy M. Scott and
Von E. Hays
Mary Price Birk
Brian L. Lerner and
Jeffrey R. Geldens
J. Petersen and
Harvey R. Boller
Sandra M. Tomkowicz and
Susan K. Lessack
Hope A. Comisky and
Christopher P. Zubowicz
James J. McDonald, Jr.
0
EditorialSection
Advisory
Board
Hershell L. Barnes, Esq., Haynes and Boone, LLP, Dallas, TX
Ralph H. Baxter, Esq., Orrick, Herrington & Sutcliffe, San Francisco, CA
Alfred W. Blumrosen, Rutgers University Law School, Newark, NJ
Barbara Berish Brown, Esq., Paul, Hastings, Janofsky & Walker, Washington, DC
Thomas P. Brown, Esq., Epstein Becker & Green, Los Angeles, CA
James A. Burstein, Esq., Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL
Patrick J. Caulfield, Esq., VP and Associate General Counsel, The Equitable, NY, NY
James H. Coil III, Esq., Kilpatrick Stockton, LLP, Atlanta, GA
Dana S. Connell, Esq., Littler Mendelson, Chicago, IL
Gayla C. Crain, Esq., Epstein Becker & Green, Dallas, TX
Richard S. Feldman, Rivkin Radler LLP, New York, NY
William B. Gould IV, former Chairman, National Labor Relations Board
Barry A. Hartstein, Esq., Vedder, Price, Kaufman & Kammholz, Chicago, IL
William M. Hensley, Esq., Jackson, DeMarco & Peckenpaugh, Irvine, CA
William F. Highberger, Esq., Gibson, Dunn & Crutcher, Los Angeles, CA
Kenneth A. Jenero, Esq., McBride Baker & Coles, Chicago, IL
Weyman T. Johnson, Esq., Paul, Hastings, Janofsky & Walker, Atlanta, GA
William L. Kandel, Esq., Arbitrator and Mediator, New York, NY
William J. Kilberg, Esq., Gibson, Dunn & Crutcher, Washington, DC
Milton R. Konvitz, Professor Emeritus, School of Industrial and Labor Relations, Cornell
University, Ithaca, NY
Alan M. Koral, Esq., Vedder, Price, Kaufman & Kammholz, New York, NY
Linda M. Laarman, Esq., Washington, DC; Special Counsel, Spencer Fane Britt & Browne LLP,
Kansas City, MO
Alison B. Marshall, Esq., Jones Day Washington, DC
Richard Martin Lyon, Esq., Director of Legal & Labor Relations Issues, Human Resource
Institute, Eckerd College, St. Petersburg, FL
James J. McDonald, Jr., Esq., Fisher & Phillips LLP, Irvine, CA
Linda D. McGill, Esq., Moon, Moss, McGill & Bachelder, Portland, ME
Lawrence K. Menter, Esq., Corporate Counsel, Home Depot, Inc., Atlanta, GA
Jeanne C. Miller, Esq., JAMS/ENDISPUTE, Inc., New York, NY
Charles S. Mishkind, Esq., Miller, Canfield, Paddock & Stone, Grand Rapids, MI
Jonathan R. Mook, Esq., Ogletree, Deakins, Nash, Smoak & Stewart, Washington, DC
Glen D. Nager, Esq., Jones, Day, Washington, DC
Gregory C. Parliman, Esq., Pitney, Hardin, Kipp & Szuch, Morristown, NJ
Michael Reiss, Esq., Davis Wright Tremaine, Seattle, WA
Matthew J. Renaud, Jenner & Block LLP, Chicago, IL
Sandra Elizabeth Robertson, Esq., Senior Attorney, Human Resources, GTE Service
Corporation, Stamford, CT
Robert H. Sand, Esq., Assistant General Counsel, AlliedSignal Corporation, Morristown, NJ
Howard A. Simon, Esq., Landels, Ripley & Diamond, LLP, San Francisco, CA
Paul Starkman, Esq., Arnstein & Lehr, Chicago, IL
Eric A. Taussig, Esq., Senior Assistant General Counsel, Philip Morris Management Corp.,
New York, NY
Steven H. Winterbauer, Esq., Winterbauer & Diamond, PLLC, Seattle, WA
Stephen C. Yohay, Esq., McDermott, Will & Emery, Washington, DC
From the Editor
Birds, Eggs, and Horns
M
uch well-deserved attention has been paid to the prospect of an
avian flu outbreak in the United States. According to the World
Health Organization, the avian flu has not yet reached the United
States. The virus also has not mutated to a form that can be transmitted
directly from human to human. However, the potential for mutation
exists. This potential is at the epicenter of our greatest fears, considering
the devastating consequences of a global pandemic. We can either be
paralyzed by such fear or we can be proactive in addressing the issue.
In situations such as this, the proverbial ounce of prevention may truly
be worth a pound of cure.
As explained by Amy M. Scott and Von E. Hays, attorneys in the
Dallas office of Kirkpatrick & Lockhart Nicholson Graham LLP, in our
first article, “An Ounce of Prevention May Be Worth a Pound of Cure:
How Employers Can Prepare for an Ailing Workforce in the Event of
an Avian Flu Outbreak,” the impact of an avian flu pandemic is of no
small consequence to employers, as the prospect of a pandemic creates
a panoply of labor and employment issues. Their article highlights some
of those issues and provides meaningful strategies for dealing with the
issues should they arise.
EGGSHELLS
One of an employer’s hardest management dilemmas, because of
the danger of retaliation claims, is when an employee who has made
an EEOC claim, or filed a lawsuit alleging discrimination, still works for
the employer. Title VII of the 1964 Civil Rights Act prohibits retaliation
against employees who file complaints of discrimination. Indeed, an
employee can win a retaliation claim even when he or she does not win
the discrimination claim.
In our next article, “Walking on Eggshells—Avoiding Retaliation
Claims When an Employee Who Files a Discrimination Complaint
Does Not Leave,” Mary Price Birk, who serves as co-chair of Baker &
Hostetler’s National Employment Litigation Practice Team, points out
that courts give employers little guidance about how to continue to
conduct business as normal when the complaining employee stays
employed by the company. An employer may feel as if it is “walking on
eggshells” when dealing with that employee, afraid everything it does
will be misinterpreted as retaliation.
Ms. Birk explains that employers can avoid retaliation claims by taking actions that have a legitimate business purpose and that do not have
a retaliatory intent or effect on the employee.
Employee Relations Law Journal
1
Vol. 32, No. 2, Autumn 2006
GRABBING THE BULLY BY THE HORNS
“Legal Remedies for Workplace Bullying: Grabbing the Bully by the
Horns,” by Professors C. W. Von Bergen, Joseph A. Zavaletta, Jr., and
Barlow Soper, discusses workplace bullying. It starts by defining workplace bullying and positioning it on a hostile workplace continuum.
Then, the prevalence of workplace bullying and its consequences are
presented. Finally, possible legal remedies for individuals who perceive
they are being bullied are considered.
AND MORE…
We also have our “Lex Mentis” column by columnist James J. McDonald,
Jr., a partner in the Irvine, California, office of the national labor and
employment law firm of Fisher & Phillips LLP, and our “ERISA Litigation”
column by Craig Martin and William Scogland of Jenner & Block LLP,
among other things.
Enjoy the issue!
Steven A. Meyerowitz
Editor-in-Chief
September 2006
An Ounce of Prevention May Be Worth
a Pound of Cure: How Employers Can
Prepare for an Ailing Workforce in the
Event of an Avian Flu Outbreak
Amy M. Scott and Von E. Hays
There are a number of labor and employment issues that stem from the prospect
of an avian flu outbreak. The authors highlight some of those issues and provide
meaningful strategies for dealing with them should they arise.
M
uch well-deserved attention has been paid to the prospect of an
avian flu outbreak in the United States. According to the World
Health Organization (WHO), the avian flu has not reached the United
States. The only countries reporting human cases are China, Turkey,
Indonesia, Cambodia, Thailand, and Vietnam. Currently, the virus is
transmitted from infected birds to humans. The virus has not mutated to
a form that can be transmitted directly from human to human. However,
the potential for mutation exists. This potential is at the epicenter of
our greatest fears, considering the devastating consequences of a global
pandemic. We can either be paralyzed by such fear or we can be proactive in addressing the issue. In situations such as this, the proverbial
ounce of prevention may truly be worth a pound of cure.
The impact of an avian flu pandemic is of no small consequence to
employers, as the prospect of a pandemic creates a panoply of labor
and employment issues. This article is designed to highlight some of
those issues and provide meaningful strategies for dealing with the
issues should they arise.1
OCCUPATIONAL SAFETY AND
HEALTH ADMINISTRATION (OSHA)
OSHA requires employers to provide a safe working environment for
their employees. This will become a core issue if an outbreak occurs and
could create OSHA claims on many different levels. First and foremost,
those industries that inherently create a higher risk of exposure, such
as the meat and poultry processing industries and the airline industry,
Amy M. Scott and Von E. Hays, attorneys in the Dallas office of Kirkpatrick
& Lockhart Nicholson Graham LLP, exclusively represent management in
all aspects of labor and employment law. The authors can be reached at
ascott@kl.com and haysve@kl.com, respectively.
Employee Relations Law Journal
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Vol. 32, No. 2, Autumn 2006
How Employers Can Prepare for an Avian Flu Outbreak
could be particularly vulnerable to OSHA claims. Other industries also
could be impacted in the event of an outbreak. For example, employees who are required to travel to high-risk countries could claim they
are being subjected to an unsafe work environment. Coworkers of such
traveling employees could lodge OSHA claims in the event a traveling
employee returns to the primary work site after exposure, thereby putting his or her coworkers at risk. The general duty of providing a safe
working environment makes every industry and every employer at risk
of exposure to liability if an outbreak were to occur.2
AMERICANS WITH DISABILITIES ACT AND HIPAA
In an effort to provide a safe working environment for their employees, employers may want to obtain medical information and even
require medical exams (i.e., requiring medical exams of those employees who are returning from travel to high-risk areas). Yet doing so is
not without risk. Medical testing carries with it the prospect of liability
as such testing could run afoul of the Americans with Disabilities Act
(ADA). Employers who desire to implement medical certifications or
testing for “at-risk” employees must be cautioned to do so in only the
most limited circumstances and for essential business purposes only,
limiting the results to flu-specific indicators, and consistently applying
the policies. Employers certainly should consult legal counsel prior to
taking this sort of action.
A related issue is that of preserving employees’ protected health information pursuant to the Health Insurance Portability and Accountability
Act (HIPAA). In the event of an outbreak, employers must consider the
health and safety of all their employees while at the same time balancing
the privacy interests of employees who may have contracted the disease. Accessing and/or distributing medical information must be done
with an eye towards employer obligations under HIPAA.
FAMILY AND MEDICAL LEAVE ACT AND ERISA
The Family and Medical Leave Act (FMLA) most assuredly will be implicated in the event of an avian flu outbreak. The FMLA permits 12 weeks
of unpaid leave for employees who satisfy the following criteria:
1. They work for an employer at a site that has more than 50
employees;
2. They have worked at least 1,250 hours within the prior 12
months; and
3. They request leave to care for themselves or a family member
who has a “serious health condition.”
Vol. 32, No. 2, Autumn 2006
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Employee Relations Law Journal
How Employers Can Prepare for an Avian Flu Outbreak
Considering the virulence of the avian flu, it is likely it will be considered a “serious health condition.” Therefore, employers should be
adequately prepared to handle high levels of employee absences in the
event of an outbreak. Employers can start preparedness planning now
by taking the following steps:
1. Analyze those job functions that are essential to business continuity;
2. Begin cross-training employees where possible;
3. Identify and consistently apply a protocol to confirm the need
for and adequately track employees’ FMLA leave; and
4. Identify and consistently apply a protocol for how to address
situations where an employee on FMLA leave has exceeded his
or her leave or is not eligible.
In analyzing current leave and benefits policies and any changes
thereto, employers should not neglect ERISA implications of a prospective avian flu outbreak. Employers should distribute their most current
Summary Plan Descriptions to their plan participants and their covered
dependents. Those employers with self-administered plans should be
mindful of the potential increase in claims.
FAIR LABOR STANDARDS ACT
AND TELECOMMUTING
In the event of an outbreak, it is conceivable that employers may permit, or even require, employees to work from home. While this may be
a responsible option exercised by many employers, employers should
be aware of the potential wage and hour claims that could arise in these
scenarios. For example, an exempt employee who voluntarily opts not
to report to work for fear of exposure typically would not be entitled
to compensation. The Fair Labor Standards Act (FLSA) provides that
exempt employees need not be paid for any workweek in which they
perform no work.3 However, if exempt employees decide to periodically
check email or voicemail from home, they could be engaged in compensable activity and the employer could be responsible for paying those
employees for a full week’s worth of work. By way of further example,
a non-exempt employee who is working from home is no longer able to
record the hours he or she works by punching a clock or signing in and
out at the work site. Without these objective mechanisms in place, the
potential for claims for unpaid work time and for overtime abuse is ripe.
The Department of Labor places the burden on the employer to accurately record hours worked and it will be the employer’s responsibility
to disprove assertions regarding hours worked made by opportunistic
Employee Relations Law Journal
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Vol. 32, No. 2, Autumn 2006
How Employers Can Prepare for an Avian Flu Outbreak
employees. Thus, employers should consider developing telecommuting
policies that take into consideration the following:
1. Specify targeted times during which employees are permitted
to check email and voicemail;
2. Identify how employees should record their time and, where
possible, require the use of remote time clocks;
3. Require employees to request authorization to work overtime;
and,
4. Alert supervisors to risks of overlooking overtime work not
required by the supervisor.
NATIONAL LABOR RELATIONS ACT
The National Labor Relations Act (NLRA) affords protection to union
and non-union employees alike, who seek to engage in concerted activities related to their workplace. Even this relatively specialized law could
be implicated in the event of an avian flu outbreak. Employees—even in
a nonunion workplace—who collectively decide not to attend work due
to concerns over exposure to the avian flu could be engaged in a protected activity under the NLRA. In these situations, employees could be
shielded from adverse employment action. An employer’s best defense
in these situations is to implement contingency plans that include provisions for alternative working arrangements so as to minimize disruption
to daily business operations.
Other employment issues could arise in the context of collective bargaining agreements with unionized workforces. To the extent employers are faced with running lean operations due to a high volume of
employee absences, it is conceivable many employees will be forced to
perform jobs that are not consistent with the terms of the collective bargaining agreement as it pertains to such things as seniority, wage rates,
shifts, overtime, and vacation. To avoid possible claims of being in violation of a collective bargaining agreement and even unfair labor practice
charges, employers may want to consider keeping union representatives
actively involved in all stages of contingency planning.
UNIFORMED SERVICES EMPLOYMENT AND
REEMPLOYMENT RIGHTS ACT
Employers also should be cognizant of their obligations under
USERRA. If there were to be an avian flu outbreak and accompanying
quarantines, employees may be called to active duty to staff quarantine
stations or to otherwise assist in pandemic-response operations. Thus,
Vol. 32, No. 2, Autumn 2006
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Employee Relations Law Journal
How Employers Can Prepare for an Avian Flu Outbreak
when developing a contingency plan, employers should anticipate military-related absences and should plan accordingly.
WORKERS’ COMPENSATION
Employers also could be faced with an onslaught of workers’ compensation claims, depending on individual state laws. Employees who
become sufficiently ill while performing their job duties, which could
include business travel, may be in a position to file workers’ compensation claims. While often such ordinary diseases of life may be excluded
from coverage, the unique risks and various exposure scenarios that
may accompany an outbreak could create arguments for coverage in
some states. Employers should coordinate with their workers’ compensation insurer to identify what steps should be taken in the event an
employee reports a case of the avian flu.
STATE-SPECIFIC EMPLOYEE PROTECTIONS
Employers should recognize that all of the federal laws discussed
above provide employees with minimum protections. State-specific laws
oftentimes afford employees with additional protections. For example, in
Texas employers may not discharge or in any other manner discriminate
against an employee4 who leaves the employee’s place of employment
to participate in a general public evacuation ordered under an emergency evacuation order. Employers also could face negligent retention
or parallel claims by employees who become seriously ill as a result of
coworker exposure. Similarly, employers could be subjected to premises
liability claims filed by customers who are exposed to contaminated
work sites or contagious workers.
The potential for legal exposure is endless. This article has discussed
potential claims by employees, but that does not even account for
breach of contract claims that could be lodged by customers whose contractual requirements were not met and claims by companies that sue
suppliers for failing to satisfy contractual obligations. Prudent employers
should implement proactive measures in an attempt to mitigate liability
and keep their workforce safe. Employers should consider developing
an Emergency Action Contingency Plan. Employers also should educate
their workforce on how best to prevent transmission of the virus and
should be ready to provide employees with respiratory protection and
personal protective equipment, such as latex gloves, protective eye gear,
and anti-viral masks. Employers that require their employees to travel to
affected countries should distribute to employees the Center for Disease
Control’s (CDC) travel safety guidelines which can be found at www.
osha.gov/dsg/guidance/avian-flu.
Employee Relations Law Journal
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Vol. 32, No. 2, Autumn 2006
How Employers Can Prepare for an Avian Flu Outbreak
DEVELOPING A CONTINGENCY PLAN
Prudent employers will start developing contingency plans now that
take into consideration all relevant state and federal laws. Other key
components of a contingency plan should include:
1. Establishing a response team that is comprised of key individuals who will be responsible for monitoring the global status of
the avian flu virus, disseminating critical information, establishing necessary IT infrastructures to accommodate business continuity outside of the work site, and managing communications
with employees;
2. Identifying job functions that are critical to business operations;
3. Cross-training employees in an effort to mitigate disruptions
to business operations resulting from high rates of employee
absences;
4. Establishing telecommuting policies, procedures, and IT infrastructures;
5. Educating employees on ways to minimize transmission of the
flu;
6. Providing employees with personal protective equipment such
as antiviral masks, gloves, and eye protective gear;
7. Providing employees with ample information through the creation of a Web site or intranet;
8. Discussing pandemic policies with insurance carriers;
9. Reviewing current leave policies and modifying them as necessary, for example, by offering incentives for sick employees to
stay home, thereby minimizing risk of spreading the flu;
10. Developing policies regarding the closing of offices, including employees’ use of paid vacation and other compensation
issues;
11. Reviewing short- and long-term disability insurance policies;
and,
12. Posting in conspicuous areas a list of local hospitals, clinics,
health agencies, and emergency service personnel.
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Employee Relations Law Journal
How Employers Can Prepare for an Avian Flu Outbreak
CONCLUSION
The prospect of an avian flu outbreak is an area of deep concern to
us all as citizens of the global community. Implementing a contingency
plan, staying informed, practicing good hygiene, and adhering to the
CDC’s recommendations are sound precautionary steps we all should
take. After all, an ounce of prevention may be worth a pound of cure.
NOTES
1. There are numerous labor and employment issues related to the prospect of a global
pandemic. This article serves to put employers on notice of some of the more common
issues so they can begin the process of preventative planning. Consultation with legal
counsel is recommended before any precise course of action is taken.
2. See OSHA’s Guidance For Protecting Workers Against Avian Flu. OSHA is planning a
detailed update of its Guidance but has not yet committed to a date of issuance.
3. An employee out on company-sponsored sick leave may be entitled to pay.
4. Emergency services personnel generally are excluded from these protections as their
presence is necessary for public safety.
Employee Relations Law Journal
9
Vol. 32, No. 2, Autumn 2006
Walking on Eggshells—Avoiding
Retaliation Claims When an Employee
Who Files a Discrimination Complaint
Does Not Leave
Mary Price Birk
The author explains that employers can avoid retaliation claims by taking actions
that have a legitimate business purpose and that do not have a retaliatory intent or
effect on the employee.
O
ne of an employer’s hardest management dilemmas, because of the
danger of retaliation claims, is when an employee who has made
an EEOC claim, or filed a lawsuit alleging discrimination, still works for
the employer. Title VII of the 1964 Civil Rights Act prohibits discrimination in employment on the basis of race, color, religion, sex, or national
origin, and prohibits retaliation against employees who file complaints
of such discrimination. Retaliation is any action by an employer that
would have deterred a reasonable employee from making a claim of
discrimination, had the employee known this action would be taken
against him if he or she complained. An employee can win a retaliation
claim even when he or she does not win the discrimination claim. The
anti-retaliation law protects employees from negative consequences for
complaining about discrimination—whether the complaint was justified
or not. In addition to Title VII, there are many other federal and state
laws that also prohibit retaliation.
LITTLE GUIDANCE FROM THE COURTS
Courts give employers little guidance about how to continue to
conduct business as normal when the complaining employee stays
employed by the company. An employer may feel as if it is “walking
on eggshells” when dealing with that employee, afraid everything it
does will be misinterpreted as retaliation. Unfortunately, there are some
employees who try to work the system knowing the predicament their
employers are in when a complaint is made. In fact, some employees
Mary Price Birk serves as co-chair of Baker & Hostetler’s National Employment
Litigation Practice Team. Ms. Birk, a partner in the firm’s Denver office,
counsels and represents employers, domestic and international, in the
many aspects of employment law and litigation. She can be reached at
mbirk@bakerlaw.com.
Vol. 32, No. 2, Autumn 2006
10
Employee Relations Law Journal
Walking on Eggshells—Avoiding Retaliation Claims
make a claim of discrimination when they feel their job is in jeopardy
precisely so that they have the protection of a possible retaliation claim
when their employment is terminated or they are disciplined.
Even as simple a decision as which employees to put on a committee or to give an assignment, may be influenced by the employer’s fear
that not including the complaining employee will lead to a retaliation
claim, even though the employee may not be the best choice in the
particular situation for reasons having nothing to do with retaliation.
This fear by the employer may lead to the disgruntled employee actually
receiving more favorable treatment than he would have had he made
a complaint.
The U.S. Supreme Court’s latest decision on retaliation lawsuits, in
Burlington Northern & Santa Fe Railroad v. White,1 has made the problem of continuing relations with employees who have made discrimination claims even more difficult. Justice Stephen Breyer, who wrote
the decision, expanded the kinds of employer actions that can form
the basis for a retaliation claim. Previously, in many jurisdictions, an
employee had to show that the employer’s actions rose to the level of
a material employment decision, one that affects the terms and conditions of employment, such as a firing or a demotion, in order to be the
basis for a retaliation claim. The U.S. Supreme Court has now weighed
in and said that any significant negative action by an employer towards
the complaining employee, in or out of the workplace, can be retaliation
if it would be enough to discourage an employee from filing a claim.
The new standard set out by the Supreme Court makes avoiding retaliation claims harder for the employer because there is so much more
ambiguity and latitude in which employer actions can be construed as
being retaliatory.
INDICATIONS OF A POSSIBLE RETALIATORY ACTION
Some actions that have been found to rise to the level of supporting
a possible retaliation claim include:
•
Bringing an employee in for questioning after learning the
employee has made a claim of discrimination;
•
Denial of promotion;
•
Transferring an employee to another location or position;
•
Changing an employee’s actual job duties, even if the duties
are still in the employee’s original job description;
•
Increasing “monitoring” of an employee’s performance or
activities;
Employee Relations Law Journal
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Vol. 32, No. 2, Autumn 2006
Walking on Eggshells—Avoiding Retaliation Claims
•
Filing criminal charges against the employee;
•
Giving poor references for the employee, including telling
prospective employers that the employee filed a claim for discrimination;
•
Changing an employee’s schedule when change materially
affects the employee;
•
Exclusions from meetings or training lunches;
•
Granting leave, paid or unpaid;
•
Denial of pay increase;
•
Suspension without pay;
•
Denial of previously approved paid time off;
•
Co-worker retaliation or hostility, if severe, and if condoned by
the employer; and
•
Filing a lawsuit against the employee or a counterclaim in a
lawsuit brought by the employee.
As this list of possible retaliatory conduct indicates, almost anything
can be interpreted as retaliation, although the Supreme Court said that
“petty slights and minor annoyances” are not enough.
EMOTIONS AND ACTIONS
The dynamics of what goes on, both with regard to people’s emotions
and their actions, after a complaint has been made, exacerbates the situation with regard to claims of retaliation. A natural response by someone
who has had a complaint made against them is to be more cautious
and wary around the complaining person. This reaction is not illegal
or retaliatory. However, the employer must be careful not to allow this
level of distrust to cause him to do anything that could be construed as
retaliatory toward the complaining party.
For example, when investigating a claim of discrimination, sometimes
an employer learns of improper actions or deficiencies in the performance of the complaining employee. Many times the employer was
already aware of the deficiencies but simply had not chosen to address
them. Then, during the course of the investigation of the discrimination
claim, the employer may decide that, to be fair, it must now address
the problems with the complaining party as well as with the employees being complained against. However, the employer must consider
whether taking action now is going to appear to be retaliation against
Vol. 32, No. 2, Autumn 2006
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Employee Relations Law Journal
Walking on Eggshells—Avoiding Retaliation Claims
the complaining employee. What made the employer decide to become
more strict or discipline the complaining employee? If it is the discrimination complaint, a court may well find retaliatory motives existed. The
employer must take the utmost care in making sure no actions are
taken that will affect the complaining employee without a dispassionate
examination of the need and the reason for the action.
Other times, an employer will make a change in policy in response
to the claim of discrimination, thinking that the policy change will
help avoid future claims of discrimination by making company rules
more clear. The policy change might adversely affect the complaining
employee. In most situations, the time for policy changes is not when
the company is in the middle of dealing with a discrimination claim, but
at a time when an objective decision can be made.
Finally, sometimes employers decide to monitor all employees’
actions more closely after a discrimination claim is made, giving more
intense scrutiny to adherence to company rules and policies. They may
be inclined to take stricter actions than they would normally take, feeling as if they need to act more by-the-book in the face of the additional
scrutiny of a discrimination claim. Although the employer may believe
this stricter attitude is being applied across the board, the employee
who filed a complaint may well believe that the employer’s actions, as
it affects him, are being taken in retaliation for his complaint.
CONCLUSION
What actions are okay for an employer to take? By and large, an
employer can take any actions that have a legitimate business purpose
and that don’t have a retaliatory intent or effect on the employee.
However, what constitutes a legitimate business purpose can also be a
subject of contention. Accordingly, the employer should consider carefully any action that could be construed as retaliatory and determine
whether there is a clear business need to take that action.
How can an employer ensure that the actions being taken for a legitimate business purpose are not going to be regarded as retaliatory? The
employer should expect its actions to be examined under a microscope.
First, an employee who has complained may attribute any employment
action he does not agree with, as retaliation for his complaint. On the
other hand, the person taking the action generally does not believe he
is acting in retaliation. At the present time, the law on retaliation is so
unclear that an employer should act with extreme caution in taking any
actions with regard to employees who have filed a complaint of discrimination, and should seek legal guidance before any decisions are made.
NOTE
1. )
Employee Relations Law Journal
13
Vol. 32, No. 2, Autumn 2006
Legal Remedies for Workplace Bullying:
Grabbing the Bully by the Horns
C. W. Von Bergen, Joseph A. Zavaletta, Jr., and Barlow Soper
Supervisor to Employee: “You see this watch? That watch costs more than your car.
I made $970,000 last year, how much did you make? You see pal, that’s who I am,
and you’re nothing. Nice guy? I don’t give a #$%&. Good father? #$%& you; go
home and play with your kids. . . . You think this is abuse, you #$%&? You don’t
like it? Leave!”
“Glengarry Glen Ross,” New Line Cinema (1984).
T
he movie excerpt quoted above clearly illustrates that the boss is a
jerl. But, is the manager also a workplace bully? Based on the limited information presented in the scenario this question is more difficult
to answer. To better understand such situations this article discusses
workplace bullying. It starts by defining workplace bullying and positioning it on a hostile workplace continuum. Then, the prevalence of
workplace bullying and its consequences are presented. Finally, possible legal remedies for individuals who perceive they are being bullied
are considered.
INTRODUCTION
Bullying Defined Within a Hostile Workplace Continuum
Bullying lies on a continuum anchored by on-the-job incivilities on
one end and physical violence on the other (see Figure 1). While incivilities may cause some discomfort and physical violence can result in
death, bullying may result in mild to severe harm to an individual.1
Figure 1. Continuum of a Hostile Work Environment Illustrating Varying
Degrees of Abusive Behavior
→
Milder
More Severe→
❙——————————————————————————————❙
Incivility
Bullying
Physical Violence
C. W. Von Bergen is John Massey Professor of Management at Southeast
Oklahoma State University. Joseph A. Zavaletta, Jr., is a professor of business
law at the University of Texas at Brownsville. Barlow Soper is a professor of
psychology and behavioral sciences at Louisiana Tech University.
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At the extreme right end of the hostile work environment continuum
lies physical assault, battery, homicide, and other extremely violent overt
events detailed within the criminal codes in all industrialized countries.2
At the left end of this continuum is workplace incivility which often refers to relatively covert antisocial behaviors such as swearing, isolation,
and interrupting. Incivility has been defined as “low-intensity deviant
behavior with ambiguous intent to harm the target, in violation of workplace norms for mutual respect and may or may not be intended to harm
the target.”3 Uncivil behaviors are characteristically rude and discourteous, displaying a lack of regard for others.4 Not surprisingly, rudeness
may rise to the level of abuse and increased incivility as a precursor to
more intense interpersonal mistreatment such as undermining,5 “petty
tyranny,”6 emotional abuse,7 generalized workplace abuse,8 nonphysical
work place aggression,9 victimization at work,10 and bullying.11 “Bullying
is different from harmless incivility, rudeness, boorishness, teasing, and
other well-known forms of interpersonal torment. It is mostly sub-lethal,
non-physical violence.”12
Workplace Bullying Defined
There is no single agreed-upon definition of bullying. Further complicating understanding, bullying goes by different names: interpersonal
mistreatment, psychosocial harassment, psychological violence, abusive
workplace conduct, antisocial employee behavior, escalated incivility,
and psychological aggression, among others. Bullying is not about a
“clash of personalities, a misunderstanding, or miscommunication.”13
Nor should it be confused with “joking” or “horseplay,” which are characterized by a lack of animosity.
Bullying generally involves one person harassing another and “is characterized by a pattern of deliberate, hurtful and menacing behaviors.”14 It
can include intimidating physical threats such as pushing, shoving, and
invading an individual’s personal space. Bullying typically represents
psychological violence that is mostly covert. It is usually psychological
violence, both in its nature and impact, involving an array of low-level
aggressions often disguised as joking or initiation rites that disguise and
mask sadistic behaviors.15 Keashly and Newman16 identified the following ten bullying behaviors:
1. Glaring in a hostile manner;
2. Treating in a rude/disrespectful manner;
3. Interfering with work activities;
4. Giving the “silent treatment”;
5. Giving little or no feedback on performance;
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6. Not giving praise to which an individual feels entitled;
7. Failing to give information needed;
8. Delaying actions on matters of importance to an individual;
9. Lying; and
10. Preventing an individual from expressing oneself.
Common to most definitions of bullying, however, is behavior that
intimidates, humiliates, and/or undermines a person and that is repeated over time. These descriptions encompass certain characteristics that
should be included in any understanding of workplace bullying. Hence,
we define workplace bullying as: harassment that inflicts a hostile work
environment upon an employee by a coworker or coworkers, typically
through a combination of repeated, inappropriate, and unwelcome verbal, nonverbal, and/or low-level physical behaviors that a reasonable
person would find threatening, intimidating, harassing, humiliating, degrading, or offensive. Thus, by this definition the movie boss presented
in the opening scenario would be considered a workplace bully by most
individuals. The only aspect of the definition in doubt might be the
“repeated” criterion. But, it would seem that the other aspects were so
severe as to still qualify.
Prevalence of Workplace Bullying
Results from a European Union survey show that 9 percent of workers in Europe, or 12 million people, reported being subject to bullying
over a 12-month period in 2000.17 Large-scale studies in Scandinavia
have indicated that approximately 3 to 4 percent of workers are affected
on a regular basis.18 Finnish and British studies have revealed higher
prevalence rates of approximately 10 percent.19 A study of 603 Canadian
nurses revealed that one third had experienced verbal abuse in the previous five days.20 According to the Canadian Commission des Normes du
Travail, surveys show that up to one in ten Quebec workers has been
the subject of harmful bullying, intimidation, or belittlement by a boss
or coworker.21
Estimates of bullying’s prevalence in the United States vary. For
example, Hornstein22 indicated that 90 percent of the workforce suffers
boss abuse at some time in their careers. Another study by Namie and
Namie23 reported that a full 66 percent of all respondents experienced
or witnessed workplace bullying while Keashly and Jagatic24 randomly
sampled Michigan residents and found that 16.7 percent of respondents
reported a severe disruption of their lives from workplace harassment.
Finally, a survey conducted by the Chartered Management Institute found
that one third of managers were victims of workplace bullying.25 These
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are probably conservative estimates according to Salin26 who found that
that despite being subjected to frequent bullying behavior, most targets
of bullying were disinclined to label themselves as bullied.
Consequences of Bullying to the Individual
Studies show that bullying can have severe consequences for employee job satisfaction27 and health.28 Physical, mental, and psychosomatic
health symptoms are also well established. These include stress, depression, reduced self-esteem, self-blame, phobias, sleep disturbances,
digestive, and musculoskeletal problems.29 Post traumatic stress disorder, similar to symptoms exhibited after other disturbing experiences,
may occur. Symptoms may persist for years. Other consequences may
include social isolation, family problems, and financial problems due to
absence or discharge from work.
LAWS THAT HAVE BEEN PASSED IN OTHER COUNTRIES
AND THE UNITED STATES TO COMBAT
WORKPLACE BULLYING
Given the prevalence of workplace bullying and its consequences,
it is surprising that the jurisprudence surrounding workplace bullying
in the United States is only beginning to be addressed. Indeed, based
on recent school violence, many states are proactively developing student anti-bullying statutes to curb growing school bullying. “Bullying
by students on school grounds, a subject of renewed interest for
state policymakers in recent years, was most recently brought to the
national spotlight by the highly publicized school shootings of the late
1990s, in which the shooters were reported to be the victims of bullies
at the school.”30 According to the Education Commission of the States,
17 states and Guam have enacted legislation aimed at curbing bullying
by K–12 students on school property,31 compared to zero states with
anti-bullying workplace legislation. In this regard, the United States
lags behind many parts of the world in addressing workplace bullying and, apparently, US government officials and employers place
more emphasis on high profile shootings and homicides and on racial
and sexual harassment, compared with more generalized workplace
harassment.32
Workplace Bullying Legislation in Other Countries
Sweden is the only country in the world with legislation specific to
bullying. The Ordinance of the Swedish National Board of Occupational
Safety and Health contains provisions on measures against victimization
at work which was adopted September 21, 1993.33 By victimization is
meant recurrent reprehensible or distinctly negative actions which are
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directed against individual employees in an offensive manner and can
result in those employees being placed outside the workplace community. The following are some instances of victimization in the law:
•
Slandering or maligning an employee and his or her family;
•
Deliberately withholding work-related information or supplying incorrect information of this kind;
•
Deliberately sabotaging or impeding the performance of
work;
•
Obviously insulting ostracism, boycott, or disregard of the
employee;
•
Persecution in various forms including threats, fear, or degradation;
•
Deliberate insults, hypercritical or negative response or attitudes (ridicule, unfriendliness, etc);
•
Supervision of the employee without his or her knowledge
and with harmful intent; and
•
Offensive “administrative penal sanctions” which are suddenly
directed against an individual employee without any objective
cause, explanations, or efforts at jointly solving any underlying problems. The sanctions may, for example, take the form
of groundless withdrawal of an office or duties, unexplained
transfers or overtime requirements, manifest obstruction in the
processing of applications for training, leave of absence and
suchlike.34
Offensive administrative sanctions are, by definition, deliberately carried out in such a way that they can be taken as a profound personal
insult or as an abuse of power. The attitudes involved in offensive acts
are, briefly, characterized by gross lack of respect and offend against
general principles of honorable and moral behavior towards other people. The actions have a negative effect, in both the short and long term,
on individuals and also on entire working groups. Consequently, these
acts and sanctions are liable to cause high, prolonged stress or other
abnormal and hazardous mental strains on the individual.
For the sake of clarity, it should be added that occasional differences of opinion, conflicts, and problems in working relations generally
should be regarded as normal phenomena—always provided, of course,
that the mutual attitudes and actions connected with the problems are
not intended to harm or deliberately offend any person. Victimization
does not occur until personal conflicts lose their reciprocity and respect
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for people’s right to personal integrity slips into unethical actions of
the kind mentioned above and individual employees are dangerously
affected as a result.
Many other European and Scandinavian countries, including France,
Germany, Italy, Spain, the Netherlands, and Norway, have introduced
regulatory responses to workplace bullying.35 The European Parliament,
for example, has adopted a Resolution on Harassment at the Workplace.36
Furthermore, the International Labour Organization, a specialized agency of the United Nations which formulates international labor standards
in the form of Conventions and Recommendations setting minimum
standards of basic labor rights adopted a resolution entitled Collective
Agreements on the Prevention and Resolution of Harassment-Related
Grievances37 that described workplace harassment as:
•
Measures to exclude or isolate a protected (targeted) person
from professional activities;
•
Persistent negative attacks on personal or professional performance without reason or legitimate authority;
•
Manipulation of a protected (targeted) person’s personal or
professional reputation by rumor, gossip, and ridicule;
•
Abusing a position of power by persistently undermining a
protected (targeted) person’s work, or setting objectives with
unreasonable and/or impossible deadlines, or unachievable
tasks;
•
Unreasonable or inappropriate monitoring of a protected (targeted) person’s performance; and
•
Unreasonable and/or unfounded refusal of leave and training.
Effective August 15, 2005, the state of South Australia implemented
new workplace bullying laws, dubbed the SafeWork regulations.38
Under the new legislation, workplace investigators will refer bullying
disputes to the South Australian Industrial Relations Commission for
resolution. Also, state government departments and private organizations can now be prosecuted and fined up to $A100,000 for failing
to adequately manage bullying behavior by breaching their duty of
care. The regulations refer to bullying as behavior: (a) that is directed
towards an employee or a group of employees, that is repeated and
systematic, and that a reasonable person, having regard to all the circumstances, would expect to victimize, humiliate, undermine or threaten the employee or employees to whom the behavior is directed; and
(b) that creates a risk to health or safety. Bullying does not include:
(a) reasonable action taken in a reasonable manner by an employer to
transfer, demote, discipline, counsel, retrench, or dismiss an employee;
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or (b) a decision by an employer, based on reasonable grounds, not to
award or provide a promotion, transfer, or benefit in connection with
an employee’s employment; or (c) reasonable administrative action
taken in a reasonable manner by an employer in connection with an
employee’s employment; or (d) reasonable action taken in a reasonable manner under the new regulations affecting an employee.
Beginning in June 2004, employees experiencing psychological
harassment (bullying), may begin to file complaints with the Quebec
Labour Standards Commission. This is the first anti-bullying law in North
America and is referred to as the Workplace Psychological Harassment
Prevention Act (2003).39 Now, Canadian employees’ quality of life at
work depends on conscientious employers. When employers take such
steps, bullies can be held accountable. The new Quebec law prohibits
psychological harassment, defined as:
(a) any vexatious behaviour in the form of hostile, inappropriate and
unwanted conduct, verbal comments, actions or gestures that affects
an employee’s dignity or psychological or physical integrity and that
results in a harmful workplace for the employee, and
(b) any abuse of authority, including intimidation, threats, blackmail
or coercion, that occurs when a person improperly uses the
power or authority inherent in the person’s position to endanger
an employee’s job, undermine the employee’s job performance,
threaten the economic livelihood of the employee or interfere in
any other way with the career of the employee; and, for greater
certainty, a single incident of such behaviour that has a lasting
and harmful effect on an employee also constitutes psychological
harassment.40
A similar amendment was proposed to the Canada Labour Code,
which applied to all federal government employees. The Workplace
Psychological Harassment Prevention Act would impose fines of up to
$C10,000 for hostile, inappropriate and unwanted conduct, verbal comments or gestures” as well as “any abuse of authority, including intimidation, threats, blackmail or coercion.” When the June 2004 election was
called however, the bill died.
US Legislation
In the United States the law regarding bullying is in its infancy,
but is making headway via lawsuits and legislation around the country.41 Increasingly, however, US jurisdictions are considering making
it unlawful to subject an employee to an abusive work environment
involving bullies.
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Local Efforts
At local levels there is some deliberation of bully laws. For instance,
McBride reported that in October 2003 the Providence, Rhode Island
City Council introduced an ordinance to ban bullying at citywide workplaces, only to have the proposed legislation lie dormant until City
Council President John J. Lombardi said in 2005 that he and other councilors were committed to adopting a citywide law to make workplace
bullying illegal that could serve as a national model.42 In Ventura County,
California, the Board of Supervisors are considering an anti-bullying
policy after Ventura County Supervisor John Flynn allegedly abused
staff and was prohibited from further contact with county employees.43
Additionally, an Indianapolis, Indiana jury recently found for the plaintiff
and ordered the physician-defendant to pay a former hospital employee
$325,000 on a claim of bullying, brought under the guise of intentional
infliction of emotional distress and assault.44
State Efforts
At present, there are no state laws that specifically address workplace
bullying. However, in August 2001, the California Supreme Court hinted
that legislation on bullying might be warranted. In Torres v. Parkhouse
Tire Service, Inc.45 an employee sued his employer and a coworker for
personal injury and loss of consortium resulting from a coworker lifting him off the ground several times and dropping him on his knees.
Although the California Supreme Court tied bullying to a protected class,
the court commented as follows:
In any event, aggressive physical bullying is one of the common
tools of racial and gender-based harassment and sometimes leads
to injury, whether or not injury is specifically intended. That the
Legislature might wish to deter this obnoxious behavior by the threat
of civil liability should not trouble us.46
Legislators in a number of states (see Figure 2, below) have attempted,
or are attempting, to introduce legislation to combat workplace bullying.
While some bills have died in committee47 others are currently awaiting action. Additionally, there is pre-bill activity occurring in New York
State.48 Such state initiatives have used variations of the anti-bullying
legislation, named the “Healthy Workplace Bill” developed by Professor
David C. Yamada, of Suffolk University Law School in conjunction with
the Workplace Bullying & Trauma Institute of Bellingham, Washington.49
Enacted legislation would make workplace bullying an unlawful employment practice and allow employees to bring civil actions.
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Figure 2. State Law Related to Workplace Bullying50
State
Date
Legal
Recourse
Summary of Proposed
Legislation
Disposition
Expected Further
Action
Hawaii
2005–2006
Yes
HB2840 prohibits the
“unlawful employment
practice of subjecting an
employee to an abusive
work environment” and
provide a “legal recourse
for employees who have
been psychologically,
physically, or economically harmed by being
deliberately subjected to
abusive work environments.”
In committee
Awaiting further
action, 2006
Oregon
2005
Yes
HB 2639 declares workplace bullying an “unlawful employment practice,”
and creates a cause of
action allowing employees to bring a civil action
alleging workplace bullying.
In committee
Awaiting further
action, 2006
Massachusetts
2005–2006
Yes
H-3809 is based on
Workplace Bullying
Public Policy Question
on the Ballot in the
3rd Hampshire District
(Amherst & Granby).
51
Passed on Nov. 2, 2004.
Favorably discharged from
the Committee
on Labor and
Workforce,
February 2006
as H-4699.
Awaiting further
action, 2006
Missouri
2006
Yes
HB 1187 makes it an
unlawful employment
practice to subject an
employee to an abusive
work environment or
to retaliate against an
employee who opposes
that type of environment.
Referred to
Workforce
Development
& Workplace
Safety
Committee on
January 26,
2006
Awaiting further
action,
March 2006.
Proposed
Effective date:
August, 2006.
Kansas
2006
Yes
HB 2990 filed March 1,
2006 seeks protection
for all employees, working for either public or
private employers, regardless of protected group
status, who seek redress
for being subjected to an
abusive work environment. It becomes unlawful to be subjected to
another employee whose
malicious conduct sabotages or undermines the
targeted person’s work
performance.
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22
Awaiting further
action, 2006
Employee Relations Law Journal
Legal Remedies for Workplace Bullying
Federal Efforts
There is currently no specific legislation addressing workplace bullying at the federal level. On June 22, 2004, Sen. Tom Harkin (D-Iowa)
introduced an omnibus bill called the HeLP (Healthy Lifestyle and
Prevention) America Act (S2558) (US Senate Bill S2558, 2004). A wideranging act, it called for the creation of programs to stimulate health
promotion in the workplace, including stress management. Sen. Harkin’s
bill, which does not specifically address bullying, is unlikely to pass in
its present form (over 300 pages with at least 20 programs to stimulate
health promotion in the workplace, school, and community), but it is
important for recognizing the role health promotion can play in enhancing workplace environments.
Further attempts at introducing workplace bullying are no doubt
forthcoming and in time such legislation may become more commonplace. The American legal system has been hesitant to legislate
manners or civility in the workplace (outside of the civil rights laws),
but this attitude might soon change as the problem becomes more
recognized and acknowledged, and legal remedies will no doubt be
found. Nevertheless, some believe that broad definitions of harassment and bullying may open the door to more tenuous or problematic
complaints (e.g., a raised voice is perceived as yelling or a rap on
the table for emphasis is perceived as threatening). “You could end
up with ‘He’s been mean to me for three months and yelled at me
four times’ as a triable offense,” said Los Angeles attorney Michael
Bononi, an expert in employment law. “It could create a nightmare
for employers and the courts. There is no law against being a jerk in
the workplace.”52
INDIVIDUAL LEGAL REMEDIES
At its core, workplace bullying consists of repetitive non-genderbased harassing acts by (generally) a supervisor directed to one or several underlings which, if allowed to fester, can lead to a hostile work
environment and employer liability. Notwithstanding the “growing body
of statutory and common-law protections for workers—particularly status-based employment discrimination laws and tort claims for emotional
distress—[workplace bullying cases] have generally not been effective.”53
However, recent trends and decisions portend a possible ‘workplace
bully’ cause of action, whether based on new statutory remedies, supra,
or adaptation of existing causes of action as show below. This section
discusses whether any of four existing cause of actions, Title VII sexual
harassment, intentional infliction of emotional distress, intentional interference with business relationships, and constructive discharge, can be
adapted or extended to include workplace bullying.
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Can the Title VII Sexual Harassment Cause of Action Be
Extended to Include Workplace Bullying?
The jurisprudence of sexual harassment in the United States is wellsettled, rooted mainly in violations of Title VII of the Civil Rights Act of
196454 (Title VII) which holds employers vicariously liable55 for discrimination. To succeed on a harassment claim, a plaintiff must show:
1. That he or she was a member of a “protected class,” viz., race,
color, religion, sex, or national origin;
2. That he or she was subjected to unwelcome harassment;
3. That the harassment complained of was based on a protected
characteristic;
4. That the harassment was sufficiently severe or pervasive to
create a hostile or abusive working environment; and
5. That a basis of employer liability exists.56
Title VII harassment based on sex generally takes two forms: quid
pro quo and hostile environment harassment. Quid pro quo harassment
occurs when economic benefits such as promotions and raises are given
by a supervisor in exchange for sexual favors.57 Hostile work environment, on the other hand, occurs when “the workplace is permeated
with discriminatory intimidation, ridicule, and insult that is sufficiently
severe or pervasive to alter the conditions of the victim’s employment
and create an abusive working environment.”58 A hostile environment
claim requires a showing of a pattern of offensive conduct,59 unless the
isolated instance is unusually severe.60 And even if individual acts do
not constitute a hostile environment separately, they can be actionable
when the conduct, taken as a whole, leads to an environment that the
employee “reasonably”61 perceives as abusive or hostile.62 It is up to the
trier of fact to determine whether the conduct of the supervisor or colleague is such that it “unreasonably interfer[es] with an individual’s work
performance” or creates “an intimidating, hostile, or offensive working
environment.”63 Moreover, an employer may be liable for sexual harassment, even when the employee has suffered no economic loss.64
In 1998, the Supreme Court decided the “twin towers” of sexual
harassment jurisprudence, the Faragher v. City of Boca Raton65 and
Burlington Industries v. Ellerth66 cases which definitively set the guidelines for employer liability for sexual harassment under Title VII. In both
cases, the Court held that an employer is strictly liable for supervisor
harassment that “culminates in a tangible employment action, such as
discharge, demotion, or undesirable reassignment.”67 In Faragher, the
Court held that an employer (the City of Boca Raton) could be liable for
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sexual harassment by its supervisor even if the employer was unaware
of the behavior.68 And in Burlington, the Court expanded Meritor by
holding that while an employer may be held liable for sexual harassment absent a “tangible employment action,”69 the employer could raise
a two-prong affirmative defense to liability by first, establishing that it
“exercised reasonable care to prevent and correct promptly any sexually harassing behavior,”70 and second, by establishing that the “plaintiff
employee unreasonably failed to take advantage of any preventive or
corrective opportunities provided by the employer or to avoid harm otherwise.”71 Later that year, in Oncale v. Sundowner,72 the Supreme Court
held that ‘same-sex’ sexual harassment is actionable as sex discrimination under Title VII.
Liability for sexual harassment under Title VII has been based on the
specially designated status of the plaintiff,73 even though both Supreme
Court and lower court cases contain status-free language that could
be used to create a cause of action for severe, pervasive, or abusive
work environment. Courts, however, have been unwilling to expressly
extend Title VII protection to non-status based workplace harassment,
even when the supervisor’s behavior creates an otherwise hostile or
abusive environment. For example, in Hesse v. Avis Rent A Car,74 the
plaintiff filed a Title VII suit for workplace harassment, discrimination,
and retaliation based on her supervisor’s bullying behavior. The suit,
which began with Hesse’s supervisor’s “squeaking shoes” deteriorated
into the supervisor’s yelling, banging on desks, and clapping hands
loudly at both male and female employees. Hesse claimed this behavior
interfered with the job performance of all employees in the office. On
appeal, the Eighth Circuit Court of Appeals reversed and denied Hesse’s
claim, holding that “Hesse was entitled to protection from discrimination or harassment in her employment at Avis if she can show that it
was based on sex. Thus, generalized harassment in the workplace is not
illegal under Title VII.”75
Nevertheless, in EEOC v. NEA, 76 the Ninth Circuit Court of Appeals
left a possible legal loophole to expand application of Title VII to
workplace bullying that is not “based on sex.” The appeal presented
the question of whether harassing conduct by a supervisor directed at
female employees violated Title VII in the absence of direct evidence
that the harassing conduct or the intent that produced it was because
of “sexual animus.”77 In reversing the lower court, the Ninth Circuit held
that “offensive conduct that is not facially sex-specific nonetheless may
violate Title VII if there is sufficient circumstantial evidence of qualitative
and quantitative differences in the harassment suffered by female and
male employees.”78
Although, workplace bullying is intimidating, offensive, repetitive, and
systematic, and clearly leads to a hostile environment,79 it remains to be
seen whether a status free Title VII harassment action will be addressed
by our court systems.80 Perhaps the time has come for progressive courts
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to create a status-free hostile environment doctrine as a broad basis to
hold employers liable for their abusive, bullying bosses.
Can the Doctrine of Intentional Infliction of Emotional
Distress Be Used Against Workplace Bullies?
One of the primary non-status based legal theories plaintiffs use to
seek relief for maltreatment in the workplace is intentional infliction of
emotional distress (IIED). To prevail on an IIED claim, the plaintiff must
prove that:
1. The defendant acted intentionally or recklessly;
2. The conduct was extreme and outrageous;
3. The defendant’s actions caused the plaintiff emotional distress;
and
4. That the resulting emotional distress was severe.81
IIED generally requires extreme words or conduct “so outrageous
in character, and so extreme in degree, as to go beyond all possible
bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community… [where] recitation of the facts to an
average member of the community would arouse his resentment against
the actor, and lead him to exclaim, ‘Outrageous!’”82
Typically, extreme and outrageous conduct can be demonstrated by
physical symptoms such as high blood pressure, disturbance to the nervous systems, nausea, general physical illness, depression, and insomnia.83 To determine whether certain conduct is extreme and outrageous,
Texas courts, for instance, consider the context and the relationship
between the parties.84 In the employment context, a claim for IIED does
not lie for ordinary employment disputes so a plaintiff-employee must
prove the existence of some conduct that brings the dispute outside the
scope of employment and into the realm of extreme and outrageous
conduct. 85
Plaintiffs have sought to impose liability for IIED on both their
employers and the specific workers, often supervisors, who engaged in
the alleged conduct. In Texas, for example, IIED is a judicially created
‘gap filler’ tort for the “limited purpose of allowing recovery in those rare
instances in which a defendant intentionally inflicts severe emotional
distress in a manner so unusual that the victim has no other recognized
theory of redress.”86 When repeated or ongoing severe harassment is
shown, the conduct should be evaluated as a whole in determining
whether it is extreme and outrageous.87 For example, in Turnbull v.
Northside Hospital, Inc,88 the plaintiff based her complaint on IIED. In
granting the defendant-hospital’s motion for summary judgment, the
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Georgia Court of Appeals noted that while “glaring at plaintiff with
purported anger and contempt, crying, slamming doors, and snatching
phone messages from plaintiff’s hand was childish and rude, * * * it is
not the type of behavior for which the law grants a remedy.”89
The liability for intentional infliction of emotional distress clearly
does not extend to mere insults, indignities, threats, annoyances, petty
oppressions, or other trivialities. The rough edges of our society are still
in need of filing down, and in the meantime plaintiffs must necessarily
be expected and required to be hardened to occasional acts that are
definitely inconsiderate and unkind.90
Notably, the court found persuasive the absence of cursing, derogatory remarks about the plaintiff, and verbal and physical threats. Courts
in other states have treated IIED cases in a similar fashion.91
Bully behavior, on the other hand, may not be “extreme” or “outrageous” and therefore hard to objectively prove. As a result, plaintiffs
have had difficulty in successfully prosecuting workplace bullying
claims under the guise of IIED, with one notable exception: the
landmark case of Doescher v. Raess,92 (Indianapolis, 2005) in which a
former hospital employee, sued the hospital on a claim of workplace
bullying by one of its doctors. The case was based on workplace
bullying and intentional infliction of emotional distress. The Marion
Superior Court of Indianapolis, Indiana ordered heart surgeon, Dr.
Daniel H. Raess, to pay a former hospital employee $325,000. The
attorney for the doctor found liable for workplace bullying is appealing the jury’s $325,000 verdict. His main legal point to appeal: there is
“no such thing as ‘workplace bullying.’”93 The case is still on appeal to
the Indiana Supreme Court.
Can Intentional Interference With Contracts
or Constructive Discharge Be Used Against
Workplace Bullies?
The law protects those in the pursuit of their livelihood and against
unlawful interference.94 This section will examine whether intentional
interference with contracts or constructive discharge are viable legal
remedies for workplace bullying.
Intentional Interference with Contracts
The Restatement of Torts (Second)95 contains the two main provisions relating to interference with contractual relations, Sections 766 and
766A, but they serve different purposes.
One who intentionally and improperly interferes with the performance
of a contract between another and a third person by inducing or
otherwise causing the third person not to perform the contract, is
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subject to liability to the other for the pecuniary loss resulting to the
other from the failure of the third person to perform the contract.96
One who intentionally and improperly interferes with the performance
of a contract between another and a third person, by preventing the
other from performing the contract or causing his performance to be
more expensive or burdensome, is subject to liability to the other for
the pecuniary loss resulting to him.97
Not only do these sections serve different purposes, but Section 766A,
often used by plaintiffs in these types of cases, is much more difficult
to apply. In particular, courts have grappled with the issue of whether
Section 766A can encompass a supervisor or a colleague in the workplace. The Third Circuit Court of Appeals noted
Section 766 addresses disruptions caused by an act directed not at
the plaintiff, but at a third person: the defendant causes the promisor
to breach its contract with the plaintiff. Section 766A addresses
disruptions caused by an act directed at the plaintiff: the defendant
prevents or impedes the plaintiff’s own performance.98
Hypothetically, the parties in Section 766A would be as follows: the
supervisor (the “one”) prevents or causes the plaintiff’s (the “another”)
performance to his or her employer (the “third party”) to be more
expensive or burdensome. The law protects not only those contracts
already made, but also protects the employee’s implied and express
contractual interests in continued economic gain and employment.99
An employee who therefore is terminated, resigns, or suffers other
adverse action as a result of a supervisor (or coworker’s) actions may
have a claim against not only the company but also the supervisordefendant. As a result, a growing number of courts are ruling that
employers may be vicariously liable for the supervisor’s intentional
actions under Section 766A that prevent or interfere with the plaintiff-employee’s contractual performance to the company. This, notwithstanding a supervisor’s intentional interference with a coworker’s
employment is legally adverse to the company’s interests and therefore
outside the scope of employment.
In O’Brien v. New England Telephone and Telegraph,100 for example,
the plaintiff sued both her employer and her supervisor personally.
The Massachusetts Supreme Court held that a supervisor could be held
personally liable for engaging in a course of abusive, harassing conduct
towards the plaintiff that was unrelated to the company’s corporate
interests. In its findings the court noted that the supervisor
unlawfully and intentionally interfered with the plaintiff’s employment
relationship, that the [supervisor’s] conduct towards the plaintiff was
motivated by actual malice unrelated to the employer’s legitimate
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corporate interests and that the [supervisor’s] treatment of the plaintiff
caused her to commit the misconduct that led to her discharge.101
While the court vacated O’Brien’s award damages and attorney fees
against, it affirmed the verdict against the supervisor.
Similarly, in Eserhut v. Heister,102 a Washington court found that “the
co-employees can be held liable for intentionally interfering with the
[plaintiff’s] employment”103 when they “intentionally, directly, and substantially interfere with the performance of the plaintiff’s work responsibilities”104 knowing that plaintiff’s termination or resignation is substantially certain. In Eserhut, several of the plaintiff’s coworkers isolated
him “by not communicating with and socially ostracizing him”105 causing
sleeplessness, depression, and indigestion. These physiological responses interfered with plaintiff’s job performance and ultimately resulted in
his resignation. And in Zimmerman v. Direct Federal Credit Union,106
the plaintiff claimed DFCU and her immediate supervisor, David Brislin,
engaged in gender and pregnancy discrimination, violated the Family
Medical Leave Act, caused a loss of consortium with her husband, retaliated against her filing of claims, and interfered with “advantageous relations,” i.e., economic or employment interests. The jury held for plaintiff
noting that defendants “engaged in a deliberate campaign to render
[Zimmerman] a pariah among her coworkers.”107 In affirming the jury’s
punitive damages award, the court noted the defendant “undertook a
deliberate, calculated, systematic campaign to humiliate and degrade
[the plaintiff] both professionally and personally.”108
The intentional interference with contractual is a promising cause of
action for bullied employees, notwithstanding the fact that individual
supervisors may not have the financial resources to make a lawsuit
worthwhile from the standpoint of recovering monetary damages. And,
while not all state courts agree that on the legal description of the parties necessary to invoke this legal theory,109 a growing number of states
given the right factual context, do allow this common law cause of
action to be used to sue abusive supervisors and coworkers while holding employers liable for their supervisors’ actions.
Constructive Discharge
Closely linked to the intentional interference with contracts claim
could be a constructive discharge claim. In addition to—or perhaps as
a result of—intentional interference with contracts, studies show that
it is increasingly common for employees to resign because of harsh,
unreasonable employment conditions placed upon the individual by
the employer.110 A resignation based on intolerable working conditions
such that an employee is forced to resign is a constructive discharge.
The EEOC has ruled, at least with respect to Title VII sexual harassment cases, that an employer is liable for constructive discharge when
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it imposes intolerable working conditions in violation of Title VII when
those conditions foreseeably would compel a reasonable employee to
quit, whether or not the employer specifically intended to force the
victim’s resignation.111 In Pennsylvania State Police v. Suders,112 the
Supreme Court held that an employer may be liable under Title VII for
a hostile work environment that results in a “constructive discharge”113 of
an employee. The Supreme Court found that Suders’s working environment became “so intolerable” due to “a humiliating demotion, extreme
cut in pay, or transfer to a position in which she would face unbearable
working conditions”114 that the plaintiff’s resignation qualified as a fitting
response. The constructive discharge action was recently affirmed by the
Supreme Court in Arbaugh v. Y & H Corporation.115
At the Circuit Court level, the majority of courts use a reasonable
person standard to prove constructive discharge.116 In other words, the
plaintiff must show that working conditions were intolerable to a “reasonable person,” leaving the employee with no recourse but to resign.
In Walker v. UPS of America, Inc.,117 the Tenth Circuit Court of Appeals
noted that “constructive discharge occurs when the employer by its illegal discriminatory acts has made working conditions so difficult that a
reasonable person in the employee’s position would feel compelled to
resign. The conditions of employment must be objectively intolerable;
the plaintiff’s subjective views of the situation are irrelevant.”118
And in Honor v. Booz-Allen & Hamilton, the Fourth Circuit opined
that although demotion can in some cases constitute a constructive discharge, we hold that “dissatisfaction with work assignments, a feeling
of being unfairly criticized, or difficult or unpleasant working conditions
are not so intolerable as to compel a reasonable person to resign.”119 In
Landgraf v. USI Film Prods.,120 the Fifth Circuit held that for a plaintiff
to recover on a constructive discharge claim, a plaintiff must prove that
“working conditions would have been so difficult or unpleasant that a
reasonable person in the employee’s shoes would have felt compelled
to resign.”121 The overwhelming majority of cases involving constructive
discharge are linked to Title VII claims. However, constructive discharge
is a common law cause of action and can stand on its own legal footing.
Constructive discharge, coupled with intentional interference with contracts, could give employees a viable, status-free cause of action against
workplace bullies.
CONCLUSION
Bullying differs from harassment in that there is no obvious bias
towards race, gender or disability, for serial bullies are usually cunning
enough to keep their prejudices under wraps. As evolving law rescinds
opportunities for physical violence and for the expression of prejudices
through discrimination and harassment, it seems that the more devious harassers modify the focus of their behavior such that they remain
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outside the provisions of current legislation. They often gravitate from
physical violence to psychological violence (i.e., bullying) which is
harder to prove and less well-covered by legislation.
The business case for anti-bullying policies and practices is compelling yet remains among the workplace’s unchecked problems,
lowering morale and productivity while driving up health care costs
and making employers vulnerable to lawsuits and disability claims.
Unfortunately, much more attention is directed at bully behavior in
Europe, Scandinavia, Canada, and Australia than in the United States. It
is hoped that American firms begin to recognize that bullies poison their
work environment with low morale, job dissatisfaction, fear, anger, and
depression. It must be understood that the employer pays for this in lost
efficiency, absenteeism, sick leave due to stress-related illnesses, high
staff turnover, severance packages, law suits, self-defensive paperwork,
and wasted time at work involving targets defending themselves and
networking for support. In extreme cases, violence may be the tragic
result of workplace bullying.122
No manager needs to read court decisions to know that behavior violating standards of human decency cannot be tolerated. Yet, managers
also know that individuals occasionally violate social and legal norms.
To minimize the chance of such deviations, employers must act proactively by establishing policies and action plans that prevent bullying
since individual options often seem limited. Eliminating bullying is one
of the many pieces needed to manage people well. Indeed, organizations that effectively manage people outperform those that do not by
30 percent to 40 percent,123 while maintaining a pleasant and potentially
productive working environment.
Legal considerations of bullying are clearly in their infancy, but making headway into lawsuits and legislation around the country. The
emergence of bullying law appears to coincide with the decrease in
severe sexual harassment claims. Such claims have diminished through
revamped policies and reporting procedures, recurring training, employers promptly addressing claims, and increased media attention. But, just
as employers began to get a handle on sexual harassment, the definition
of “harassment” expanded.124 Policies have begun appearing in workplaces that not only prohibit unlawful sexual harassment, but prohibit all
forms of harassment, including incivility among coworkers. These “general harassment” policies are usually drafted broadly to cover a wide
range of behaviors and their victims need not be protected classes who
seek recourse under job-discrimination laws (ones protecting workers
from bias based on race, gender, ethnicity, age, or disability.)125
It would be hard to argue that workers are not entitled to work in an
environment free of such behaviors, but some detractors believe broad
definitions of harassment open the door to more tenuous or problematic complaints. Regardless of the pros and cons, we feel that “general
harassment” policies generally encompass bullying behaviors and will
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provide recourse for targeted employees and that legislation and regulatory activities in this area are similar to the state of sexual harassment
in the 1980s. In time American employees will be protected from workplace bullying construed as harassment.
NOTES
1. Gary Namie, “Workplace Bullying: Escalated Incivility,” 68 Ivey Bus. J. 1, 6 (2003),
available at http://www.iveybusinessjournal.com/article.asp?intArticle_ID=449.
2. Claire Mayhew, et al., “Measuring the Extent of Impact from Occupational Violence
and Bullying on Traumatized Workers,” 16 Emp. Resp. & Rts. J. 117, 134 (2004).
3. Christine M. Pearson and Christine L. Porath, “On the Nature, Consequences and
Remedies of Workplace Incivility: No Time for ‘Nice’? Think Again,“19 Acad. Mgmt.
Executive at p. 8 (2005).
4. Lynne M. Andersson and Christine M. Pearson, “Tit for Tat? The Spiraling Effect of
Incivility in the Workplace,” 24 Acad. Mgmt. Rev., p. 454 (1999).
5. Michelle K. Duffy, et al., “Social Undermining in the Workplace,” 45 Acad. Mgmt. J.
331, 351 (2002).
6. Blake Ashforth, “Petty Tyranny in Organizations,” 47 Hum. Rel., 755, 778 (1994).
7. Loraleigh Keashly, “Emotional Abuse in the Workplace: Conceptual and Empirical
Issues,” 1 J. Emotional Abuse, 85, 117 (1998).
8. Kathleen M. Rospenda, et al., “Chronicity of Sexual Harassment and Generalized WorkPlace Abuse: Effects on Drinking Outcomes,” 95 Addiction, 1805, 1820 (2000).
9. Joel H. Neuman and Robert A. Baron, “Aggression in the Workplace,” in Antisocial
Behavior in Organizations, 37–67 (Robert A. Giacalone and Jerald Greenberg Eds.,
1997).
10. Swedish National Board of Occupational Health and Safety of 1993, at Section 18, SFS
1977:1166 (1993) available at http://www.bullyonline.org/action/victwork.htm.
11. Stale Einarsen, “The Nature and Causes of Bullying at Work,” 20 Int’l J. Manpower,
16, 27 (1999).
12. Namie, supra n.2, at 1–6.
13. Gary Namie and Ruth Namie, “The Bully at Work: What You Can Do to Stop the Hurt
and Reclaim Your Dignity on the Job,” p. 73 (2000).
14. Jill S. Chanen, “Taking a Bully by the Horns,” 85 ABA J. at 90 (1999).
15. Claire Mayhew, et al., supra n.3, at 117–134.
16. Loraleigh Keashly and Joel H. Newman, “Exploring Persistent Patterns of Workplace
Aggression,” (2001), available at http://www3.uakron.edu/psychology/faculty/moberg/
KeashlyNeuman.pdf.
17. European Agency for Safety and Health at Work, “Bullying at Work: Fact Sheet 23,”
(2002), available at http://www.highland.gov.uk/persintra/health&safety/facts23_en.pdf.
18. Stale Einarsen and Anders Skogstad, “Bullying at Work: Epidemiological Findings in
Public and Private Organizations,” 5 Eur. J. Work & Org. Psychol., 185, 201 (1996); see
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also Heinz Leymann, Stockholm: Swedish National Board of Occupational Safety and
Health, “Adult Bullying at Swedish Workplaces: A Nation-Wide Study Based on 2,438
Interviews” (1992).
19. Maarit Vartia, “The Sources of Bullying: Psychological Work Environment and
Organizational Climate,” 5(2) Eur. J. Work Org. Psychol., 203, 214 (1996).
20. Jane Graydon, et al., “Verbal and Physical Abuse of Nurses,” 7 Can. J. Nursing Admin.,
70, 89 (1994).
21. Canada Safety Council, “Bullying in the Workplace,” (2000), available at http://www.
safety-council.org/news/sc/2000/Eng-4-00.pdf.
22. Harvey A. Hornstein, Brutal Bosses and Their Prey (1996).
23. Gary Namie and Ruth Namie, Bullyproof Yourself at Work (1999).
24. Loraleigh Keashly and Karen C. Jagatic, “The Nature, Extent, and Impact of Emotional
Abuse in the Workplace: Results of a Statewide Survey” (2000, August), available at www.
bullybusters.org/advocacy/pdf-docs/introduction.pdf.
25. “One Manager in Three Has Been Bullied at Work, Survey Reveals, 9 Prof. Engineering,
18. (2005, September 21).
26. Denise Salin, “Prevalence and Forms of Bullying Among Business Professionals: A
Comparison of Two Different Strategies for Measuring Bullying,” 10 Eur. J. Work & Org.
Psychol., 425, 441 (2001).
27. Stale Einarsen and Bjorn I. Raknes, “Harassment in the Workplace and the Victimization
of Men,” 12 Violence & Victims, 247, 263 (1997).
28. Stale Einarsen, et al., “Bullying, Burnout and Well-Being Among Assistant Nurses,” 14
J. Occupational Health & Safety: Australia & New Zealand 563, 568 (1998).
29. Maarit Vartia, “Consequences of Workplace Bullying with Respect to the Well-Being
of Its Targets and the Observers of Bullying,” 27(1) Scandinavian J. Work, Env’t & Health
63, 69 (2001, February).
30. Jennifer Dounay, “State Anti-Bullying Statutes” (2005, April), available at Education
Commission of the States http://www.ecs.org/clearinghouse/60/41/6041.htm (last visited
March 30, 2006). According to the report,
Bullying by students on school grounds, a subject of renewed interest
for state policymakers in recent years, was most recently brought to the
national spotlight by the highly publicized school shootings of the late
1990s, in which the shooters were reported to be the victims of bullies
at the school. Heightening this attention is the growing body of research
on (1) the prevalence of bullying in K-12 schools, (2) the likelihood of
school bullies to develop more serious socio-emotional problems with the
passage of time and (3) the impact of bullying on its victims and school
climate in general. In the late 1990s, in response to this convergence of
recent events and research, state legislatures began to adopt or strengthen
existing policies aimed at curbing bullying by K-12 students on school
property.
Id.
31. Id.
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32. Paul L. Grubb, et al., “Workplace Bullying: What Organizations Are Saying,” 8 Emp.
Rts. & Emp. Pol’y J., 407, 422 (2004).
33. Statute Book of the Swedish Vocational Board of Occupational Safety and Health,
Victimization at Work, at Ordinance AFS 1993: 17 (1993, September 21) available at
http://72.14.203.104/search?q=cache:y1QN_mXQWDkJ:www.av.se/dokument/inenglish/
legislations/eng9317.pdf+victimization+at+work+and+Swedish+National+Board+of+Oc
cupational+Safety&hl=en&gl=us&ct=clnk&cd=5.
34. Id. at 7–8.
35. Grassroots Advocacy Kit, at http://bullybusters.org/advocacy/legisadv.html#states.
36. “European Parliament Resolution on Harassment at the Workplace,” at 9, (July 16,
2001) available at http://indigo.ie/~odonnllb/cabullying/305695EN.doc.
37. Staff Union of the International Labour Union, Collective Agreement on the Prevention
and Resolution of Harrassment-Related Grievances Between the International Labour
Office and the ILO Staff Union, (2002) at http://www.un.org/womenwatch/osagi/pdf/Coll
ective%20ILO%20Staff%20Union.PDF.
38. Occupational Health, Safety and Welfare (SafeWork South Australia) Amendment Act
2005; Which itself is an updating of the Amendment of Occupational Health, Safety and
Welfare Act 1986—Part 2; See also http://64.233.179.104/search?q=cache:m-LgcYpQI3oJ:
www.bullyinginstitute.org/bbstudies/SAustralia.pdf+South+Australia+and+workplace+b
ullying&hl=en&gl=us&ct=clnk&cd=3.
39. Quebec Labour Standards Act, at Section 81.18 (R.S.Q., chapter N-1.1).
40. Workplace Psychological Harassment Prevention Act, at Section a, b (2003).
41. John A. Mack, “The Law of Bullying: Off the Playground and Into the Workplace,”
(2005), available at http://www2.mnbar.org/benchandbar/2005/sep05/bullying.htm.
42. Ryan McBride, “The Bully Business: City Could Revive Anti-bullying Bill for the
Workplace,” Providence (RI) Bus. News, Oct. 22, 2005, available at http://www.
bullyinginstitute.org/press/pbn102205.html.
43. Catherine Saillant, “A Bulwark Against Bullies: Like Other Communities Around the
United States Ventura County May Look to a Written Policy to Protect Workers from
Abuse,” Los Angeles Times (2005, December 5), available at http://www.workdoctor.com/
press/latimes120505.html.
44. See Joseph E. Doescher v. Daniel H. Raess, M.D., (2005) (unpublished opinion) as
reported in http://www.workdoctor.com/press/indy030505.html.
45. Torres v. Parkhouse Tire Service, Inc., 30 P.3d 57 (2001).
46. Id. at 12.
47. In Oklahoma, the Abusive Work Environment Act which defined abusive conduct as
conduct of an employer or employee in the workplace “that a reasonable person would
find hostile, offensive, and unrelated to an employer’s legitimate business interest” died in
committee, 2004. Between 2003–2004, various bills introduced in the California legislature
making it unlawful to subject another employee to repeated, malicious infliction of verbal
abuse, engages in verbal or physical behaviors that a reasonable person would find
threatening, intimidating, or humiliating, or performs gratuitous sabotage or undermining
of the targeted person’s work performance through acts of commission or omission died
in committee. In Washington state, a workplace bully bill which defined workplace
bullying (but created no cause of action), died in committee, 2005–2006.
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48 The “Healthy Workplace Bill” for New York State, available at http://bullybusters.org/
advocacy/legis-ny.html.
49. David C. Yamada, The “Healthy Workplace” Bill, (2000) available at http://bullybusters.
org/advocacy/pdf-docs/healthyworkbill.pdf.
50. Grassroots Advocacy Kit, supra n.36.
51. The ballot asked whether
the state representative from this district be instructed to introduce and vote
in favor of legislation that: (1) declares workplace psychological harassment
(bullying) to be an occupational health and safety issue; (2) mandates a
study to analyze the direct and indirect costs of workplace psychological
harassment upon healthcare and insurance rates within the Commonwealth
and upon Massachusetts families and; (3) requires all employers who
employ 50 or more workers in Massachusetts to put into place by December
31st, 2005, a policy that defines psychological harassment and prevents its
occurrence?
Results found that 68 percent (8,181) of the 12,031 district voters said to pass the
question.
52. Saillant, supra n.44.
53. The Phenomenon of “Workplace Bullying” and the Need for Status-Blind Hostile
Work Environment Protection, 88 Geo. L. J. 475, (2000).
54. See 42 U.S.C. §§ 2000e to 2000e-17 2004.
55. The Restatement Second of Agency 2191 provides that “a master is subject to liability
for the torts of his servants committed while acting in the scope of their employment.”
56. Harris v. Forklift Sys., Inc., 510 U.S. 17, 114 S. Ct. 367, 126 L.Ed.2d 295 (1993) (citing
Meritor Savings Bank v. Vinson, 477 U.S. 57 (1986)).
57. Meritor Savings Bank, FSB v. Vinson, 477 U.S. 57, 64 (1986).
58. Harris v. Forklift Systems, 510 U.S. 17, 114 S. Ct. 367, 126 L.Ed.2d 295 (1993).
59. See http://www.eeoc.gov/policy/docs/currentissues.html#FOOTNOTE%2021#FOOTNO
TE%2021.
60. This is particularly true when the harassment is physical. Thus, in Barrett v. Omaha
National Bank, 584 F. Supp, 22, 35 FEP Cases 585 D. Neb. 1983, aff’d, 726 F.2d 424, 33
EPD ¶ 34,132 8th Cir. 1984, one incident constituted actionable sexual harassment. The
harasser talked to the plaintiff about sexual activities and touched her in an offensive
manner while they were inside a vehicle from which she could not escape. As the Supreme
Court noted in Vinson, “mere utterance of an ethnic or racial epithet which engenders
offensive feelings in an employee would not affect the conditions of employment to a
sufficiently significant degree to violate Title VII.” 106 S. Ct. at 2406 quoting Rogers v.
EEOC, 454 F.2d 234, 4 EPD ¶ 7597 5th Cir. 1971, cert. denied, 406 U.S. 957, 4EPD ¶
7838 1972. The more severe the harassment, the less need to show a repetitive series of
incidents.
61. Instigators may claim that the target was simply too sensitive or that his or her
words were meant in jest. Consequently, the bully’s conduct should be evaluated from
the objective standpoint of a reasonable person. Regulatory acts should not serve “as
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a vehicle for vindicating the petty slights suffered by the hypersensitive” Zabkowicz v.
West Bend Co., 589 F. Supp. 780, 784, 35 EPD ¶ 34, 766 E.D. Wis. 1984; see also Ross
v. Comsat, 34 FEP cases 260, 265 D. Md. 1984, rev’d on other grounds, 759 F.2d 355
4th Cir. 1985. Thus, if the challenged conduct would not substantially affect the work
environment of a reasonable person, no violation should be found.
62. Harris v. Forklift Systems, Inc., (1993) p. ????.
63. 29 C.F.R. § 1604.11a3. Thus, sexual flirtation or innuendo, even vulgar language that
is trivial or merely annoying, would probably not establish a hostile environment. Meritor
at 64, quoting Henson v. City of Dundee, 682 F.2d at 904.
64. Meritor at 58. The language of Title VII is not limited to “economic” or “tangible”
discrimination and EEOC Guidelines fully support the view that sexual harassment
leading to non-economic injury can violate Title VII. The Court in Meritor noted, “In
1980 the EEOC issued Guidelines specifying that ‘sexual harassment,’ as there defined,
is a form of sex discrimination prohibited by Title VII. * * * [T]hese Guidelines, ‘”while
not controlling upon the courts by reason of their authority, do constitute a body of
experience and informed judgment to which courts and litigants may properly resort for
guidance,’” General Electric Co. v. Gilbert, 429 U.S. 125, 141–142 1976, quoting Skidmore
v. Swift and Co., 323 U.S. 134, 140 1944. The EEOC Guidelines fully support the view that
harassment leading to noneconomic injury can violate Title VII.”
65. Faragher v. City of Boca Raton, 524 U.S. 775, 11 S. Ct.2275, 141 L.Ed.2d 662 1998.
66. Burlington Industries v. Ellerth, 524 U.S. 742, 11 S. Ct. 2257, 141 L.Ed.2d 633 1998.
67. Burlington, at 765
68. Faragher, at 775.
69. A tangible employment action includes actions “such as discharge, demotion, or
undesirable reassignment.” Ellerth, 524 U.S. at 765.
Under Title VII of the Civil Rights Act of 1964 42 USCS 2000e et seq., an
employee who refuses the unwelcome and threatening sexual advances of
a supervisor, yet suffers no adverse and tangible job consequences, can
recover against an employer without showing that the employer is negligent
or otherwise at fault for the supervisor’s actions; * * * [however] an employer
* * * may, when no tangible employment action is taken, raise an affirmative
defense to liability or damages.
Burlington at 746.
70. Id. at 765; Faragher, 524 U.S. at 807.
71. Ellerth, 524 U.S. at 765; Faragher, 524 U.S. at 807.
72. Oncale v. Sundowner Offshore Services, 523 U.S. 75; 118 S. Ct. 998; 140 L. Ed. 2d
201 (1998).
73. Legal status is created in Title VII, based on, e.g., race, color, ethnicity, or sex.
74. Hesse v. Avis Rent A Car, 394 F.3d 624, 8th Cir. 2004.
75. Id. at 630, citing Oncale, supra, at 80 (emphasis added).
76. EEOC et al., v. National Education Association, 422 F.3d 840 (9th Cir. 2005) .
77. EEOC v. NEA at 845.
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There was no evidence presented at trial that the supervisor made sexual
overtures or lewd comments, that he referred to women employees in
gender-specific terms, or that he imposed gender-specific requirements
upon women employees. Where, as here, the conduct in question was
allegedly a “daily thing,” there can be little question that a reasonable juror
might infer that the supervisor’s pattern of verbal and physical intimidation,
as confirmed by a wide range of employees, was sufficiently severe to satisfy
the statute.
Id.
78. Id.
79. Research conducted in Sweden found bullying behavior to be that which recurs on
a regular basis for a period of six months or more and an Irish taskforce on workplace
bullying found that bullies tend to operate over a long period of time, often with minor
actions which accumulate to create a hostile work environment. An isolated incident of
the behavior described may be an affront to dignity at work but, as a single incident, is not
considered to be bullying. Karinda Flavell, Workplace Bullying, Retrieved December 2,
2005, from http://www.apesma.asn.au/women/articles/workplace_bullying_may_02.asp.
80. Nonetheless, the local level and state level are addressing “workplace bullying”
and “school house bullying” by appealing to the legislation. Although several states are
currently waiting for action on their “workplace bullying bill,” three other states have
tried and failed to pass such legislation.
81. GTE Southwest at 611; Dillard Department Stores, Inc. v. Gonzales, 72 S.W.3d 398, 404
Tex. App.—El Paso 2002, pet. denied; Zeltwanger, 144 S.W.3d at 445, quoting Twyman
v. Twyman, 855 S.W.2d 619, 621, 36 Tex. Sup. Ct. J. 827 Tex. 1993.
82. Restatement Second of Torts § 46 cmt. d. 1977.
83. http://www.legalmatch.com/law-library/article/intentional-infliction-of- emotionaldistress-by-employers.html.
84. See GTE Southwest, Inc., 998 S.W.2d at 612; Tiller v. McLure, 121 S.W.3d 709, 714, 46
Tex. Sup. Ct. J. 632 Tex. 2003 per curiam.
85. GTE Southwest, Inc. v. Bruce, 998 S.W.2d 605, 612.
86. Hoffmann-La Roche, Inc. v. Zeltwanger, 144 S.W.3d 438, 447 (Sup. Ct. Tex. 2004).
87. GTE Southwest, supra, at 616.
88. Turnbull v. Northside Hospital, Inc., 470 S.E.2d 464, 468 (1996).
89. Id. at 466.
90. Id.
91. See, e.g., Morales-Vallellanes v. Potter, 339 F.3d 9 2nd Cir. 2003, Riley v. Harr, 292 F.3d
282 1st Cir. 2002, Brown v. Muhlenberg Twp., 269 F.3d 205 3rd Cir., 2001; Gregory v.
Daly, 243 F.3d 687 2nd Cir. 2001. In Denton v. Chittendon Bank, 163 Vt. 62; 655 A.2d 703;
1994 Vt. LEXIS 182; 130 Lab. Cas. CCH P57,910, 1994 the Vermont Supreme Court found
for an employer and supervisor where the plaintiff alleged that the supervisor “embarked
on an insulting, demeaning, and vindictive course of conduct toward [the plaintiff] that
included ridicule, invasions of privacy, intentional interference with ability to car pool,
competitiveness in afterwork sports, and an unreasonable workload.” Liability should
not be extended for “a series of indignities,” wrote the court, adding that “absent at
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Legal Remedies for Workplace Bullying
least one incident of behavior” such as retaliation or an act of extreme humiliation,
“incidents that are in themselves insignificant should not be consolidated to arrive at the
conclusion that the overall conduct was outrageous.” In Mirzaie v. Smith Cogeneration,
Inc., 1998 OK CIV APP 123; 962 P.2d 678; 1998 Okla. Civ. App., the Oklahoma Court
of Civil Appeals affirmed a trial court’s dismissal of an IIED claim where the plaintiff
had alleged that his supervisor, among other things, yelled at him in front of other
company executives, called him at 3:00 a.m. and “browbeat him for hours,” required him
to “needlessly cancel vacation plans,” refused to allow the plaintiff to spend a day at the
hospital with his wife after the birth of their son, intentionally called plaintiff’s wife by the
plaintiff’s former wife’s name, and delivered the notice of termination two hours before
the plaintiff’s wedding. There was nothing “in this working milieu,” said the court, “that
would elevate the recited facts to the ‘outrageous’ level.” In Crowley v. North American
Telecommunications Ass’n, 691 A.2d 1169; 1997 D.C. App. LEXIS 65; 134 Lab. Cas. CCH
P58,291, 1997 the District of Columbia Court of Appeals affirmed the dismissal of an
IIED claim where the plaintiff alleged “only that he was subjected to contempt, scorn
and other indignities by his supervisor and an unwarranted evaluation and discharge.”
“While offensive and unfair, such conduct is not in itself of the type actionable on this
tort theory,” noted the court.
92. See Joseph E. Doescher v. Daniel H. Raess, M.D., 2005 http://www.workdoctor.
com/press/indy030505.html. The award to Joseph E. Doescher, 44, stemmed from a
November 2, 2001, confrontation between the two men during which Raess was accused
of screaming and lunging toward Doescher and that Raess’ behavior in the operating
room made it impossible for him to return to work. Doescher worked at the hospital as
a perfusionist, operating equipment that oxygenates the blood during surgery. Doescher
was earning $100,000 a year before the incident and at trial earned only $20,000 working
in a dog kennel. Plaintiff’s counsel described the defendant as “a domineering manager
who viewed himself as untouchable.” Defense characterized the plaintiff as an “active
participant” in a “shouting match between two strong-willed individuals.”
93. See http://www.indystar.com/apps/pbcs.dll/article?AID=2005505190412 (last visited
March 30, 2006).
94. Louis Kamm, Inc. v. Julius Flink, et al., 13 N.J.L. 582; 175 A. 62 (1934).
95. Restatement (Second) of Torts (1997).
96. Id. § 766.
97. Id. § 766A (emphasis added).
98. See Gemini Physical Therapy and Rehabilitation, Inc. v. State Farm Mutual Automobile
Insurance Co., 40 F.3d 63, 66 (3d Cir. 1994).
99. Harris v. Perl, 1 N.J. 455; 197 A.2d 359 (1964).
100. O’Brien v. New England Telephone and Telegraph Company, 422 Mass. 686; 664
N.E.2d 843 (1996).
101. Id.
102. Eserhut v. Heister, 118 Wn.2d 1009; 824 P.2d 490 (1992).
103. Id. at 495.
104. Id.
105. Id.
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106. Zimmerman v. Direct Federal Credit Union and David Breslin, 121 F. Supp. 2d 133
(Mass. 2000).
107. Id. at 145.
108. Id. at 144.
109. See, e.g., Lewis v. Oregon Beauty Supply, Inc., 02 Ore. 616, 733 P.2d 430 (Ore. 1987)
in which the Oregon Supreme Court was unwilling to consider a supervisor as a ‘third
party’ for purposes of filing an intentional interference with a contract action by holding
that a “company cannot be liable for interference with an employment relationship to
which it is a party.” Id.
110. George Bohlander and Scott Snell, Managing Human Resources (13th ed. 2004).
111. See, e.g., Derr v. Gulf Oil Corp., 1986; Goss v. Exxon Office Systems Co., 1984; Nolan
v. Cleland, 1982.
112. Pennsylvania State Police v. Suders, 542 U.S. 129, 124 S. Ct. 2342, 159 L.Ed.2d 204
(2004).
113. Id. at 133.
114. The Court opined, “With respect to a plaintiff-employee’s Title VII claim for
constructive discharge resulting from sexual harassment by a supervisor, the employer
may, in some cases, properly defend against such a claim by showing that (a) the
employer had installed a readily accessible and effective policy for reporting and resolving
complaints of sexual harassment, and (b) the plaintiff unreasonably failed to make use
of such a preventive or remedial apparatus.” Suders at 130.
115. Arbaugh v. Y and H Corporation, 126 S. Ct. 1235; 163 L. Ed. 2d 1097 (2006).
116. There are cases that require evidence of the employer’s subjective intent. See, e.g.,
EEOC v. Clay Printing Co., 955 F.2d 936 (4th Cir. 1992) where the court ruled against
the plaintiff because there was a “lack of concrete evidence” that the employer intended
that the plaintiffs quit. Id. at 942; Martin v. Cavalier Hotel Corp., 48 F.3d 1343 (4th Cir;
1995) in which the court held that there “was insufficient evidence from which a jury
could conclude that [the employer’s] conduct demonstrated an intention to force Martin
to quit.” Id. at 1350.
117. Walker v. UPS of America, Inc., 76 Fed. Appx. 881 (10th Cir. 2003).
118. Id. at 890 (emphasis added).
119. Honor v. Booz-Allen and Hamilton, Inc., 383 F.3d 180 (4th Cir.; 2004).
120. Landgraf v. USI Film Prods., 968 F.2d 427 (5th Cir. 1992).
121. Id. at 429.
122. Canada Safety Council, Bullying in the Workplace (2000), at http://www.safetycouncil.org/news/sc/2000/Eng-4-00.pdf.
123. Jeffrey Pfeffer, The Human Equation: Building Profits by Putting People First
(1998).
124. Mack, supra n.42, at 10.
125. For example: The term harassment is defined as any verbal, written, or physical
conduct directed toward an individual or group of individuals which a person knows or
has reasonable grounds to know would intimidate, demean, or degrade the individual’s
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or group’s character, self-worth or dignity. Harassment is further defined as that conduct
which has the effect of limiting or denying equal opportunity or treatment and is
conducted in disregard for that individual’s or group’s human or civil rights and which
may result in their mental, emotional, or physical discomfort, ridicule or harm. Offensive
language or behavior which interferes with a person’s employment or performance or
otherwise creates a hostile environment shall fall within the meaning of harassment.
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Employee Relations Law Journal
Ensuring Fair Play: Using Common Law to
Protect Against Unfair Competition from
Former Employees
Brian L. Lerner and Jeffrey R. Geldens
When an employee begins to work for a competitor, many employers turn to noncompete agreements and other contractual restrictions for protection. But recent
cases show that aggressive forum shopping and races to the courthouse may make
the difference in whether the employer will win or lose this high-stakes competition.
This article examines common law remedies that employers should consider when
contractual restrictions prove inadequate, ineffective, or absent under the governing
law.
T
wo trends from the economic boom of the 1990s that have had a
lasting effect today are diminishing employee loyalty and increasing
employee movement, whether to a new job close by or a new job in a
different city. Employers therefore continue to have a well-founded fear
that today’s top performer or even rank-and-file employee will be tomorrow’s competitor. And while many employers now require employees
to sign non-compete and/or non-solicitation agreements, courts often
have shown disfavor of these agreements, particularly non-compete
agreements, believing they unfairly restrain competition and prevent
individuals from being gainfully employed. Although non-compete and
non-solicitation agreements still offer employers the best chance to protect their valuable assets, employers should be aware of, and certainly
train their employees about, judicially created rules, known as common
law, that establish obligations and protections relating to business assets
independent of any written agreement.
Three basic common law “rules,” as illustrated below, underlie the
aggressive game of post-employment competition. First, current employees may prepare to compete against an employer while employed,
but cannot actively compete against their employers; second, former
employees may compete for business, but cannot if doing so would
unfairly interfere with a former employer’s business relationship with
another party; and third, former employees may use word of mouth to
sell themselves, but cannot use injurious falsehoods to disparage former
employers. While these common law rules may help control who will
win the game of post-employment litigation, employers should be aware
that these rules do have limitations.
Brian L. Lerner and Jeffrey R. Geldens are attorneys with the international
law firm of Hogan & Hartson LLP. They can be reached at bllerner@hhlaw.
com and jrgeldens@hhlaw.com, respectively.
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Protecting Against Unfair Competition from Former Employees
PLAYING WITH TWO TEAMS NOT ALLOWED: THE BREACH
OF DUTY OF LOYALTY CLAIM
There is a generally understood principle that an individual may
not directly compete with his or her employer while employed by that
employer. This principle flows from the law of agency, which requires
that an agent act in the best interests of the principal while performing the functions of an agent. This principle, however, contrasts with
another principle long recognized by courts, namely, that a former
employee is free to compete against a former employer absent a noncompete agreement.
Courts reconcile these principles through an analysis that entails
examining a former employee’s current competition to determine
whether that competition’s foundation lies in a disloyal act performed
during the employment relationship. Consequently, acts that are considered merely preparatory, such as planning for departure and business
set-up activities, do not violate an employee’s duty of loyalty. A comparison of two Florida cases is illustrative.
In Fish v. Adams,1 a beauty salon owner moved to another city, but
left an employee in charge of the salon. When all of the salon beauticians subsequently left, the owner returned to the salon and learned
that the employee she left in charge of the business had opened her
own salon nearby and was employing all of the former beauticians. The
owner then sued the employee who opened up the competing salon.
In analyzing the owner’s duty of loyalty claim, the court held that
an employee does not breach a duty of loyalty in regard to efforts to
establish a competing business (including advertising the new business). The court, however, drew an important line, allowing the owner
to proceed to trial contending that the former employee breached the
duty of loyalty by soliciting customers and co-workers while still running the salon.
In Harlee v. Professional Service Industries, Inc.,2 the former employee
left because of dissatisfaction with a change in corporate policies. The
former employee was able to convince other employees to join him in
starting up a competing business. This new business included creating a
customer base from the former employer’s customers. The Harlee court
rejected the former employer’s duty of loyalty claim. The court focused
on the fact that the former employer could not show that any of the
efforts to lure aware employees and customers occurred while the former employee was still working for the company.
Direct evidence of side-dealing by an employee while still employed
forms the strongest evidence for a post-employment claim of breach
of duty to the employer. In Lamdin v. Broadway Surface Advertising
Corporation,3 the employer participated in a system in which “due bills”
were substituted for cash as payment for advertising. The due bills then
were traded to brokers on an exchange. Given that these due bills had
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Protecting Against Unfair Competition from Former Employees
less intrinsic value than cash, the due bills were intended as substitute
payment only when cash was unavailable from the customers.
Lamdin served in a sales position, and was to accept due bills for
the sale of advertising only when cash was unavailable. Lamdin, however, arranged with due bill brokers to get a commission on the side
for due bills he collected. As a result, the employer received due bills
but not the commission that Lamdin received for generating due bills.
The court concluded that Lamdin violated his duty of loyalty because
he favored due bills over cash as a result of the obvious personal incentive provided by the due-bill brokers. Further, the loss of the cash, as
well as the additional payment made to Lamdin and not the employer,
were personal benefits to Lamdin at his employer’s expense. As a result,
the employer successfully defended the lawsuit brought by Lamdin for
unpaid salary.
While obtaining direct evidence like that in the Lamdin case is unusual, circumstantial evidence of an employee’s disloyalty still provides an
employer with recourse against a former employee. In Dozier and Gray
Paint Co. v. Dilley,4 two employees resigned from the company and
left to a competing business. At the time of the employees’ resignation,
data regarding a product that the former employer had developed for
a key customer also went missing. The Dilley court allowed the former
employer’s claim to survive summary judgment, noting that the record
contained sufficient circumstantial evidence to support a breach of loyalty claim given the suspicious timing of the events.
If the employee unfairly competes with his or her employer while
employed, then the employer’s damages may include forfeiture of any
money earned as a result of the disloyal venture in which the employee
engaged.5 This remedy is consistent with the common law’s goal of leveling the playing field between employer and employee. After all, had
the employee not engaged in the unfair competition, the profits reaped
by the employee would have gone to his or her former employer.
When faced with a loss of employees or business as a result of conduct by a former employee, employers may be able to use the common
law rule of duty of loyalty to recover damages for the harm caused by
the former employee. But an employer’s recovery will hinge on whether
(1) the former employee’s conduct occurred during employment, and
(2) the former employee’s conduct had a direct harm on the business.
NO OFFENSIVE/DEFENSIVE INTERFERENCE ALLOWED:
THE TORTIOUS INTERFERENCE WITH BUSINESS
RELATIONSHIPS CLAIM
Another common law rule applicable to employees is the rule that
employees may not intentionally and unjustifiably interfere with an
existing business relationship between the employer and another party
(whether that other party is another employee or a customer). By vio-
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Protecting Against Unfair Competition from Former Employees
lating this rule, the employee will be subject to a “tortious interference”
claim. The tortious interference rule is significant in that this rule, unlike
the duty of loyalty rule, may result from conduct occurring after the
employment relationship ends with employees.
Further, the rule extends protections to prospective relationships. For
example, the Massachusetts Supreme Court held in Godin v. Neibuhr,6
that “one who interferes with another’s business, for the purpose of
compelling present or prospective customers to withhold their patronage, is responsible for harmful consequences, unless he shows a legal
justification for such interference.” In that case, the plaintiff owned a
barber shop. The defendant passed out leaflets to passers-by attempting
to dissuade them from patronizing the barber shop, because the barber
shop refused to employ union workers. The plaintiff alleged that the
defendant’s conduct was interfering with existing and potential business
relationships. The jury agreed, and the Massachusetts Supreme Court
upheld the verdict.
But while the tortious interference rule has greater reach than the
duty of loyalty rule, it too is subject to certain limitations or defenses.
The defense asserted most often is the “competition privilege.” As the
name would suggest, the employee is able to overcome the tortious
interference rule by arguing that he or she was able to lure the co-worker or customer through the use of fair play, that is lawful competition.
For example, in Perez v. Rivero,7 the defendant successfully asserted
the “competition privilege” by showing that the customer changed
businesses because it was dissatisfied with the first company’s work.
Accordingly, there was not improper solicitation. Consistent with the
Perez case, courts often turn to the employee’s right to defend his or her
economic self-interest upon employment termination as the rationale for
allowing competition.
Another defense or limitation is that some states limit the degree of
available protection based on the nature of the relationship that has suffered the interference. The degree of available protection often hinges
on whether there is a contractual relationship at issue. For example, the
California Supreme Court in Della Penna v. Toyota Motor Sales, U.S.A.,
Inc.,8 held that “economic relationships short of contractual . . . should
stand on a different legal footing as far as the potential for tort liability
is reckoned.” Thus, in California, a plaintiff alleging tortious interference
with a non-contractual relationship must “plead[] and prove[] that the
defendant’s interference was wrongful by some measure beyond the fact
of the interference itself.” One California appellate court later noted that
this standard meant that a plaintiff must allege conduct that is independently tortious, restrains trade, or “violates a statute, or other regulation,
or a recognized rule of common law, or perhaps an established standard
of a trade or profession.”9
In New York, the court in NBT Bancorp Inc. v. Fleet/Norstar Fin.
Group, Inc.,10 pointed out that where there is a contractual relationship,
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Protecting Against Unfair Competition from Former Employees
a plaintiff may recover damages even if the defendant was engaged in
lawful behavior. But where there was no contractual relationship, the
plaintiff must show “wrongful means.” Wrongful means would include
physical violence, fraud, misrepresentation, civil suits and criminal prosecutions, and some degrees of economic pressure. Wrongful means,
however, would not include persuasion alone, although knowingly
directed at interference with a contract.
Another defense or limitation that employers should be mindful of is
that former employees also may benefit from the tortious interference
rule. Many times, former employers may want to send threatening letters
to a former employee’s new employer, letting the new employer know
that the employee is subject to an employment agreement. In some
instances, having received this information, the new employer may
end its relationship with the former employee to avoid a potential lawsuit. This, in turn, may result in the former employee suing the former
employer, arguing that the former employer tortiously interfered with
the former employer’s business relationship with the new employer.
Indeed, this was the situation in Sobi v. Fairfield Resorts, Inc.11 In Sobi,
the former employer (Fairfield) sued the former employee (Sobi) for
breach of a non-compete agreement and sued the new employer for tortiously interfering with the non-compete agreement. Once Fairfield filed
suit, the new employer terminated Sobi’s employment. Sobi, in turn,
filed a lawsuit against Fairfield arguing that Fairfield tortiously interfered
with his employment relationship with his new employer. Sobi was
able to withstand a motion to dismiss his tortious interference claim by
arguing that the non-compete agreement with Fairfield was void and
unenforceable. If true, then the non-compete agreement provided no
justification (and thus no defense) for Fairfield to interfere with Sobi’s
relationship with his new employer.
The Sobi case provides a powerful example of the double-edged
sword of the tortious interference rule and the need for employers to
proceed with caution when contacting new employers about the conduct of former employees.
NO TRASH-TALKING ALLOWED: THE TRADE
DEFAMATION CLAIM
A final common law rule to consider is that a former employee may
not use “disparaging falsehoods” to gain a former employer’s business.
If a former employee makes or “publishes” such falsehoods, then the
former employee may have committed “trade defamation.”
In Kilgore Ace Hardware, Inc. v. H.D. Newsome,12 the defendant
employees allegedly used remarks regarding the competence of their
former employer’s business skills as part of their efforts to lure customers to their competing business. In reinstating the former employer’s
right to bring a claim for trade defamation, the Kilgore court recognized
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Protecting Against Unfair Competition from Former Employees
what had become a well-established right to recover damages for trade
defamation, which the court characterized as recovering damages for
injuries suffered because of another person’s efforts to deter third persons from dealing in business with another individual or business. While
recognizing the existence of a trade defamation claim, the Kilgore court
further stated that the so-called injurious statements must be more than
puffing or comparison.
The Kilgore court’s distinction between puffery, or opinionated
comparison, and statements intended as facts is important. Indeed, disparaging statements about a competitor are actionable only when they
are intended to be taken as truth. Two California cases illustrate the
distinction’s importance.
In Computerxpress, Inc. v. Jackson,13 the plaintiff alleged that the
defendants made false and disparaging statements regarding the plaintiff’s business, including attacks on its products, business practices,
and the integrity of its directors. The Computerxpress court found that
whether these statements were intended as fact or opinion had to be
determined by examining the statements’ tone and context through the
eyes of the average reader. Consequently, statements that are filled with
exaggeration, obvious vitriol, or evidence of a “heated exchange” likely
would not be actionable. For these reasons, the Computerxpress determined that the defendants’ use of words such as “scam” and “complete
bull” were too vague to be taken as fact by the average reader.
In Shores v. Chip Steak Co.,14 each party prepared, sold, and distributed thin sliced fresh beef known in the trade as a “chip steak.” The court
determined that the defendant’s advertisement in a newspaper that the
plaintiff’s chip steaks were in counterfeit packages intended to imitate
the defendant’s package and were not prepared or packaged by modern, safe, and sanitary methods was actionable as trade defamation.
There is another important principle governing trade defamation
claims—the damages that may be recovered will depend on the nature
of the attack. A comparison of two New York cases will illustrate this
principle. In Angio-Med. Corp. v. Eli Lilly & Co.,15 the court determined
that language that disparages a product is actionable, but the plaintiff
must show “special damages.” Special damages include loss of business
or profits, but do not include executive time, attorney’s fees, or personal
damages, such as mental distress.
In contrast, in Drug Research Corp. v. Curtis Pub’ng Co.,16 the court
noted that where the language disparages the integrity or business methods of the corporation itself, the plaintiff does not have to show special
damages. Although the plaintiff’s damages may be greater, attacks of
this nature also fall out of the arena of trade defamation and into the
more well-known realm of personal defamation. Personal defamation,
although similar, is a separate cause of action that is subject to a separate
damage analysis. Such a claim, however, may be useful where a former
employee is attacking the former employer’s personnel or management
as a method of puffery.17
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Protecting Against Unfair Competition from Former Employees
CONCLUSION
The common law continues to offer a number of rules to ensure that
there is a level playing field in the competitive business environment.
And while employers should consider enforcing these common law
rules when faced with unscrupulous competition, employers, at a minimum, should make employees aware of these common law rules. In
the end, employers concerned with employee loyalty and protective of
their assets should utilize non-compete and non-solicitation agreements
as a first defense, but should not overlook the common law to bolster
that defense.
NOTES
1. 401 So. 2d 843 (Fla. 5th DCA 1981).
2. 619 So. 2d 298 (Fla. 3d DCA 1992).
3. 272 N.E.2d 66 (N.Y. 1936).
4. 518 So.2d 946 (Fla. 1st DCA 1988).
5. See, e.g., Phansalkar v. Anderson Weinroth & Co., L.P., 344 F.3d 184 (2d Cir. 2003)
(profits from the disloyal venture and compensation earned during the period of
disloyalty awarded as damages); Purolator Prods., Inc. v. Torite Indus., Inc., 413 F.2d 989
(9th Cir. 1969) (same).
6. 128 N.E. 406 (Mass. 1920).
7. 534 So. 2d 914 (Fla. 3d DCA 1988).
8. 902 P.2d 740, 751 (Cal. 1995).
9. Bed, Bath & Beyond of LaJolla, Inc. v. LaJolla Village Square Venture Partners, 60 Cal.
Rptr. 2d 830, 840 (Cal. Ct. App. 1997).
10. 664 N.E.2d 492 (N.Y. 1996).
11. 846 So. 2d 1204 (Fla. 5th DCA 2003).
12. 352 So.2d 918 (Fla. 2d. DCA 1977).
13. 113 Cal. Rptr. 2d 625 (Cal. Ct. App. 2001).
14. 279 P.2d 595 (Cal. Ct. App. 1955).
15. 720 F. Supp. 269 (S.D.N.Y. 1989).
16. 166 N.E.2d 319 (N.Y. 1960).
17. For a more detailed discussion about the overlap and distinctions between trade
defamation and personal defamation, please see chapter 24 of Prosser & Keeton on Torts
5th Edition.
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Vol. 32, No. 2, Autumn 2006
Seeking a Definition of “Supervisor”—A
Critical Issue in Sexual Harassment Cases
Donald J. Petersen and Harvey R. Boller
This article reviews judicial decisions which dealt with defining the word “supervisor”
in the context of sexual harassment cases. The authors conclude that the courts are
divided on the issue, and they propose the use of the National Labor Relations Act
definition as it provides an objective, yet flexible, definition of supervisor, permitting
courts to take into account all pertinent circumstances.
H
ostile environment sexual harassment has been defined as that
which “has the purpose or effect of unreasonably interfering with
an individual’s work performance or creating an intimidating, hostile,
or offensive work environment.”1 The existence of such a work environment requires “a workplace that is permeated with ‘discriminatory
intimidation, ridicule and insult’—that is ‘sufficiently severe or pervasive
to alter the conditions of the victim’s employment.’”2
SUPREME COURT DECISIONS
In the Ellerth and Faragher cases,3 the US Supreme Court discussed
the special circumstances when a supervisor is involved in the hostile
environment sexual harassment. The Court began its analysis by noting that an employer is vicariously liable for the acts of its supervisors
only when they are “acting within the scope of their employment.”4 The
exceptions to this rule of law are (1) when the employer was negligent
or reckless (i.e., the employer knew or should have known that hostile
environment sexual harassment was occurring and took no action to
alleviate it) or (2) when the supervisor appeared to act or speak with
authority or was aided by the existence of agency (apparent supervisory
power).
Of course, when a supervisor threatens an employee with a tangible
employment action unless the employee submits to his or her sexual
demands,5 the employer is automatically liable, with or without notice
from the victim. Such action has been described as quid pro quo sexual
harassment.
The Ellerth and Faragher cases, of course, dealt with situations when
supervisors commit hostile environment sexual harassment without
Donald J. Petersen is Professor Emeritis of Management at Loyola University
Chicago. Harvey R. Boller is an Associate Professor of Business Law at the
university.
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Seeking a Definition of “Supervisor” in Sexual Harassment Cases
threatening tangible employment actions. Two defenses were made
available to an employer under such circumstances (1) that the employer took reasonable care to prevent and promptly correct any sexual
harassment behavior and (2) that the employee unreasonably failed to
take advantage of any existing complaint procedure.
Unfortunately, the Ellerth and Faragher decisions failed to produce
a definition of the word “supervisor.”6 The definition may be crucial to
delineate quid pro quo sexual harassment which only a supervisor can
commit, or hostile environment sexual harassment when a supervisor
is involved, but no tangible employment action has been threatened or
used. An employer’s liability is absolute in quid pro quo cases, but in
the latter situation, both defenses may be raised. Following the Ellerth
and Faragher cases, various courts were faced with defining the word
“supervisor.” There was substantial disagreement among the courts
regarding the proper definition. This article will review the judicial decisions, post Ellerth and Faragher, which dealt in relevant part with defining the word “supervisor,” as well as attempt to synthesize them.
THE PARKINS TEST
Prior to Ellerth and Faragher, there was only one definition of supervisor: one with power to hire, fire, promote, demote or otherwise effect
an employee’s working conditions.7 On the other hand, there was a
broader line of cases which maintained that a low-level supervisor who
retained something less than plenary authority over hiring and firing
could be considered a supervisor.8
Subsequent to Ellerth and Faragher, the Seventh Circuit in Parkins
v. Civil Constructors of Illinois, Inc.,9 had an opportunity to review the
concept of a supervisor in light of those decisions. Lesley Parkins was
a truck driver and a union member employed by a construction and
paving company. She was subjected to foul language, sexual stories,
innuendos, and even touching. Parkins complained to a company dispatcher as well as her foreman who was also one of the alleged harassers. On a daily basis, she saw the superintendent and EEO officer, but
did not complain to either one of them. After she filed a grievance, the
president of the company and the EEO officer launched an investigation.
The harassing employees were punished with discipline ranging from
a verbal warning to a three-week suspension without pay. Parkins was
never harassed again. As her work was seasonal, she was subsequently
laid off.
Thereafter, she filed a complaint with the Illinois Department of
Human Rights and the Equal Employment Opportunity Commission
(EEOC). A district court granted summary judgment for the company
because Parkins had only complained to a dispatcher and her foreman. Both of them were low level employees and neither could be
considered a “supervisor.” According to the requirements of the Ellerth
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and Faragher cases, the court concluded that Parkins failed to properly
launch a complaint regarding her alleged sexual harassment.
The Seventh Circuit pointed out that Title VII does not provide a definition of the word “supervisor.” The court stated:
In short, because liability is predicated on misuse of supervisory
authority, the touchstone for determining supervisor status is the
extent of authority possessed by the purported supervisor.10 [citation
omitted]
The Seventh Circuit went on to announce its so-called “Parkins
test:”
Hence, it is manifest that the essence of supervisory status is the
authority to affect the terms and conditions of the victim’s employment.
This authority primarily consists of the power to hire, fire, demote,
promote, transfer, or discipline an employee. Absent an entrustment
of at least some of this authority, an employee does not qualify as a
supervisor for purposes [of] imputing liability to the employer.11
According to the court, the dispatcher and the foreman were hourly
paid, both were union members, clocked-in, and both reported to the
superintendent who made the significant personnel decisions. Thus,
they were not considered “supervisors.”
In Trigg v. New York City Transit Authority,12 a New York district
court has also endorsed the Parkins test. Trigg was hired as an associate cashier 1. Seabrook, a long-time employee, worked as a supervising
associate cashier 2 in the same department in which Trigg was assigned.
The latter referred to Trigg as a “faggot ass” and said that he would like
“to kick [Trigg’s] ass so bad.” He [Seabrook] also said: “I’m gonna put my
foot so far up your ass, your mother is not going to recognize you.”13
The company investigated after Trigg complained about Seabrook’s
conduct. However, there was no finding of sexual advances or propositions and no comments about Trigg’s body, etc. Trigg was subsequently
dismissed for having accumulated 34 unexcused latenesses, as well as
taking an unauthorized leave.
Following a civil rights action initiated by Trigg, the court concluded
that it must determine whether the company was liable for the actions
of Seabrook. That liability turned on whether Seabrook was Trigg’s
“supervisor” or merely a coworker. Relying upon the Parkins test, the
court concluded that Seabrook did not have the authority to change or
alter the terms of Trigg’s employment and was therefore a coworker and
not a supervisor.
The Seventh Circuit had an opportunity to revisit its Parkins decision
in Hall v. Bodine Elec. Co.14 Lauvenia Hall, a machine operator, had her
t-shirt and blouse pulled from her body which exposed her breasts, by
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a man named Lopez, who she claimed was her supervisor.15 After she
complained to the human resource department, an investigation ensued
and the company suspended Lopez. He, however, counterclaimed that
she had previously grabbed his buttocks and made graphic gestures
regarding male genitalia. The company also suspended Hall after a
lengthy investigation in which the company interviewed 18 witnesses.
Subsequently, both employees were terminated for violation of the company rules regarding sexual harassment. Prior to her termination, Hall
filed a sexual harassment charge with the EEOC.
The Seventh Circuit endorsed the Parkins test, but added another
criterion for existence of supervisory status, specifically, a supervisor
must possess the authority to directly affect the terms and conditions of
a victim’s employment.16
CHALLENGES TO THE PARKINS TEST
The first court of appeals to challenge the definition of supervisor as
adopted in the Parkins case came in Mack v. Otis Elevator Co.17 Yasharay
Mack, a black woman, worked as an elevator mechanic’s helper from July
1999 to May 2000. She assisted six mechanics and, according to the parties’ collective bargaining agreement, if there were five or more mechanics working on one job, there was a “mechanic-in-charge” assigned. A
mechanic-in-charge was defined as one having the right to assign and
schedule work, direct the working force, assure the quality and efficiency
of the assignment, and enforce safety practices and procedures.
The mechanic-in-charge, Connolly, commented on Mack’s appearance by stating that he thought she had “a fantastic ass, luscious lips,
beautiful eyes,” etc. He once pulled her onto his lap, tried to kiss her,
and touch her buttocks.
In reversing the district court, the Second Circuit found that hostile
environment sexual harassment existed. However, an important issue
was whether or not Connolly was Mack’s supervisor. It stated:
Vicarious liability, whether automatic (i.e., quid pro quo harassment)
or subject to the affirmative defense, depends on whether the
power—economic or otherwise, of the harassing employee over the
subordinate victim given by the employer to the harasser—enabled
the harasser, or materially augmented his or her ability, to create or
maintain the hostile work environment.18
The Second Circuit opined that Connolly’s authority was bestowed
on him by Otis, thus enabling him to materially augment his ability
to impose a hostile work environment on Mack. The court noted that
Connolly directed the particulars of her work days. including her work
assignments. He was also the senior employee at the worksite. No other
supervisor was on location to act as a check on his power.
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The Second Circuit noted that by the Parkins test, Connolly would
not be considered Mack’s supervisor. However, it rejected that test while
observing:
The Parkins test for determining who is a supervisor focuses on
those attributes of an employee that enable him or her to take
tangible employment actions with respect to subordinates: the
power to hire, fire, demote, promote, transfer or discipline an
employee’ [citation omitted]. But as we have seen, Ellerth and
Faragher hold that an employer may be vicariously liable even for
the misbehavior of employees who do not take tangible employment
action against their subordinate victims. The question in such cases
is not whether the employer gave the employee the authority to
make economic decisions concerning his or her subordinates. It
is, instead, whether the authority given by the employer to the
employee enabled or materially augmented the ability of the latter
to create a hostile work environment for his or her subordinates.
We therefore conclude that the authority that renders a person a
supervisor for purposes of Title VII analysis is broader than that
reflected in the Parkins test.19
Other courts have also followed the Second Circuit in declining to
define a supervisor so narrowly. For example, in Dinkins v. Charoen
Pokphand USA, Inc.,20 an Alabama district court referred to the Parkins
test as “simplistic” because it “establishes simple rules for complex
cases.”21 The Dinkins’ court concluded that a person is a supervisor:
. . . if he has the actual authority to take tangible employment
actions [citation omitted], or to recommend tangible employment
actions if his recommendations are given substantial weight by
the final decision maker [citation omitted] or to direct another
employee’s day-to-day work activities in a manner that may increase
the employee’s workload or assign additional or undesirable tasks
[citation omitted].
In Kent v. Henderson,22 a Pennsylvania district court found that an
employee with the authority to affect a victim’s daily work activity was
a supervisor. This court, as did the court in Dinkins, found “persuasive” the Equal Employment Opportunity Commission’s Enforcement
Guidance on Vicarious Employer Liability for Unlawful Harassment by
Supervisors.23 The EEOC has stated that a supervisor is (1) one who
has the authority to undertake or recommend tangible employment
decisions that affect an employee, or (2) an individual who has authority to direct the employee’s daily work activities. Because the alleged
harasser/supervisor lacked the power to take tangible employment
actions against Kent, and could not affect her daily work activities, he
was deemed a coworker and not a supervisor.24
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The court in Grozdanich v. Leisure Hills Health Centers, Inc.,25 is also
in the liberal line of cases that place a premium upon a supervisor’s
ability to direct day-to-day activities rather than simply possessing the
authority over hiring, firing, advancement, dismissal and/or discipline.
The court stated:
The disutility of drawing any distinction between supervisors
who manage their subordinates’ daily activities, but who can only
recommend significant personnel decisions and supervisors who have
plenary authority over all such matters, underscores the Supreme
Court’s holding in Faragher and Ellerth.26
Reference to the Grozdanich decision was made by a Missouri district
court.27
In Weyers, the court pointed out that the word “supervisor” was “...
more expansive than merely including those employees whose opinions are dispositive on hiring, firing and promotion.”28 It asserted that a
supervisor’s authority extends to managing daily assignments and supervising a subordinate’s work.29 Considerations whether an employee is a
“supervisor” included:
•
Whether he or she is viewed as a supervisor by employees;
•
Is paid more than other workers;
•
Performs evaluations of employees under him or her or sits in
on evaluations;
•
Directs daily work; and/or
•
Exercising control over training.30
However, the court maintained that straw bosses (i.e., employees
who only relay to their coworkers the orders of a manager) are not
necessarily supervisors, even if they give minor orders or supervise the
work of others.31
THE FEAR FACTOR
The Fourth Circuit introduced an additional element into the debate
regarding the proper definition of supervisor, namely, that an employee only need to have “some measure of supervisory authority.32 It
stated:
The determinant is whether as a practical matter his employment
relation to the victim was such as to constitute a continuing threat
to her employment conditions that made her vulnerable to and
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defenseless against the particular conduct in ways that comparable
conduct by a mere co-worker would not.33
Mikels, a female police officer, was sexually harassed by a coworker
holding the rank of corporal. The court asserted that her response to his
harassment indicated her perception of his role as her supervisor. If the
authority over a victim is ambiguous, the test of perception as to whether a person is a supervisor or not, is the willingness to tell the offender
“where to go,” or suffer in silence.34 Mikels rebuffed her harasser in an
obscenity and profanity laden outburst. She knew that the corporal was
not her supervisor. Her direct supervisor was the squad sergeant and
she had access to him without going through the corporal. Therefore,
the corporal was not a threat to her employment conditions which made
her vulnerable to his harassment. She could, thus, “blow the whistle” on
him without fear of retaliation.
In Homesley v. Freightliner Corp.,35 a North Carolina district court followed the reasoning in Mikels that in order to be considered a supervisor,
there must be “some measure of supervisory authority.” The court considered the following factors to be significant indices of supervisory status:
•
The degree of control over the victim’s conditions of employment;
•
Authority to hire, promote, fire, or discipline;
•
Authority to report an employee’s performance;
•
Power to reassign employees to different duties;36and
•
Causing significant change in employee benefits.37
The Homesley and Mikels courts considered the victim’s response to
the harassment by a male group leader. Homesley “reconsidered” complaining to human resources regarding the group leader’s harassment,
and also “chickened out” from complaining to her actual supervisor,
not the group leader. She feared retaliation from the group leader if she
complained about him. The court found that her fear had some foundation in that the group leader controlled Homesley’s work assignments as
well as her use of vacation and sick time.38 Thus, the group leader could
rightly be considered Homesley’s “supervisor.”
APPARENT AUTHORITY
In both the Ellerth and Faragher cases, the concept of “apparent
authority” was discussed. Such authority causes a victim to reasonably
believe that the harasser possesses supervisory powers. As explained in
Dinkins:
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A harassing employee, endowed with limited actual authority to
monitor coemployees, will sometimes fool his comrades for evil
ends. Such misconduct is foreseeable [citation omitted], and liability
will attach to the employer under the doctrine of apparent authority,
provided that the victim reasonably believed that the harasser
possessed supervisor powers.39
The Dinkins court maintained that reasonable belief depends upon
“the totality of the circumstances” including: “the overall work environment, the structural rigidity of the workforce hierarchy, and the relationship among all employees, supervisors, and managers.”40 A conclusive
presumption against the claim of apparent authority will be made if the
employer has clearly notified of its employees of precisely who is, and
who is not, a supervisor.
DISCUSSION
The courts seem to be split into two camps regarding a definition
of supervisor since Ellerth and Faragher. One side, represented by the
reasoning in Parkins and its progeny, focus on the power to make key
human resource decisions including hiring, firing, promotion, demotion, etc. The other side, represented by Dinkins and Mack, etc., claim
that the Parkins test is simplistic and they take a much broader view
of supervisory authority. A petition for certiorari was filed in the Mack
v. Otis Elevator Co. case. The petition was rejected by the US Supreme
Court on November 17, 2003.41 While the denial of certiorari cannot be
deemed a tacit approval of the Second Circuit’s definition of supervisor,
it leaves employers in a quandary as to the identity of supervisor for
purposes of imputing liability. Is the definition closer to the Parkins test
or more liberal as in Mack? Obviously, the conflict among the Circuits
will continue regarding the appropriate definition of a supervisor.
The Parkins test is objective in the sense that an employee either possesses the plenary power to hire, fire, promote, etc., or lacks such power.
Opponents of the Parkins test offer relevant, but oftentimes vague considerations as to whether an employee is or is not a supervisor. Some
of these courts emphasize managing daily assignment and/or exercising
supervision over an employee’s work. However, many so-called “working supervisors” or “group leaders” simply serve as a conduit for the
actual supervisor’s orders and directions. Should these individuals also
be considered “supervisors?” Is the test whether an employee reasonably perceives the individual to be a “supervisor?” One court’s suggested
criterion for supervisory status is that a supervisor should be paid more
than his or her coworkers. Most employers pay a premium for working
supervisors or group leaders. Thus, that test is not compelling. Also, as
previously noted, many such working supervisors or group leaders do
direct daily work of other employees and may even report conduct/per-
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formance to supervisors. However, it is generally the actual supervisor
that has the final word in performance reviews or whether or not to take
disciplinary action.
The preferred method of eliminating any reasonable doubt as to the
identity of a supervisor is to inform employees in writing at the time of
their orientation and/or by mail if already employed. To emphasize the
Mack definition of supervisor is potentially to extend employer liability
for the actions of all of its employees, not just supervisors. Many employees could be “situationally” supervisors under certain conditions.
But why reinvent the wheel? A perfectly good definition of supervisor
exists in the National Labor Relations Act:
The term ‘supervisor’ means any individual having authority, in the
interest of the employer, to hire, transfer, suspend, lay off, recall,
promote, discharge, assign, reward, or discipline other employees, or
responsibly to direct them, or to adjust their grievances, or effectively
to recommend such action, if in connection with the foregoing the
exercise of such authority is not of a merely routine or clerical nature,
but requires the use of independent judgment.42
This definition provides an objective, yet flexible, definition of supervisor, permitting courts to take into account all pertinent circumstances.
It is more in line with the Parkins test and permits a clear notion of a
supervisor. However, it is broad enough to permit imputation of the
supervisory role in somewhat ambiguous circumstances.
NOTES
1. Meritor Savings Bank, FSB v. Vinson, 510 U.S. 57, 65 (1986).
2. Harris v. Forklift Systems, Inc., 510 U.S. 17, 21 (1993).
3. Burlington Industries, Inc. v. Ellerth, 524 U.S. 742 (1998); Faragher v. City of Boca
Raton, 524 U.S. 775 (1998).
4. Burlington Industries, Inc. v. Ellerth, supra, at 756.
5. Such an action normally involves direct economic harm such as threatening to dismiss,
threatening to discipline, threatening not to promote, threatening salary freezes or cuts,
etc., or actually carries out the threats.
6. The High Court did discuss “apparent authority” when someone purports to exercise a
power which he or she does not have such as threatening an employee with termination,
etc., as opposed to threatening as a misuse of an actual power possessed by the person
(Ellerth at 744).
7. See, e.g., Highlander v. K.F.C. Nat’l. Mgmt. Co., 855 F.2d 644, 648 (6th Cir. 1986); Volk
v. Coles, 845 F.2d 1422, 1436 (7th Cir. 1988); Pfau v. Reed, 125 F.3d 927, 937 (5th Cir.
1997); Pierce v. Commonwealth Life Ins. Co., 40 F.3d 796, 803 (6th Cir. 1994); Walthen v.
General Electric Co., 115, F.3d 400, 403 (6th Cir. 1997); Haynes v. Williams, 88 F.3d 898,
899 (10th Cir. 1996).
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8. Canutillo Ind. Sch. Dist. V. Leija, 101 F.3d 393, 401–402 (5th Cir. 1996) need not have
ultimate authority to hire and fire as long as he or she has input into such personnel
decisions; Savino v. C.P. Hall Co., 988 F. Supp. 1171, 1185 (N.D. Ill. 1997) manager
had authority only to recommend termination could be a supervisor because apparent
authority existed; Saville v. Houston County Healthcare Auth., 852 F. Supp. 1512, 1527
(N.D. Ala. 1994) a supervisor need not be ‘high in the business structure’ or have the
authority to hire, fire or promote to be considered an agent; Meritor Savings Bank, FSB v.
Vinson, (supra, at 76) a supervisor’s responsibilities do not begin and end with the power
to hire, fire and discipline employees or with the power to recommend such actions but
contemplate the day-to-day supervision of the work environment.
9. 163 F.3d 1027 (7th Cir. 1998).
10. Id. at 1033.
11. Id. at 1034.
12. Trigg v. New York City Transit Authority, 2001 WL 868336 (E.D.N.Y.), 91 Fair Empl.
Prac. Case (BNA) 66.
13. Id. at 2.
14. 276 F.3d 345 (7th Cir. 2002).
15. The court found, however, that Hall never considered Lopez to be her supervisor as
she always discussed issues with her actual supervisor or human resources. See, id. at
355.
16. Hall v. Bodine Elec. Co., supra, at 355. See also Jackson v. T&N Van. Serv., 86 F.
Supp.2d 497, 501 (E.D.Pa. 2000).
17. 326 F.3d 116 (2d Cir. 2003). Pet. for cert. filed 72 U.S.L.W. 3147 (U.S. 8/11/03). On
November 17, 2003, the US Supreme Court let stand the Second Circuit’s ruling that
an elevator “mechanic-in-charge” could be a supervisor for purposes of filing a sexual
harassment charge against Otis Elevator Company (Otis Elevator Co. v. Mack, U.S., No.
03-229, cert. denied, 11/17/03).
18. Id. at 125.
19. Id. at 125.
20. 133 F. Supp. 2d 1254 (M.D. Ala. 2001).
21. Id. at 1266.
22. 77 F. Supp. 2d 628 (E.D. Pa. 1999).
23. 8 FEP Manual (BNA) 405:7654 (1999).
24. Kent v. Henderson, supra, at 634.
25. 25 F.Supp.2d 953 (D. Minn. 1998).
26. Id. at 973.
27. Weyers v. Lear Operations Corp., 232 F. Supp. 2d 977 (W.D. Mo. 2002).
28. Id. at 992.
29. Id. at 993.
30. Id.
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31. See Beverly Enterprises-Minnesota, Inc. v. National Labor Relations Board, 266 F.3d
785, 788 (8th Cir. 2001).
32. Mikels v. City of Durham, NC, 183 F.3d 323, 333 (4th Cir. 1999).
33. Id. at 333.
34. Id. at 334.
35. 122 F. Supp. 2d 659 (W.D.N.C. 2000).
36. Id. at 662.
37. Id. at 663. See also Entrot v. BASF Corporation, 359 N.J. Super. 162; 819 A.2d 447
(2003).
38. Id. at 664.
39. Dinkins v. Charoen Pokfhand USA, Inc., supra, at 1266. See also Gary v. Long, 59 F.3d
1391, 1397–1398 (1995)—no employer liability occurred because victim could not have
reasonably believed employee had the authority to harass.
40. Dinkins v. Charoen Pokfhand USA, Inc., supra at 1267.
41. Otis Elevator Co. v. Mack, U.S., No. 03-229, cert. denied, 11/17/03.
42. National Labor Relations Act Section 2 (11).
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Employee Relations Law Journal
Where There’s Smoke:
Employer Policies on Smoking
Sandra M. Tomkowicz and Susan K. Lessack
In response to a recent Surgeon General’s Report highlighting the dangers of
secondhand smoke, employers may be increasingly pressed to balance the rights of
smokers and non-smokers. Policies that attempt to control off-the-job smoking pose
higher litigation risks than policies targeted specifically at eliminating smoke in the
workplace. Failing to provide a smoke-free environment also may pose a risk of
litigation to employers.
O
n June 27, 2006, the US Surgeon General issued a report, The Health
Consequences of Involuntary Exposure to Tobacco Smoke, which
concludes that “there is no risk-free level of exposure to secondhand
smoke.”1 The report recognizes that restrictions on workplace smoking
are effective in reducing secondhand smoke exposure, but the only sure
means of eliminating secondhand smoke exposure in the work environment is to maintain a smoke-free workplace. In the wake of the Surgeon
General’s report, employer efforts to address the spectrum of issues
posed by smoking and smokers in the workplace are likely to take center stage in a growing national debate. In all states except Montana, the
common law doctrine of employment at-will affords an employer ample
latitude to make decisions affecting its employees.2 Despite the broad
scope of at-will employment, employers need to consider the legal
landscape of statutory restrictions and common law causes of action in
making any decisions designed to respond to the growing concern over
the dangers of smoke. To avoid “getting burned,” employers should take
a comprehensive approach, with appreciation for potential claims that
could arise from smokers and non-smokers alike.
Even before the release of this latest report from the Surgeon General,
news stories had suggested that employers were becoming increasingly
aggressive about eliminating smoking in the workplace and its attendant
costs not only by imposing on-the-job bans, but also by adopting poliSandra M. Tomkowicz is Associate Professor in the College of Business
and Public Affairs and Pre-Law Advisor at West Chester University of
Pennsylvania. Before joining the faculty, she practiced law at Pepper
Hamilton LLP and was employed as a CPA at Touche Ross & Co. Susan
K. Lessack, a partner at Pepper Hamilton, concentrates her practice in
employment counseling and employment litigation. The authors, who
gratefully acknowledge the research assistance of Andrew M. DeLucia, an
associate with Pepper Hamilton, can be reached at stomkowicz@wcupa.
edu and lessacks@pepperlaw.com, respectively.
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Employer Policies on Smoking
cies based on employees’ off-the-job activities. Weyco Inc., a medical
benefits administrator from Okemos, Michigan, gained national attention when it gave employees an ultimatum either to quit smoking or
be fired.3 Kimball Physics, a manufacturer of scientific instruments in
Wilton, New Hampshire, has banned not only the use but also the possession of tobacco in company buildings and prohibits “tobacco-residuals” emitting persons (defined as anyone who has used a tobacco product within the previous two hours) from entering its workplace.4 And,
a growing number of employers are imposing higher benefit premiums
on smokers or offering incentives for cessation.5
These employers are motivated by a number of factors, including rising health care costs, pressure to increase productivity, and resentment
of smokers by non-smokers arising from the perceptions that smokers
take more frequent breaks and increase the health care cost burden on
non-smokers. Regardless of the motivation, employers need to consider
carefully the potential legal implications of adopting policies targeted at
smokers or making employment decisions based on whether an individual smokes.
No-smoking policies, whether imposed on or off the job, carry consequences for both employers and employees. For employers, such
policies may affect a hiring or retention decision, which begs the question: can smokers sue for alleged discrimination based on their status
as smokers? For employees, differential treatment of smokers may hit
home in the area of health care benefits, often causing smokers to pay
a greater share of benefits than non-smokers. Even non-smokers have
a stake in how their employers address smoking in their work environments, and some have brought claims that smoking in their workplaces
has caused them harm. Future claims of this type are likely to rely on
the recent Surgeon General’s report and its conclusion that a smokefree workplace is the only effective means of eliminating the risk of
secondhand smoke exposure at work. As the debate about the potential
harmful effects of smoking and inhalation of secondhand smoke by
non-smokers continues, the potential for litigation in this area is likely
to increase.
NO-SMOKING POLICIES IN THE WORKPLACE
A growing number of cities and states have enacted statutes that
explicitly ban smoking in the workplace; others achieve this result by
imposing bans on smoking in public places, including places where
employees work.6 In these states, employers have a statutory obligation to ensure a smoke-free workplace for employees. In the absence
of legislation, employers still may choose to implement a policy that
bans smoking on the job and on employer premises.7 Employers must
be careful to monitor and enforce the policy uniformly to avoid running
afoul of federal and state anti-discrimination statutes that protect indi-
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Employer Policies on Smoking
viduals from adverse employment actions or working conditions on the
basis of protected characteristics.
To illustrate, enforcement of a no-smoking policy could implicate
Title VII of the Civil Rights Act of 1964, which makes it unlawful for
an employer “…to discriminate against any individual with respect to
his…conditions, or privileges of employment…because of such individual’s race, color, religion, sex, or national origin.”8 Consistent with the
language and intent of the statute, courts have long recognized that
“Title VII applies…not only to the more blatant forms of discrimination, but also the subtler forms, such as discriminatory enforcement of
work rules.”9 In Moore v. Inmont Corp.,10 for example, an employer successfully defended a claim of disparate treatment on the basis of race
brought by an employee whom it terminated pursuant to the company’s
no-smoking/automatic termination policy. The employee could not produce any evidence that the company had failed to apply its policy in
an evenhanded manner to all employees, regardless of race. Although
the plaintiff employee in Moore was not successful, Moore reminds
employers of two very important propositions. First, compliance with a
no-smoking on-the-job policy must be enforced in a consistent manner,
and there should be a plan for monitoring enforcement to ensure that
the policy is not being used to “target” certain employees while affording leniency to others.11 Employers should investigate all complaints
alleging violations of the no-smoking policy with the same degree of
diligence. Second, the consequences for violating the policy should be
delineated clearly and imposed uniformly. Inconsistent monitoring or
unequal imposition of discipline for violations could lead to a claim for
disparate treatment in contravention of federal and state anti-discrimination statutes.12
NO-SMOKING POLICIES GOVERNING OFF-DUTY SMOKING
More difficult questions arise when an employer seeks to implement
a policy, such as hiring and retaining only non-smokers, that adversely
affects an applicant or employee who engages in smoking off the job.
Presently, 30 states and the District of Columbia have enacted “lifestyle”
statutes that limit an employer’s ability to make adverse employment
decisions about an employee based upon an employee’s lawful activities
or use of lawful products while off-duty and away from the employer’s
premises.13 As a practical matter, these lifestyle statutes may restrict, to
varying degrees, an employer’s ability to terminate an employee or deny
a job to an applicant who smokes tobacco.14 A policy of retaining and
hiring only non-smokers, therefore, likely would be unlawful in these
states.
In states without lifestyle discrimination statutes, some employers are
choosing not to hire or retain smokers. These employers also are not
without risk of potential claims. Unless the policy is followed for every
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Employer Policies on Smoking
applicant and employee, an employer may face disparate treatment claims
from smokers who are denied employment or retention and who are in
different protected classes than smokers who are hired or retained. In
addition, if an employer tests applicants or employees for the presence
of nicotine, the employer may be subject to a common law tort claim
for invasion of privacy (developed by state court judges based on cases,
not statutes). This tort claim is defined as follows: “One who intentionally intrudes, physically or otherwise, upon the solitude or seclusion of
another or his private affairs or concerns, is subject to liability to the other
for invasion of his privacy, if the intrusion would be highly offensive to
a reasonable person.”15 Although the courts have not yet addressed an
invasion of privacy claim specifically in this context, an employee could
argue that a test for the presence of nicotine by breathalyzer, urinalysis,
or blood constitutes a “highly offensive” intrusion if an employer fails to
carefully monitor the circumstances under which the test is administered.16
To reduce the risk of an invasion of privacy claim, employers should, at a
minimum, follow the existing state (or relevant federal) statutory requirements applicable to drug testing or, in their absence, otherwise ensure
that employee privacy interests are respected.17
Another potential claim arising from testing for the presence of nicotine is a wrongful discharge claim. If an employer terminates a current
employee for refusing to take, or failing, a test for nicotine, the employee may raise a claim for the tort of wrongful discharge. The scope of a
wrongful discharge claim varies widely among the states, and its success
in connection with testing for nicotine would depend upon the extent
to which each state’s courts acknowledge an employee’s right to privacy
regarding off-duty conduct.18
An employer also might be subject to a disparate impact claim of
discrimination based on a policy of hiring only non-smokers. In theory,
a disparate impact claim is based upon the rationale that an employer
should not be permitted, unless necessary to its business operations,
to implement a policy or practice that appears to apply neutrally to all
applicants or employees, but in fact tends to disproportionately screen
out (or affect more harshly) individuals according to certain demographic characteristics, such as sex, race, or ethnicity. The success of a
disparate impact claim likely will turn on statistics reflecting the demographic characteristics of smokers.
A disparate impact claim would be predicated on the argument that a
preferential hiring policy for non-smokers adversely impacts a discrete
class of individuals protected from discrimination under one or more
of the federal or state anti-discrimination statutes, such as Title VII.19
Specifically, Title VII recognizes that it is unlawful for an employer to
use “a particular employment practice that causes a disparate impact
on the basis of race, color, religion, sex, or national origin” unless the
employer “demonstrate[s] that the challenged practice is job related for
the position in question and consistent with business necessity.”20 An
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employee can prove a disparate impact claim by demonstrating that the
employer’s practice causes a disparate impact and that the employer
has refused to implement an alternative practice that would achieve the
asserted business objectives without resulting in the disparate effect.21
If an employer implements a hiring policy that excludes smokers,
a smoker who is denied a job would need to demonstrate that he or
she is a member of a protected class that is adversely affected by this
policy.22 For example, according to the most recent statistics published
by the Centers for Disease Control and Prevention for 2004, it is unlikely
that a protected class of employees could show that a hiring policy that
excludes smokers would result in a disparate impact on the basis of
gender, race, or ethnicity, with one exception for the American Indians/
Alaska Natives population. Analyzing the adult population by gender,
23.4 percent of men and 18.5 percent of women in the United States
smoke.23 Therefore, 77 out of 100 men compared with 82 out of 100
women do not smoke and would not be excluded from consideration
for a job. Because a preferential hiring policy would not disproportionately affect one gender over another, no disparate impact based upon
gender would be demonstrated.24
Similarly, no disparate impact based upon race or ethnicity exists
according to data reflecting the number of smokers in the following
racial and ethnic groups: non-Hispanic Whites (22.2 percent of whom
smoke), non-Hispanic Blacks (20.2 percent of whom smoke), Hispanics
(15.0 percent of whom smoke) and Asians (11.3 percent of whom
smoke).25 The exception is the American Indians/Alaska Natives population, which has the highest incidence of smokers (33.4 percent), and
could establish a prima facie case of disparate impact based on the
present statistics.26
If an employee could show a disparate impact, the employer would
then need to prove the “job-relatedness” and “business necessity” for
the preferential hiring policy. It is difficult to conceive of a rationale for
denying all positions to all smokers on the basis that only non-smokers
can perform the required tasks and, therefore, the preferential hiring
policy is “job-related.” Moreover, even if an employer could justify the
“job-relatedness” and “business necessity” of its policy, the employee
still has the opportunity to prevail on a claim by proving that an alternative practice exists that would not result in a disparate impact. For
example, the employer could establish a more focused policy directed
specifically at prohibiting all employees from smoking in the workplace
and on company property (if secondhand smoke exposure or extended
breaks for smokers is the concern) or implement a bona fide wellness
program27 (if allocating health care costs more equitably is the rationale). Although the risks of a disparate impact claim are not substantial
based upon the above analysis, employers should periodically assess the
potential for such a claim in the event that the demographic make-up of
smokers changes significantly in the future.
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SMOKING AS A DISABILITY
A smoker who is denied employment or subjected to adverse employment action because he or she smokes also may bring a disability discrimination claim. The ADA provides: “No covered entity shall discriminate
against a qualified individual with a disability because of the disability
of such individual in regard to job application procedures, the hiring,
advancement, or discharge of employees, employee compensation, job
training, and other terms, conditions, and privileges of employment.”28
To establish a prima facie case of disparate treatment under the ADA
and parallel state anti-discrimination laws, the plaintiff must show, among
other things, that he or she is disabled29—that he or she has “a physical
or mental impairment that substantially limits one or more of his [or her]
major life activities,” “a record of such impairment,” or that he or she was
“regarded a having such an impairment.”30 Conceivably, a smoker could
bring claims for disability discrimination and/or “regarded as” disability
discrimination if an employer refuses to hire him or her or makes other
adverse employment decisions affecting him or her. As a threshold matter, a smoker would have to show that smoking substantially impairs a
major life activity. To the extent that a smoker is addicted to nicotine, the
smoker suffers from an addiction disorder recognized by the Diagnostic
and Statistical Manual of Mental Disorders.31 Arguably, just as addiction
to alcohol constitutes a disability under the ADA,32 so could addiction to
nicotine. If smoking or addiction to nicotine is a disability, employers
would be prohibited from refusing to hire a smoker because he or she
smokes.33 Although the EEOC has taken the position that smoking itself is
not a disability (because it is an activity rather than impairment), the EEOC
left room for the possibility that addiction to nicotine could be a disability
if the addiction substantially limits a major life activity.34
Most courts that have considered the issue have ruled that the smoking
plaintiffs in those cases were not disabled. In Stevens v. Inland Waters,
Inc.,35 the Court of Appeals of Michigan affirmed summary judgment in
favor of the employer on the employee’s claim of disability discrimination. The employee argued that the employer’s requirement that he quit
smoking both on and off the job constituted disability discrimination.
The appellate court disagreed, holding that the employee’s smoking and
addiction to nicotine did not substantially limit his major life activities
notwithstanding the effect on his ability to choose not to smoke and his
ability to be without discomfort when not smoking.
In another case that reached a similar result, the US District Court for
the District of Maryland stated:
“[C]ommon sense compels the conclusion that smoking, whether
denominated as ‘nicotine addiction’ or not, is not a ‘disability’ within the
meaning of the ADA. Congress could not possibly have intended the
absurd result of including smoking within the definition of ‘disability,’
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which would render somewhere between 25% and 30% of the American
public disabled under federal law because they smoke.”36
The court further reasoned that because nicotine addiction is “readily
remediable,” it does not constitute a disability under the ADA.
Given the difficulty in mounting a successful claim that smoking is
a disability, a more likely claim from a smoker who is denied employment or suffers another adverse employment action is a “regarded as” or
“perceived” disability claim. The regulations underlying the ADA define
a “regarded as” disability as
“(1) ha[ving] a physical or mental impairment that does not
substantially limit major life activities but is treated by a covered
entity as constituting such limitation; (2) ha[ving] a physical or
mental impairment that substantially limits major life activities only
as a result of the attitudes of others toward such impairment; or
(3) ha[ving] none of the [physical or mental] impairments defined
in [the regulations] but is treated by a covered entity as having a
substantially limiting impairment.”37
In any case, “it is necessary that [the employer] entertain misperceptions about the individual.”38
The most likely “regarded as” claim would be an argument that the
employer mistakenly believes that smokers are substantially impaired
and therefore make less productive employees. For example, an
employer might perceive that, as a result of smoking, an employee is
less energetic or more prone to being ill and missing time from work.
If the employer’s fear amounts to a concern that smoking or the effects
of smoking constitute a substantial impairment, then an employee may
at least be able to state a prima facie case of perceived disability discrimination. If an employee can state a prima facie case, the employer
must articulate a legitimate non-discriminatory reason for not hiring or
for making another adverse employment decision affecting a smoker.
Although this step of the burden of proof is usually pro forma, employers may have more difficulty in this context if the reason for not wanting
smokers as employees stems from the concern that smokers are more
likely to use sick days or to be less energetic and productive. That thinking may be viewed as reflecting an employer’s bias toward smokingrelated health issues that themselves may be disabilities. For example,
if a smoker develops a condition caused by smoking, such as emphysema, a heart condition, or lung cancer, use of sick leave or decreased
productivity could be due to the effects of that condition rather than to
the act of smoking itself. Consequently, an employer making a decision
that is based on a smoker’s use of sick leave or decreased productivity
may find itself in the position of defending a more difficult claim of discrimination based on a disability that is easier to prove, like emphysema
or cancer.
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DIFFERENTIAL BENEFIT COSTS FOR SMOKERS
Rather than take the aggressive position of refusing to hire smokers,
many employers have instead imposed higher benefit premiums or
deductibles on smokers based on the view that smokers incur higher
health care costs; requiring smokers to pay a greater portion of those
costs than non-smokers is simply a fair distribution of an employer’s
expenses. Another approach offers discounts to smokers who participate in smoking cessation or other programs. The Health Insurance
Portability and Accountability Act of 1996 (HIPAA) generally prohibits
employers from discriminating on the basis of an employee’s health
condition in determining benefit premiums or contributions. But,
HIPAA recognizes an exception for a “bona fide wellness program,”
and allows an employer to require a higher payment from employees
who do not comply with the requirements of a bona fide wellness program.39 Similarly, the ADA permits employee benefit plans to impose
different conditions on disabled persons provided that the difference
is based on underwriting risks and is not a subterfuge to avoid the
dictates of the ADA.40
Under proposed regulations published in 2001 (final rules have not
yet been circulated) by the US Department of Labor, US Department of
Health and Human Services, and the Internal Revenue Service, a bona
fide wellness program must have four attributes:
1. The total reward (e.g., a discount, waiver of a co-payment, or
absence of a surcharge) given to an individual must be limited
(with a suggested limit of 10 to 20 percent of the total cost of
employee-only coverage);
2. The program must be reasonably designed to promote good
health or prevent disease (so, for example, participants
should have the opportunity to qualify for the reward at least
once per year);
3. The reward must be available to all similarly situated individuals, meaning that the program must provide an alternative to
individuals for whom it is unreasonably difficult or medically
inadvisable (because of a health condition) to satisfy the program’s requirements; and
4. All plan materials describing the terms of the program must
disclose the availability of a reasonable alternative standard.41
If an employer’s bona fide wellness plan meets these standards, the
employer may impose payment differentials based on whether an individual complies with the plan. An employer may require, for instance,
that a smoker who refuses to participate in a smoking cessation pro-
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gram (or a reasonable alternative) pay a higher benefit premium than
other employees.
The proposed regulations address specifically the design of a bona
fide wellness plan that seeks to curb employee tobacco use. In Example
6, the regulations review the following situation: a group health plan
imposes a 10 to 20 percent surcharge on participants who are unable to
certify that they have not used tobacco products within the preceding 12
months. In accordance with the requirements for a bona fide wellness
program, the benefit plan materials provide that, if it is unreasonably difficult for an employee to stop smoking because of a nicotine addiction,
the employee may participate in a smoking cessation program to avoid
the surcharge during his or her participation, regardless of whether the
employee actually stops smoking. The design of this program passes
muster under the proposed regulations, which recognize that nicotine
addiction is a medical condition that could make it unreasonably difficult for an employee to quit using tobacco products.42 Designing a bona
fide wellness program offers employers a way of controlling health costs
and incenting its employees to quit smoking.
POTENTIAL CLAIMS FROM NON-SMOKERS
Although the present trend is towards prohibiting smoke in the workplace, some employers either continue to allow smoking on-the-job or
on company property or fail to consistently monitor and enforce existing
smoking bans in their workplaces. Those employers risk potential lawsuits from non-smokers under the federal ADA (and parallel state disability discrimination statutes) and state workers’ compensation statutes.
Unlike most federal statutes that ban discrimination in employment,
the ADA imposes a unique affirmative duty on employers. Specifically,
the ADA requires an employer to provide a reasonable accommodation
to an applicant or employee with a disability who is otherwise qualified for the position, but who needs an accommodation to perform the
essential functions of the job.43 A reasonable accommodation includes
“modifications or adjustments to the work environment.”44 A reasonable
accommodation must be provided unless it imposes on the employer an
“undue hardship,”45 defined as “an action requiring significant difficulty
or expense.”46
In recent years, courts have seen a spate of cases brought by individuals who assert that they are disabled within the meaning of the
ADA because of their sensitivity to smoke, and claim that they need the
reasonable accommodation of working in a smoke-free environment
or some other related modifications to their working conditions. For
an employee seeking to state a claim for failure to accommodate, the
most difficult hurdle to overcome is proving that he or she is disabled
within the meaning of the ADA. Many of the cases raising this claim
fail because the employee is unable to meet the highly individualized
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burden of proving that he or she has a disability and, therefore, qualifies for the ADA’s protection.47 For example, an employee with asthma
may or may not be disabled within the meaning of the ADA. Whether
the asthma rises to the level of a disability depends upon whether the
impairment substantially limits a major life activity, such as breathing, of
that particular employee.48 If an employee meets the threshold requirement of establishing a disability covered by the ADA,49 an employer
must be prepared to demonstrate either that it has met its affirmative
obligation to provide a reasonable accommodation or that providing the
accommodation would pose an “undue hardship.”50 To meet its burden,
the employer must communicate with the employee to determine what
accommodation(s) would be effective. The EEOC regulations require an
employer to engage in a “flexible, interactive process” with its employee
that is directed towards identifying a reasonable accommodation.51 An
employer who complies with the regulations and engages in a “good
faith” discussion with its employee should be better able to defend
against a claim for failure to accommodate and to protect itself from
punitive damages.52
Recent cases highlight two important considerations for any employer
faced with a request for a reasonable accommodation based upon an
employee’s sensitivity to smoke and smoke residue. First, as in any circumstance where an employee requests a reasonable accommodation,
an employer must engage in an interactive dialogue with the employee.
One recent decision shows the danger in failing to appreciate fully the
nature of an employee’s smoke-related disability and in making only
half-hearted efforts to work collaboratively with the employee to accommodate the disability. In Bond v. Sheahan,53 a correctional officer (Bond)
claimed that her employer, the Cook County Department of Corrections
(CCDOC), discriminated against her by, among other things, failing to
provide a smoke-free environment as a reasonable accommodation for
her asthma. Although CCDOC transferred Bond to other work areas, the
court was not persuaded that CCDOC had met its legal obligation to
Bond in light of Bond’s assertions that the transfers did not eliminate her
exposure to smoke and were not intended as an accommodation. The
court further observed that CCDOC failed to alert Bond to vacant positions in an area of the workplace that was, in Bond’s estimation, the one
genuine smoke-free environment. The court’s skepticism of CCDOC’s
efforts is revealed most plainly in its repeated references to CCDOC’s
“so-called reasonable accommodations.” Based upon the above and
other evidence, the court denied the CCDOC’s motion for summary
judgment, sending the case to trial on whether CCDOC had reasonably
accommodated Bond.
Second, an employer should not assume that the mere existence of a
no-smoking policy would satisfy its obligation to provide a reasonable
accommodation. Ironically, CCDOC did enact two different no-smoking
policies over a period of years, from which, the CCDOC argued, Bond
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benefited. Bond asserted that these policies were not effective accommodations because the policies were never enforced, and the court agreed.
In Service v. Union Pacific Railroad Co.,54 another case reaching the
same result, a locomotive engineer (Service) argued that his asthma
was exacerbated by exposure to smoke and smoke residue, and that
Union Pacific had failed to provide him with a smoke-free environment.
Here too, Union Pacific had implemented a no-smoking policy whereby
“smoking [was] permitted in locomotive cabs, cabooses, company and
crew hauling vehicles only if all occupants [were] agreeable.” The court
acknowledged that the policy may have reasonably accommodated
Service’s need to avoid direct contact with smoke, but it failed to address
his sensitivity to smoke residue (which remained in the locomotive cab
after other employees smoked before Service’s shift). In addition, the
court determined that Union Pacific could not prove that it would have
been an undue hardship to accommodate Service’s request when it had
instituted a company-wide no-smoking policy two years after Service
had suffered a severe asthmatic attack (and was permitted to return to
work only after the new no-smoking policy was implemented). The
lesson here is to review carefully the scope of any no-smoking policy
and its specific application to situations in which employees must be
insulated not only from smoke, but also smoke residue.
WORKERS’ COMPENSATION CLAIMS
In addition to potential failure to accommodate claims from employees whose disabilities are aggravated by smoking in the workplace,
the possibility of workers’ compensation claims based on exposure
to secondhand smoke or “environmental tobacco smoke” also exists.
Employees who believe they were injured at work as a result of smoking by coworkers have filed workers’ compensation claims on the
theory that their injuries were work-related.
To establish a workers’ compensation claim, an employee usually
(depending on the state’s workers’ compensation statute) has to prove
either (1) that he or she contracted an occupational disease that is directly
related to the nature of the employee’s job; or (2) that he or she suffered
an accidental injury that arose out of or during the course of employment.
Accidental injury has been construed to mean an unexpected hazard,
rather than an ordinary incident of working in a particular environment.
It does not need to be a sudden event and can occur gradually over time,
as injuries resulting from exposure to secondhand smoke often do.
Courts have reached varying results in considering the question of
whether injuries caused by secondhand smoke are occupational diseases
or accidental injuries under the controlling workers’ compensation statute. For example, the New York Court of Appeals ruled in Johannesen
v. New York City Dep’t of Housing Preservation and Development,55 that
the employee’s bronchial asthma, which was aggravated by exposure
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to tobacco smoke at work, constituted an “accidental injury” under the
New York workers’ compensation statute. The employee in that case
worked as an office assistant in an unventilated space, in close proximity to approximately 50 other employees, one half of whom smoked.
The court held that the employee was entitled to workers’ compensation
because the work environment exacerbated her preexisting asthma condition. On the other hand, the Nevada Supreme Court held in Palmer
v. Del Webb’s High Sierra,56 that a casino worker who claimed he suffered an occupational disease caused by inhaling tobacco smoke in the
workplace was not entitled to workers’ compensation benefits because
secondhand smoke is not an occupational disease uniquely incidental
to casinos. Rather, “secondary smoke is a hazard to which workers, as a
class, may be ‘equally exposed outside of employment.’” The court contrasted the casino worker’s claim with the situation of a coal miner who
contracts black lung disease by inhaling coal dust, which is incidental
to the character of coal mining.
Employers should be cautious when deciding whether to take the
position that an employee injured because of exposure to secondhand
smoke is not entitled to workers’ compensation benefits because that
argument may expose the employer to a negligence claim. In McCarthy
v. State of Washington Dep’t of Social and Health Services,57 the Supreme
Court of Washington held that an office employee who was continuously exposed to cigarette smoke could pursue a negligence claim against
her employer after she was denied workers’ compensation benefits.
The Washington Department of Labor and Industries had denied the
employee’s claim for workers’ compensation benefits on the ground that
her pulmonary lung disease (which she alleged was due to secondhand
smoke) was not an occupational disease. The employee then brought
a common law negligence claim against her employer. Although workers’ compensation is generally the exclusive remedy for claims against
employers based on work-related injuries, the court held that the exclusive remedy of the workers’ compensation statute did not apply if the
employee’s work-related disease was found to fall outside the statute’s
coverage. Moreover, the court ruled that the employer in that case, the
State of Washington, had a duty to provide a safe workplace, which
encompassed the obligation to provide a work environment reasonably
free from tobacco smoke.
CONCLUSION
As employers attempt to address the growing concerns about the
health hazards of smoke in the workplace and the increased costs and
employee relations issues of having smokers in the workforce, they
face a range of potential claims from both smokers and non-smokers.
Employers attempting to navigate the issue find little guidance in the
sparse case law. Further, employers in states with lifestyle laws are
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constrained in addressing off-duty smoking. Recognizing that the full
scope of employers’ rights is yet to be determined, whatever route an
employer decides to take should be informed by an evaluation of the
following legal issues.
Whether to Prohibit Smoking in the Workplace
•
If the jurisdiction in which the employer does business has a law
banning smoking in workplaces, then this question is answered
easily. Employers complying with these no-smoking bans must
enforce the bans consistently and uniformly or risk a claim of
differential treatment under an anti-discrimination statute.
•
If the jurisdiction in which the employer does business does not
have a law banning smoking in the workplace, the employer
has the right to allow smoking but should recognize the legal
and health risks of doing so. Employees who feel harmed by
smoke in the workplace could request that the workplace be
smoke-free as a reasonable accommodation. Or, employees
might claim that exposure to smoke causes injury covered by
workers’ compensation. The recent Surgeon General’s report
provides compelling evidence to support an employee’s claim
that secondhand smoke exposure cannot be eliminated at
work unless the environment is smoke-free.
Whether to Refuse to Hire/Retain Smokers
•
If the jurisdiction in which the employer does business has a
law that prohibits the employer from making decisions based
on what an employee does outside of work (lifestyle law),
then the employer is barred from refusing to hire or retain an
employee based on whether the employee smokes.
•
If the jurisdiction in which the employer does business does
not have a lifestyle law, then the employer can consider
whether making an employment decision based on an individual’s smoking status is appropriate. In making that decision, employers should weigh the risk of potential claims from
smokers who are not hired or retained because of the policy
(including disability discrimination claims, other discrimination
claims if the policy is not applied uniformly, disparate impact
claims, and common law claims) against the risk of potential
claims from non-smokers exposed to smoke residue on the
smokers, in addition to the impact on health costs, productivity, and employee relations. Any approach that the employer
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decides to take regarding smokers in the workplace should be
used consistently.
•
If the employer prefers not to ban the hiring of all smokers, it
may consider a less aggressive alternative, such as the use of a
bona fide wellness program to impose higher costs on smokers who decline participation in the program.
In addition to these legal considerations, employers should be mindful of the broader policy implications of their decisions. Employees may
perceive any policy directed towards controlling their off-duty conduct
as a further encroachment upon an already diminishing sense of privacy in their personal lives. This perception is likely to affect employee
morale and sense of loyalty toward their employers. Further, policies
addressing off-duty smoking may limit the ability of employers to attract
and retain talented individuals who smoke but otherwise are willing and
able to observe more limited workplace bans on smoking. The most
prudent course is a measured one, balancing the respective interests of
smokers and non-smokers as well as the long-term needs and objectives
of the business.
NOTES
1. Office of the Surgeon General, US Department of Health and Human Services, The
Health Consequences of Involuntary Exposure to Tobacco Smoke (2006), http://www.
surgeongeneral.gov/library/secondhandsmoke/report/.
2. Bradley T. Ewing, Charles M. North & Beck A. Taylor, “The Employment Effects of
a ‘Good Cause’ Discharge Standard in Montana,” 59 Ind. & Lab. Rel. Rev. 17, 18 (2005)
(noting that Montana’s Wrongful Discharge from Employment Act established “the first
and so far only ‘good cause’ standard for discharge in the United States”).
3. Jeremy W. Peters, “Warning: Cigarette smoking may be hazardous to your job,” N.Y.
Times, Feb. 8, 2005, at C5.
4. Martha Nolan McKenzie, N.Y. Times, Dec. 29, 1996, at 3.13.
5. Randy Dotinga, Christian Science Monitor, Jan. 11, 2006, at 15.
6. Mark A. Rothstein, Charles B. Craver, Elinor P. Schroeder & Elaine W. Shoben, 1
Employment Law § 1.24, nn.1-10 and accompanying text (3d ed. Supp. 2006).
7. A unionized employer may be required to bargain to impasse in good faith before
unilaterally implementing a ban on smoking in the workplace. See, e.g., NLRB v. Hi-Tech
Cable Corp., 128 F.3d 271 (5th Cir. 1997).
8. 42 U.S.C. § 2000e-2(a) (2000) (emphasis added). Two other federal statutes, the Age
Discrimination in Employment Act (ADEA) (prohibiting age discrimination against persons
40 years old and older) and the Americans With Disabilities Act (ADA) (prohibiting
disability discrimination), contain the same operative language as Title VII and likely
would protect an employee from discriminatory enforcement of a no-smoking policy on
the basis of age and disability status. See ADEA, 29 U.S.C. § 623(a)(1) (2000) (prohibiting
discrimination with respect to “terms, conditions or privileges of employment”); ADA,
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42 U.S.C. § 12112(a) (2000) (prohibiting discrimination with respect to “other terms,
conditions, and privileges of employment”).
9. Chesheir v. Liberty Mutual Ins. Co., 713 F.2d 1142, 1148 (5th Cir. 1983).
10. 608 F. Supp. 919 (W.D.N.C. 1985).
11. See Chesheir, 713 F.2d at 1149–1150 (finding that employer engaged in discrimination
when it applied its “no law school” policy more leniently to similarly situated male
employees by turning a deaf ear to rumors concerning male employees while aggressively
investigating allegations that female employees were attending law school). A disparate
treatment claim also could arise where an employer imposes a no-smoking policy on
only some job classifications that are staffed exclusively, or significantly, by members of
a protected class.
12. Consistent monitoring and enforcement of a no-smoking policy also should aid an
employer in successfully defending a claim by an employee that the company is retaliating
by targeting the employee for violations of the company’s no-smoking policy because
the employee engaged in protected activity within the meaning of various federal and
state anti-discrimination statutes. See Cobb v. Anheuser Busch, Inc., 793 F. Supp. 1457
(E.D. Mo. 1990) (rejecting plaintiff’s claim of retaliation where company’s rules were
applied uniformly).
13. Ariz. Rev. Stat. Ann. § 36-601.02(f) (2003) (public employees); Cal. Lab. Code 96(k)
(West 2003); Colo. Rev. Stat. § 24-34-402.5 (2005); Conn. Gen. Stat. Ann. § 31-40s, 3151q (West 2003); D.C. Code Ann. § 7-1703.03 (LexisNexis 2001); 820 Ill. Comp. Stat.
Ann. 55/5 (West 1993); Ind. Code Ann. § 22-5-4-1 (West 2005); Ky. Rev. Stat. Ann. §
344.040(3) (LexisNexis 2005); La. Rev. Stat. Ann. § 23:966 (1998); Me. Rev. Stat. Ann.
tit. 26, § 597 (Supp. 2005); Minn. Stat. Ann. § 181.938 (West 1993); Miss. Code Ann. §
71-7-33 (West 1999); Mo. Ann. Stat. § 290.145 (Vernon Supp. 2006); Mont. Code Ann.
§ 39-2-313 (2005); Nev. Rev. Stat. Ann. § 613.333 (LexisNexis 2006); N.C. Gen. Stat. §
95-28.2 (2005); N.D. Cent. Code § 14-02.4-01 (1997); N.H. Rev. Stat. Ann. § 275:37-a
(LexisNexis 1999); N.J. Stat. Ann. § 34:6B-1 (West 2000); N.M. Stat. 1978 § 50-11-3 (
2000); N.Y. Lab. Law § 201-d(2) (McKinney 2002); Okla. Stat. Ann. tit. 40, § 500 (West
1999); Or. Rev. Stat. § 659A.315 (2003); R.I. Gen. Laws § 23-20.10-14 (Supp. 2005); S.C.
Code Ann. § 41-1-85 (Supp. 2005); S.D. Codified Laws § 60-4-11 (2003); Tenn. Code
Ann. § 50-1-304(e)(2) (1999); Va. Code Ann. § 15.2-1504 (2003) (public employees); W.
Va. Code Ann. § 21-3-19 (LexisNexis 2002); Wisc. Stat. Ann. § 111.35 (West 2002); Wyo.
Stat. Ann. § 27-9-105(a)(iv) (2005).
14. An employer operating in multiple states must examine each state’s lifestyle statute
to determine the scope of the restrictions imposed on its ability to take adverse action
against an employee who smokes off-the-job. Some lifestyle statutes, for example,
generally prohibit an employer from discharging an employee for off-the-job smoking
but permit an employer to take such action if the off-duty smoking affects the employee’s
ability to perform his or her job; impacts the safety of others, see, e.g., Nev. Rev. Stat.
Ann. § 613.333 (LexisNexis 2006); conflicts with a bona fide occupational requirement;
or is at odds with a non-profit employer’s purpose in discouraging the use of a specific
product. See, e.g., Mont. Code Ann. § 39-2-313 (2005).
15. Restatement (Second) of Torts § 652A (1965) (emphasis added).
16. The ADA may provide another basis for a claim. Specifically, the ADA restricts an
employer’s ability to make certain health-related inquiries and to require and use the
results of medical examinations. See 42 U.S.C. § 12112(d). Whether a test for nicotine
would be permissible under the ADA and provide a basis for a legal challenge is a
question beyond the scope of this article.
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17. See John B. Wefing, “Employer Drug Testing: Disparate Judicial and Legislative
Responses,” 63 Alb. L. Rev. 799 (2000) (concluding that private employers, in most states,
are permitted to engage in pre-employment testing, post-accident testing, reasonable
suspicion testing, random testing, and testing during a regularly scheduled physical exam
as long as the testing is “carefully carried out with adequate safeguards to protect the
privacy of the employees”).
18. See Ann. L. Rives, Note, “You’re Not the Boss of Me: A Call for Federal Lifestyle
Discrimination Legislation,” 74 Geo. Wash. L. Rev. 553, 556–558 (2006) (noting the
differing views reflected in state court decisions involving the permissible scope of drug
testing that may implicate an employee’s off-duty conduct); see also Deborah A. Ballam,
“Employment-at-Will: The Impending Death of a Doctrine,” 37 Am. Bus. L.J. 653, 685–686
(2000) (positing that “the most significant development with the potential to destroy the
employment-at-will doctrine is the increasing concern with privacy rights” and further
observing that “[d]uring the [1990s] both statutory and common law protections for
employee privacy rights expanded and continued to grow”).
19. Disparate impact claims also are recognized under the ADA. See Raytheon Co. v.
Hernandez, 540 U.S. 44, 53 (2003). Further, in Smith v. City of Jackson, 544 U.S. 228
(2005), the US Supreme Court held that a disparate impact claim is cognizable under the
ADEA. Under the ADEA, an employee will need to demonstrate that a preferential hiring
policy for non-smokers adversely affects persons 40 years old or older. Unlike Title VII,
however, an employer is not required to prove job-relatedness and business necessity,
but rather that the policy was adopted based upon a “reasonable factor other than age.”
See id. at 240–243.
20. 42 U.S.C. § 2000e-2(k)(1)(A)(i).
21. Id. at § 2000e-2(k)(1)(A)(ii).
22. To establish the adverse impact, an employee generally can use the “four-fifths rule”
relied upon by the Equal Employment Opportunity Commission (EEOC) in evaluating
claims of disparate impact. Under the “four-fifths rule,” “[a] selection rate for any race,
sex, or ethnic group which is less than four-fifths (4/5) (or eighty percent) of the rate for
the group with the highest rate will generally be regarded by the Federal enforcement
agencies as evidence of adverse impact, while a greater than four-fifths rate will generally
not be regarded by the Federal enforcement agencies as evidence of adverse impact.”
29 C.F.R. § 1607.4(D).
23. Centers for Disease Control and Prevention, 54 Morbidity and Mortality Weekly
Report, 1121–1124 (2005).
24. Applying the four-fifths rule, the selection rate for men is 93.9 percent of the selection
rate for women (obtained by dividing 77 by 82). Since that rate is greater than 4/5 (or 80
percent), no disparate impact is shown.
25. Centers for Disease Control and Prevention, supra n.23. Asians have the least chance
of being denied a job based on smoking because 89/100 Asians do not smoke. Applying
the four-fifths rule, the selection rate for all other racial/ethnic groups will be compared
to the selection rate for Asians, resulting in the following: the selection rate for Hispanics
is 95.5 percent of the selection rate for Asians (85/89); the selection rate for non-Hispanic
Blacks is 89.9 percent of the selection rate for Asians (80/89); the selection rate for nonHispanic Whites is 87.6 percent of the selection rate for Asians (78/89). Each of these
selection rates exceeds 80 percent and, therefore, does not reflect a disparate impact.
26. The selection rate for American Indians/Alaska Natives is 75.3 percent of the selection
rate for Asians. This selection rate is less than 80 percent and, therefore, presumptively
demonstrates a disparate impact.
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27. See infra ns.39–42 and accompanying text.
28. 42 U.S.C. § 12112(a).
29. Shaner v. Synthes USA, 204 F.3d 494, 500 (3d Cir. 2000). State courts have recognized
that state anti-discrimination statutes are coextensive with the ADA. See, e.g., Rinehimer
v. Cemcolift, Inc., 292 F.3d 375, 382 (3d Cir. 2002).
30. 42 U.S.C. § 12102(2).
31. American Psychiatric Association, Diagnostic and Statistical Manual of Mental
Disorders, 292.9 (4th ed. 1994); see also infra n.42 and accompanying text.
32. See H. Rep. No. 485, 101st Congress, 2d Sess., pt. 2 at 51 and pt. 3 at 28 (1990); 29
C.F.R. § 1630.16(b) and Interpretive Guidance.
33. Whereas the ADA does not preclude employers from banning smoking in the
workplace, see 42 U.S.C. § 12201(b), the statute is silent on whether employers can refuse
to hire smokers.
34. EEOC Letter Re: Nicotine Addiction, 8 Nat. Disability Law Rep. ¶ 62 (Oct. 2, 1995).
35. 220 Mich. App. 212, 559 N.W. 2d 61 (1996), appeal denied, 456 Mich. 863 (1997).
36. Brashear v. Simms, 138 F. Supp. 2d 693, 695 (D. Md. 2001) (citing Sutton v. United
Airlines, Inc., 527 U.S. 471 (1991)).
37. 29 C.F.R. § 1630.2(l).
38. Sutton v. United Airlines, Inc., 527 U.S. 471, 489 (1999).
39. 29 C.F.R. § 2590.702(b)(2)(ii). Some state lifestyle discrimination statutes also explicitly
recognize that it is not unlawful for an employer to offer a health, disability or life
insurance policy that provides different types or prices of coverage based upon an
employee’s use of lawful products as long as the differential premium rates reflect a
differential cost to the employer and the employer provides employees with a statement
delineating the differential rates used by insurance carriers. See, e.g., 820 Ill. Comp. Stat.
Ann. 55/5 (West 1993).
40. See 29 C.F.R. § 1630.16(f) and Interpretive Guidance.
41. 66 Fed. Reg. 1421–1435 (2001) (to be codified at 26 C.F.R. § 54.9802-1(f); 29 C.F.R. §
2590.702(f); 45 C.F.R. § 146.121(f)) (proposed Jan. 8, 2001); see also “Frequently Asked
Questions About the HIPAA Nondiscrimination Requirements,” US Department of Labor,
Employee Benefits Security Administration.
42. Id., 60 Fed. Reg. 1421 at n.1 and Example 6.
43. 42 U.S.C. § 12112(b)(5)(A).
44. 29 C.F.R. § 1630.2(o)(ii) (emphasis added).
45. 42 U.S.C. § 12112(b)(5)(A).
46. 29 C.F.R. § 1630.2(p).
47. Employers also could face claims for retaliation by employees who have asserted their
rights under the ADA (even if they are ultimately proven not to be entitled to a reasonable
accommodation). Because an employee does not need to prove that he or she is disabled
within the meaning of the ADA to raise a retaliation claim, employees generally have fared
much better on retaliation claims than on an underlying disability discrimination or failure
to reasonably accommodate claim. An employer’s denial of an employee’s request for the
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accommodation of a smoke-free workplace (which is protected activity under the ADA)
could serve as the basis for a retaliation claim if the employer takes adverse action against
the employee for making such a request. See, e.g., Rhoads v. Federal Deposit Insurance
Corp., 257 F.3d 373, 391 (4th Cir. 2001), cert. denied, 535 U.S. 933 (2002); Owens v. General
Motors Corp., 2005 U.S. Dist. LEXIS 33484 (E.D. Mo. 2005).
48. See Toyota Motor Mfg., Kentucky, Inc. v. Williams, 534 U.S. 184, 198 (2002) (emphasizing
that whether a disability exists must be determined on a case-by-case basis).
49. Courts are presently split on whether an employee also needs to prove in a failure to
accommodate claim that he or she suffered an “adverse employment action” as a result
of the employer’s failure to accommodate his or her disability. Compare Nawrot v. CPC
Int’l, 259 F. Supp. 2d 716 (N.D. Ill. 2003) (no adverse action required) with Thursby v.
City of Scranton, Case 3:02-cv-02355-TIV (MD. Pa. 2006) (noting confusion in circuit as
to whether adverse action is required).
50. In a unionized workplace, the terms of a collective bargaining agreement may
be relevant to the determination of whether a specific accommodation imposes an
undue hardship on an employer. 29 C.F.R. § 1630, app.,§ 1630.15(d); see also Thursby
v. City of Scranton, supra n.49 (rejecting employer’s motion for summary judgment
where employer argued that providing a smoke-free workplace would constitute an
undue hardship because it would violate its obligations under the governing collective
bargaining agreement; court found that employer had not even attempted to negotiate
the no-smoking issue, and that employer had negotiated no-smoking policies with other
unions in employee’s workplace and had since unilaterally implemented a no-smoking
policy). Cf. U.S. Airways v. Barnett, 535 U.S. 391, 403 (2002) (reasoning that while it is
generally unreasonable for an employer to provide an accommodation that conflicts with
the terms of a seniority system, special circumstances may exist that would render that
accommodation reasonable).
51. See 29 C.F.R. § 1630, app., § 1630.9; see also Enforcement Guidance on Reasonable
Accommodation and Undue Hardship Under the ADA, Question # 5 (EEOC, March
1999).
52. See Enforcement Guidance, Question # 5, (citing 42 U.S.C. § 1981a(a)(3)(1994)).
53. 13 AD Cases 157 (N.D. Ill. 2001).
54. 12 AD Cases 384 (E.D. Cal. 2001).
55. 84 N.Y.2d 129, 638 N.E.2d 981, 615 N.Y.S.2d 336 (N.Y. Ct. App. 1994); see also
Schober v. Mountain Bell Tel., 93 N.M. 337, 600 P.2d 283 (N.M. Ct. App.) (reversing grant
of summary judgment for employer, reasoning that an allergic reaction to cigarette smoke
can be an accidental injury compensable under the workers’ compensation statute), cert.
quashed, 92 N.M. 337 (1978); cf. Helling v. McKinney, 509 U.S. 25 (1993) (ruling that a
prison inmate who claimed he was involuntarily exposed to secondhand smoke, causing
a significant health risk, could state a cause of action under the Eighth Amendment for
cruel and unusual punishment).
56. 108 Nev. 673, 838 P.2d 435 (Nev. 1992).
57. 10 Wash. 2d 812, 759 P.2d 351 (Wash. 1988).
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The Law of Criminal Background Checks
Hope A. Comisky and Christopher P. Zubowicz
More employers are conducting criminal background checks on prospective and
current employees, obtaining information relating to prior arrests or convictions.
While such screening provides various benefits to employers, they must be aware
of what information to seek, who should conduct the check, and how to use the
information received. Employers must develop proper procedures and practices
regarding background checks to avoid potential liability under federal and
applicable state law.
M
ore employers are conducting criminal background checks on prospective and current employees, as well as including questions in
the application process relating to prior arrests or convictions. According
to the Society for Human Resource Management, in 2003, 80 percent
of employers performed criminal background checks, compared to 51
percent in 1996. This relatively dramatic increase reflects heightened
employer awareness of the various risks posed by an employee with
a criminal record.1 Even as employers more vigorously pursue criminal
background investigations for current and prospective employees, it
can be difficult for them to obtain accurate information about individuals and comply with a patchwork quilt of applicable state and federal
requirements.
In June 2006, the U.S. Attorney General acknowledged these challenges in a comprehensive report that concluded that private employers
should have greater access to fingerprint-based criminal history information maintained by the Federal Bureau of Investigation and individual
states.2 As recognized by this and other authorities, there are a multitude of benefits to performing background checks, including reducing
company costs caused by employee theft, embezzlement, violence,
absenteeism and turnover; minimizing liability exposure for claims such
as negligent hiring; and encouraging applicant and employee honesty. Ultimately, to conduct an effective and appropriate background
check, employers must know what information to seek, who within the
company should conduct the check and how to use the information
received.
Hope A. Comisky is a partner in Pepper Hamilton LLP’s Philadelphia office.
She concentrates her practice in employment law counseling, training, and
litigation. Christopher P. Zubowicz is an associate with the firm. The authors
can be reached at comiskyh@pepperlaw.com and zubowiczc@pepperlaw.
com, respectively. This article was adapted from a presentation for the
12th Annual Northeast Regional Employment Law Institute sponsored by
the Pennsylvania Bar Institute.
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The Law of Criminal Background Checks
BACKGROUND CHECK MECHANICS
Gathering Information
When conducting background checks, employers utilize a variety of
searches to gather information about prospective employees. A Social
Security trace can verify an applicant’s identity by checking the Social
Security number against credit bureau records, which can detect false
numbers, and identify names and addresses of other people who have
used or been associated with the number. The trace typically provides
the state and date of issue of the Social Security number and all addresses, employers, and names associated with it. This check is useful in
validating addresses for conducting criminal background searches.
Additional searches may include the following:
•
County criminal conviction records search—provides a history of the applicant’s convictions for the searched counties.
The search typically verifies criminal history for the past seven
years in the jurisdiction specified by the requesting employer.
A background check vendor usually reports the results of
criminal searches directly to the client within 24 to 78 hours.
The search identifies applicants who are prone to violence or
sexual misconduct.
•
Sex offender database search—offers the names of registered
sex offenders in the state registry database.
•
Motor vehicle record search—standard search for positions
requiring driving. The report reveals the applicant’s type/class
of driver’s license, any restrictions or violations, convictions,
license revocations, and accidents.
•
Employment verification—search contacts present or past
employers to verify employment. The report typically verifies
the dates of employment, job titles, salary, circumstances of
termination, and eligibility for re-hire.
Additional background screening services available to employers
include the following:
•
Statewide criminal records search;
•
Multi-jurisdictional criminal records database search;
•
Federal records search;
•
International criminal records search;
•
Child abuse history searches;
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•
Terrorist watch list searches;
•
Credit history report;
•
Current address searches;
•
Education verification;
•
Professional license verification; and
•
Drug and alcohol testing.
Conducting Background Checks
Background checks typically are conducted by employers or thirdparty vendors. Many employers choose to conduct background checks
themselves in order to secure the privacy and security of prospective
and current employees. Internal procedures also allow employers to
streamline the process, and the Fair Credit Reporting Act (FCRA) has
limited applicability to these types of searches.
Employers also may choose a third-party vendor to conduct background checks. Such vendors offer cost-effective expertise in preemployment screening, and the ability to conduct a nationwide search
in order to obtain an applicant’s most accurate and complete data and
records. Vendors are also better able to avoid problems of mistaken
identity and can quickly detect any attempt to use a false identity.
Background checks should be conducted on temporary or outsourced
workers, as well as regular employees or applicants for regular positions. Employers who fail to screen temporary workers are exposed to
liability, which may offset the economic efficiencies that support the
use of a temporary or outsourced worker in the first place. Employers
should consider requiring a staffing agency to conduct appropriate preemployment screenings, with agency indemnification for certain claims
arising from the temporary worker’s conduct at the jobsite.
Using the Information
For prospective employees, background information can help employers determine whether an applicant is qualified for employment. The
information also identifies applicants who provide incorrect personal and
work history information on their application, and are therefore automatically disqualified from further consideration. For current employees,
a background check can help determine whether the employee is qualified for promotion or transfer. Additionally, if a position or department
assumes responsibility for funds or confidential material, background
checks will help an employer to evaluate whether an employee should
be retained in that position.
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THE KEY THEORY OF RECOVERY—TITLE VII
DISPARATE IMPACT
Disparate impact is the key theory under which a plaintiff may
recover under federal law based on the results of a criminal background
check. Under Title VII, a plaintiff will prevail on a disparate impact claim
if he or she “demonstrates that [an employer] uses a particular employment practice that causes a disparate impact on the basis of race, color,
religion, sex, or national origin and the [employer] fails to demonstrate
that the challenged practice is job related for the position in question and consistent with business necessity.”3 The Equal Employment
Opportunity Commission (EEOC) defines adverse impact as “[a] substantially different rate of selection in hiring, promotion, or other employment decision which works to the disadvantage of members of a race,
sex, or ethnic group.”4
Employer Consideration of Conviction Records
The EEOC presumes that a disparate impact will result when an
employer considers conviction records during the hiring process. To
support its presumption, the EEOC relies on statistics that show that
African-Americans and Hispanics are convicted at a higher rate than they
are represented in the population.5 Based on these statistics, the EEOC
adopts the presumption that any policy or practice that causes an adverse
employment action to be taken based solely on an individual’s conviction
record has an adverse impact on members of these protected classes.
The EEOC policy allows an employer to rebut this presumption by
offering statistical evidence showing either that African-Americans and
Hispanics are not convicted at a disproportionately higher rate than
members of other groups or that the convictions policy does not cause
an adverse impact in its own hiring process.6 Thus, an employer may
avoid liability once disparate impact is established by showing that its
policy of considering conviction records is justified by a valid business
necessity. To meet this burden, an employer must demonstrate that it
considered the following factors in making its specific employment decision based on an individual’s conviction record:
1. The nature and seriousness of the offense;
2. The time that passed since the applicant’s conviction and/or the
completion of the individual’s sentence; and
3. The nature of the job held or sought.
Several recent courts in the Third Circuit have evaluated the extent to
which an employer may consider conviction records in the context of
Title VII. In El v. Southeastern Pennsylvania Transportation Authority,7
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the plaintiff, an African-American, disclosed in his job application that
he had been convicted of second degree homicide in 1960. Despite
this disclosure, he received a conditional offer of employment contingent on, among other things, the completion of a satisfactory criminal
background investigation. The defendant subsequently terminated the
plaintiff’s employment as a result of the prior conviction. He challenged the termination under Title VII, the Equal Protection Clause of
the Fourteenth Amendment to the U.S. Constitution, Article I, Section I
of the Pennsylvania Constitution and the Pennsylvania Criminal History
Record Information Act.8
To establish disparate impact, the plaintiff proffered an expert who
opined that “minority employees of [the transportation authority’s] paratransit providers are disparately impacted by the SEPTA policy in that
they are dismissed from employment due to convictions at a rate that is
200 percent greater than non-minorities.”9 Based on this expert opinion,
the court concluded that the plaintiff proffered sufficient prima facie
evidence that the defendant’s policy of minimum requirements for its
drivers had a disparate impact on African-Americans in violation of Title
VII.10 However, the court granted summary judgment to the employer
because it showed that its policy was job related and consistent with
business necessity. Specifically, the defendant satisfied its burden of
proving that the criminal record policy at issue measured the qualifications required to be a successful paratransit driver.
The court emphasized that the defendant’s policy did not automatically preclude a job applicant from the position due to a criminal record,
but rather approached each hiring decision on a case-by-case basis with
heightened scrutiny to determine whether the candidate’s conviction
history is sufficient to make the candidate unsuitable for the position
the candidate pursued.11 In its determination, the court relied on the
following factors:
•
Paratransit drivers service the transportation needs of vulnerable, physically and mentally disabled passengers;
•
Paratransit drivers are in close physical proximity to passengers; and
•
Drivers are often alone in vehicles with passengers.
In Field v. Orkin Exterminating Co., Inc.,12 the plaintiff, a Caucasian,
was terminated from her job as an office manager and bookkeeper after
the defendant employer discovered that she had been convicted of a
felony within the prior ten years. Although not a member of a protected
class for this purpose, she challenged her termination under Title VII.
The court concluded that the plaintiff, even though she was white,
stated a cognizable claim under Title VII because courts have previously
recognized that blanket policies of denying employment to candidates
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Law Journal
who have a criminal conviction violate Title VII.13 While the court noted
that this rule evolved because of concerns about the possible disparate
impact of such a policy on minority job applicants, it held that this protection applied to all job applicants.14 The court did not, however, detail
how the plaintiff should demonstrate the requisite disparate impact.
The court tempered its approach by noting that a blanket policy would
not violate Title VII if the conviction involved conduct that establishes
the applicant’s lack of qualifications for the job—such as a bank teller
applicant with an embezzlement conviction.15 In this case, the conviction
was related to a child custody dispute and therefore, had no relationship
to the job.
Employer Consideration of Arrest Records
In addition to information about criminal convictions, employers are
increasingly seeking information regarding a prospective or current
employee’s prior arrests. The EEOC permits an employer to take an
adverse employment action against an individual with an arrest record
only after weighing several factors. However, federal courts adopt a
more flexible approach than that proffered by the EEOC in evaluating
an employer’s reliance on an individual’s arrest history.
As with its treatment of conviction records, the EEOC’s policy on
consideration of arrest records concludes that using such records to
ban individuals from employment has a disparate impact on many protected groups.16 As a result, such an employment policy is presumptively
invalid unless an employer can establish a business necessity for it. In
this context, the EEOC allows an employer to make an adverse decision based on an individual’s prior arrest after it balances several factors. First, the employer must consider whether the employee actually
engaged in the conduct for which he was arrested.17 To this end, the
EEOC states that the employer should examine the circumstances surrounding the arrest. Employers must then provide the individual with an
opportunity to explain the arrest and conduct an additional investigation
to assess the individual’s credibility. The individual’s conduct must be
related to the job at issue and be relatively recent. An employer may
undertake “close scrutiny of an applicant’s character and prior conduct”
regarding positions that, for instance, are related to law enforcement,
give the employee easy access to the property of others, or involve
responsibility for the safety of others.18
In a decision that was affirmed by the Third Circuit, the District Court
of New Jersey recently concluded that an employer acted properly in
considering an individual’s arrest history. In Ramos v. EquiServe,19 the
plaintiff, an African-American, became an employee of Adecco, a temporary employment agency. Through Adecco, he received a job placement at EquiServe. As part of that temporary job, the plaintiff consented
to an FBI background check, which revealed an arrest history. Based on
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the results of this background check, EquiServe removed the plaintiff.
He sued under Title VII. The court granted the defendant’s motion for
summary judgment on the disparate impact claim, holding that Ramos
did not satisfy his prima facie burden because he claimed only that
his release from EquiServe was discriminatory. He failed to show that
EquiServe’s policy of conducting background checks had a discriminatory impact on a large number of minorities seeking employment.20
The Northern District of Illinois also recently held that an employer
properly considered prior arrests in making employment decisions. In
Watkins v. City of Chicago,21 the plaintiff, an African-American with a
prior arrest history, unsuccessfully applied for a position as a police
officer with the Chicago Police Department. The plaintiff asserted that
her application was rejected based on her race in violation of Title
VII because of Chicago’s policy of excluding applicants with an arrest
record. The court granted defendant’s motion for summary judgment,
concluding that the plaintiff failed to demonstrate that the policy in
question caused the exclusion of applicants because of their race. Rather
than focusing on general statistical evidence that African-Americans
have higher arrest rates than Caucasians in the general population, the
court rested its dismissal on the plaintiff’s failure to show “that there was
any exclusion of applicants or any observed disparities” in the Chicago
police department.22 Absent evidence that there was any racial exclusion
within the department itself, the plaintiff could not demonstrate that the
policy had a disparate impact on African-Americans.
ALTERNATIVE THEORY OF RECOVERY—TITLE VII
DISPARATE TREATMENT
To state a prima facie case of Title VII discrimination under a disparate treatment theory, a plaintiff must show that:
1. He or she belongs to a protected group;
2. He or she was qualified for the position;
3. He or she suffered an adverse employment action; and
4. The circumstances of the adverse employment action create an
inference of discrimination.23
If a plaintiff succeeds in establishing a prima facie case, the burden of
production shifts to the employer to articulate a legitimate, nondiscriminatory reason for its employment decision.24 A satisfactory explanation
dispels the inference of discrimination arising from the complainant’s
initial evidence.25 If the employer meets this burden, the burden of production then shifts back to the employee to show that the employer’s
stated reasons are pretextual and not worthy of credence. At all times,
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the employee retains the burden of persuading the trier of fact that race
was a determinative factor in the employer’s decision to take an adverse
employment action.26
A disparate treatment claim arising from the use of criminal history
information is less frequent and appears to be less successful. The plaintiff has a relatively easy prima facie burden of production. In defending
against a disparate treatment claim, an employer should seek to establish
a legitimate, nondiscriminatory reason for its treatment of an employee.
That explanation should be stated consistently and be based, at least
in part, on reasons other than the employee’s prior criminal history. As
with disparate treatment claims generally, however, the employee’s ability to prevail often will depend on whether he or she can show that the
employer acted pretextually.
Two recent cases demonstrate the challenges that a plaintiff faces in
pursuing a disparate treatment claim based upon an employer’s consideration of criminal history information. In Matthews v. Runyon,27 which
was decided by the Eastern District of Wisconsin, the plaintiff challenged
the U.S. Postal Service’s (USPS) failure to hire him as a mail handler. The
defendant relied on five primary reasons for not hiring the plaintiff:
1. He had more criminal convictions than other applicants;
2. He had a pending felony charge when he applied;
3. His employment history was poor;
4. The defendant was concerned about protecting the mail; and
5. The defendant was concerned about protecting other USPS
employees.
The court concluded that these independently valid reasons for the
adverse employment action were legitimate, nondiscriminatory reasons
for not hiring the applicant. Additionally, there was no evidence of
pretext; the handbook was followed and no impermissible factors were
considered.
In Ramos, based on the results of a background check, EquiServe
removed the plaintiff from working as a temporary employee at its
jobsite. Because the company made this decision based on his arrest
history, which included arrests for rape, abduction, burglary, and grand
larceny, the plaintiff raised disparate treatment claims in addition to his
disparate impact theory of recovery. After reviewing the merits of this
claim, the court dismissed it because, in addition to failing to satisfy
his prima facie burden of production, the plaintiff could not demonstrate pretext. The court noted that Ramos submitted nothing to show
that EquiServe’s explanation for removing him was pretextual. Indeed,
there was no evidence suggesting that Ramos’s removal was based on
any reason other than the results of his background check, or that the
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company’s policy was applied differently to him than it was to other,
non-minority employees.
While a plaintiff faces significant difficulties in asserting a disparate
treatment claim, an employer will strengthen the plaintiff’s case if it
advances several different reasons for its adverse employment action.
In Smith v. American Service Co. of Atlanta,28 for instance, the plaintiff established that the defendant employer discriminated against her
because the employer proffered inconsistent reasons for its failure to hire
her. There, the plaintiff, an African-American, applied for a receptionist position. As part of that application process, the defendant required
the applicant to undergo a polygraph examination, which showed that
she was deceptive regarding her arrest record. The plaintiff was not
hired and subsequently sued the company under Title VII and 42 U.S.C.
Section 1981. The defendant never clearly articulated why it selected a
Caucasian employee over the plaintiff. Instead, it repeatedly changed
the stated justification for its decision not to hire the plaintiff. As a result,
the court concluded that the employer failed to satisfy its burden of
showing that it acted for a legitimate, nondiscriminatory reason. Further,
the court held that the inconsistent reasons could not be supported by
the record and determined that the employer acted pretextually.
ALTERNATIVE THEORY OF RECOVERY—
42 U.S.C. SECTION 1983
Individuals may sue governmental entities claiming a violation of
their own civil rights by government employees who were not properly screened by a background check and later took improper actions
against them.
Under 42 U.S.C. Section 1983,
Every person who, under color of any statute, ordinance, regulation,
custom, or usage, of any State or Territory or the District of Columbia,
subjects, or causes to be subjected, any citizen of the United States
or other person within the jurisdiction thereof to the deprivation
of any rights, privileges, or immunities secured by the Constitution
and laws, shall be liable in an action at law, suit in equity, or other
proceeding for redress . . .29
Thus, to prevail on a Section 1983 claim, a plaintiff must establish
that:
1. The conduct complained of was committed by a person acting
under color of state law; and
2. The conduct complained of deprived the plaintiff of rights,
privileges, or immunities under the law or Constitution of the
United States.30
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While a municipality may be held liable under Section 1983, it cannot be held liable based on a theory of respondeat superior liability.31
Instead, a plaintiff must identify a specific policy or custom that proximately caused the violation of plaintiff’s protected rights.32 If the policy
or custom at issue is facially valid, “a plaintiff must establish causation
by demonstrating that the defendant’s action ‘was taken with deliberate indifference to its known or obvious consequences. A showing of
simple or heightened negligence will not suffice.’”33
It is difficult for a plaintiff to establish a Monell claim based on a single hiring decision. In Board of County Commissioners of Bryan County
v. Brown,34 a reserve deputy physically restrained the plaintiff during the
course of a traffic stop. The plaintiff asserted that Bryan County violated
Section 1983 because it did not adequately screen the reserve deputy’s
background, which included guilty pleas for several misdemeanors,
including assault and battery, resisting arrest, and public drunkenness.
The Supreme Court concluded that the plaintiff’s failure to screen claim
failed. It explained that “a court must carefully test the link between the
policymaker’s inadequate decision and the particular injury alleged.”35 In
discussing the plaintiff’s burden of establishing deliberate indifference,
the Court noted that “only where adequate scrutiny of an applicant’s
background would lead a reasonable policymaker to conclude that
the plainly obvious consequence of the decision to hire the applicant
would be a deprivation of a third party’s federally protected right can
the official’s failure to adequately scrutinize the applicant’s background
constitute deliberate indifference.”36
In Morris v. Crawford County,37 the Eighth Circuit reviewed Bryan
County and its progeny, emphasizing the difficulties facing a plaintiff
who seeks to establish a Monell claim based on a hiring decision. The
court explained that:
[t]he prior complaints in an applicant’s background must be
nearly identical to the type of officer misconduct that caused the
constitutional deprivation allegedly suffered by the plaintiff. Courts
routinely reject attempts to satisfy Bryan County’s causal connection
requirement where none of the prior complaints in an applicant’s
background were of the same or similar type of officer misconduct
that caused the plaintiff’s injury.38
There, the court affirmed the district court’s dismissal of plaintiff’s
Section 1983 hiring claim.
In Young v. City of Providence,39 the First Circuit also recognized
that it is especially difficult for a plaintiff to prevail on a hiring claim
because a plaintiff must show that the hiring decision caused the deprivation, and that the hiring decision reflected deliberate indifference to
the right at issue. There, Providence Police Officer Michael Solitro and
another police officer shot and killed Cornel Young, an off-duty police
officer. The plaintiff, as administratrix of Young’s estate, asserted that
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Providence violated Section 1983 because it failed to conduct an adequate background investigation of Solitro, which should have revealed
a conviction for assault.
The court affirmed the district court’s dismissal of the plaintiff’s deficient hiring claim because the background investigation procedures were
not sufficiently flawed to constitute deliberate indifference. Providence
conducted a background investigation that revealed the prior conduct,
which was considered by the hiring board in deciding to accept his
application. Moreover, there was insufficient evidence of a hiring pattern
that constituted deliberate indifference. The court opined that “[a] pattern of previous bad hiring decisions leading to constitutional violations
(perhaps of the same type as the one at issue) would likely be necessary
to get one outside the ‘single incident’ analysis in Brown.”40
FCRA ISSUES
The Fair Credit Reporting Act (FRCA) allows an entity to obtain
information regarding an individual’s credit worthiness, credit standing,
credit capacity, character, general reputation, personal characteristics,
or mode of living if the information is going to be used to determine
an individual’s eligibility for employment purposes.41 FCRA defines
“employment purposes” as “evaluating an [individual] for employment,
promotion, reassignment or retention as an employee.”42
To comply with FCRA, an employer must obtain written authorization
from the individual for whom it seeks a report.43 In connection with the
authorization, the employer must give a clear and conspicuous disclosure stating that the employer may obtain a report on the individual for
employment purposes. This disclosure may be on the same document as
the actual authorization.44 If the employer decides to take adverse action
based upon the report (i.e., to terminate employment or not to hire an
applicant), the employer must give the individual a copy of the report it
receives from the outside agency and a written description of the rights
of the consumer under FCRA.45
An employer, as a user of information, is liable under FCRA for negligently or willfully failing to comply with its provisions.46 However,
FCRA also limits the liability of an employer as a user of information.47
A consumer may not bring an action for defamation, invasion of privacy, or negligence with respect to the reporting of information against
a user of information based on the information disclosed or based on
information disclosed by the user to a prospective or current employee
against whom an adverse action is taken as a result of the report.48 This
provision does not apply to false information furnished with malice or
willful intent to injure the consumer.
While FCRA imposes several safeguards for applicants and employees regarding access to and reliance on criminal history information, in
practice an employer continues to retain significant flexibility in obtain-
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ing and using criminal background information about applicants and
employees, as reflected by recent cases from the Southern District of
New York and the Third Circuit.
In Obabueki v. International Business Machines Corp.,49 the plaintiff
applied for a marketing manager position with defendant International
Business Machines (IBM). In completing the application form, the plaintiff failed to disclose that he had been arrested and convicted of fraud in
obtaining welfare aid. After the company extended a conditional offer of
employment to him, it conducted a background check that revealed the
prior arrest and conviction. At that point, IBM withdrew the conditional
offer because the applicant lied on his application.
The plaintiff asserted that IBM violated FCRA because it withdrew the
conditional offer of employment without allowing him to address his
criminal history. The record established that the plaintiff was informed
by letter that IBM intended not to employ him based in part on information contained in the credit report, and attached a copy of the report and
a written description of his rights under the FCRA. Five days later, when
the plaintiff was unable to present additional evidence concerning the
dismissal of his conviction for a reconsideration of this decision, he was
informed that the offer was formally withdrawn. Based on these facts,
the court dismissed this claim, concluding that an employer’s decision to
rescind a conditional offer is not an adverse action. Internal discussions
prior to notification of a formal decision cannot constitute an adverse
action under FCRA. Instead, the plaintiff only suffered an adverse effect
when IBM formally withdrew the conditional offer of employment by
a letter.
In Kelchner v. Sycamore Manor Health Center,50 Presbyterian Homes,
Inc. (PHI) required all employees of related organizations to sign an
Annual Statement of Personnel Policy Understanding, which was a
blanket authorization to permit the defendants to obtain employee
credit reports in the future. Kelchner, who was covered by the policy,
was discharged when she refused to sign the authorization. The Third
Circuit affirmed the district court’s grant of summary judgment to the
defendants, holding that PHI’s request for a waiver comported with the
requirements of FCRA.
As an initial matter, the court concluded that PHI identified several
potential needs for obtaining a report that qualified as valid employment
purposes.51 The company asserted that it required access to employee
credit reports to investigate theft, fraud, and other dishonesty if and
when it arises.52 The Third Circuit agreed with PHI that “its ability effectively to investigate allegations pertaining to an employee would be substantially impaired if it had to wait until the investigation was underway
before it could obtain authorization” from the employee.53 The court
also explained that FCRA did not prohibit an employer from obtaining
a blanket authorization from an employee regarding access to her credit
report. Rather, the statute’s plain language allows employers to obtain
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an employee’s written authorization at any time during employment.
Finally, the court held that FCRA does not prohibit an employer from
discharging an at-will employee if she does not permit her employer to
obtain her credit report.
STATE APPROACHES TO CRIMINAL BACKGROUND CHECKS
In addition to possible federal statutory claims, employers must be
aware of varying state legal frameworks that govern the use of criminal
background checks for prospective and current employees. While many
states require that certain kinds of employers, such as schools and nursing care facilities, obtain criminal history information regarding prospective employees, it is more difficult to determine general employer obligations as to inquiries about applicant and employee criminal histories.
Some states, like California and New York, are especially protective of
the right of individuals to obtain employment regardless of their criminal
records. Other states, such as New Jersey and Pennsylvania, are more
likely to allow plaintiffs to pursue common law claims such as negligent
hiring against an employer for failing to adequately prescreen job applicants. Given these differing state approaches to criminal background
checks, employers should review not only the restrictions in the state of
employment, but also restrictions in the applicant’s home state before
conducting a background check.
California Law
California statutory law contains a broad prohibition against employer
consideration of applicant and employee arrest histories:
No employer, whether a public agency or private individual or
corporation, shall ask an applicant for employment to disclose,
through any written form or verbally, information concerning an
arrest or detention that did not result in conviction . . . nor shall
any employer seek from any source whatsoever, or utilize, as a
factor in determining any condition of employment including hiring,
promotion, termination, or any apprenticeship training program or
any other training program leading to employment, any record of
arrest or detention that did not result in conviction.54
Under this framework, even recent arrests are not properly subject to
consideration in making certain employment decisions. The state imposes criminal sanctions for intentional violation of this statute.55 California
also prevents an employer from considering marijuana convictions that
are over two years old.56
In addition to its statutory protection of employees, California common law protects employers that decline to undertake a rigorous review
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of the criminal conviction histories of job applicants and employees.
Under Restatement (Second) of Agency Section 213, which California
has adopted, an employer may be liable if it negligently or recklessly
hires, retains, or supervises an employee who causes harm to another
party during the scope of the employee’s employment. However, in
Federico v. Superior Court of Sacramento County,57 a California Court of
Appeal narrowly construed Section 213 in holding that an employer did
not negligently hire or supervise one of its employees.
In Federico, the defendant John Federico hired John Kaslar to supervise student training and manage various administrative matters at the
Federico College of Hairstyling. When Kaslar was hired, he had two
criminal convictions related to sexual misconduct with young males, the
most recent of which occurred less than a year before he was hired.
Federico did not conduct any background check on Kaslar before hiring him, explaining that he had known Kaslar for many years and was
already familiar with his background and qualifications. In fact, Kaslar
lived in a house that Federico rented to him. While working at the
school, Kaslar met the minor son of a student at the school and, with the
mother’s permission, took the son on a weekend outing. After their trip,
Kaslar engaged the minor in sexual misconduct at Kaslar’s residence.
The minor plaintiff sued Federico and his school for negligently hiring
Kaslar.
Despite these seemingly unsettling facts, the court did not admonish
Federico for failing to conduct a background check. Rather, it suggested
that, even if Federico had known about these convictions, he would
not have been liable under Section 213 for negligently hiring Kaslar.
While the court recognized that Section 213 was a basis for imposing
liability on Federico, it explained that “an employer’s duty, as defined
by California authority and the Restatement, is breached only when the
employer knows, or should know, facts which would warn a reasonable person that the employee presents an undue risk of harm to third
parties in light of the particular work to be performed.”58 Thus, the court
emphasized that liability under Section 213 depends on the specific
duties of an employee’s job. The court acknowledged that “it was foreseeable Kaslar would come into contact with young male customers and
visitors in the course of his work.”59 However, it also diminished the
relevance of Kaslar’s convictions because they did not involve students
or customers of the hairdressing businesses where he worked when he
committed the offenses. As a result, the plaintiff could not establish that
the employer breached its “limited duty” to exercise reasonable care in
selection of its employees.
New York Law
New York’s antidiscrimination law expressly prohibits an employer
from taking an adverse employment action against a job applicant or
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employee for an arrest that did not result in a conviction.60 The state also
has a clear public policy of encouraging the employment of individuals
with prior criminal convictions,61 and requires employers to undertake
a careful analysis of any conviction before relying on it in making an
adverse decision.62
Despite these strong statutory protections of individuals with criminal
histories, New York, like other states, also allows the imposition of tort
liability against an employer if it negligently hires, retains, or supervises an employee. In T.W. v. City of New York,63 the Supreme Court of
New York held that the plaintiff could pursue such a negligence theory
against the defendant. There, the Police Athletic League, Inc. (PAL)
hired Anthony Monroe to be a custodian at the PAL community center,
which provides various activities and programs to individuals between
the ages of six and 21. During Monroe’s interview, he admitted that he
had a criminal conviction. Despite this admission, PAL did not conduct
a criminal background check, which would have revealed an extensive
criminal history, including armed robbery, assault, theft, burglary, and
possession of a controlled substance. After Monroe was hired, he sexually assaulted a minor female at the community center.
While an employer does not have an obligation to ask a job applicant
about his conviction history, “an employer has a duty to investigate a
prospective employee when it knows of facts that would lead a reasonably prudent person to investigate that prospective employee.”64 Given
Monroe’s admission during his interview, coupled with the child-friendly
environment of the community center, the court noted that a jury could
conclude that PAL breached its duty to conduct an investigation into his
criminal background. The court emphasized that Monroe’s access to the
plaintiff was possible only because of his employment with PAL and
that his most recent conviction was only five years before he was hired,
which was sufficient to establish proximate cause.
New Jersey Law
New Jersey imposes several requirements on employers that seek to
use criminal history record information to reject a job applicant or to
terminate an employee.65 In such a situation, an employer must provide
the individual with adequate notice and a reasonable period of time to
confirm or deny the accuracy of any information contained in the criminal history record.66
The state also permits plaintiffs to pursue common law causes of
action against an employer for negligently hiring and retaining an
employee. The Superior Court of New Jersey held in Lingar v. Live-In
Companions, Inc.,67 that the trial court erred in dismissing a plaintiff’s
negligent hiring claim. Kenneth Mack, an employee of defendant LiveIn Companions, was expected to care for a disabled individual while
his wife was away. Instead, Mack abandoned the individual and stole
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several items from his home. The defendant employer had a cursory
pre-employment screening process. It conducted telephone and in-person interviews of applicants, but generally undertook no further investigation. While Mack stated on the application that he had never been
convicted of a felony in the prior seven years, he actually had been
convicted of various offenses, including possession and distribution of
cocaine, shoplifting, trespassing, and receiving stolen property. Because
the defendant did not conduct a background check, it did not learn
about this prior conduct.
The court concluded that a jury certainly could determine that Mack’s
employer failed to make an adequate inquiry before hiring him. In discussing an employer’s pre-employment screening obligations, the court
noted that employer liability “is not to be predicated solely upon failure to investigate the criminal history of an applicant.”68 Rather, a court
should consider the totality of the circumstances surrounding the hiring
decision, including consideration of the work performed.
Pennsylvania Law
Pennsylvania restricts the extent to which employers generally may
rely on a job applicant’s criminal history in making hiring decisions.
Under 18 Pa. Cons. Stat. Ann. Section 9125, an employer may only consider an employee’s felony and misdemeanor convictions “to the extent
to which they relate to the applicant’s suitability for employment in the
position for which he has applied.”69 The employer must provide written
notice to the applicant if it decides not to hire the applicant based on
his criminal history record information.
The Eastern District of Pennsylvania recently imposed an important limitation on the scope of liability under the Act. In Foxworth v.
Pennsylvania State Police,70 the plaintiff applied to be a cadet with the
Pennsylvania State Police and stated on his employment application that
he committed a theft when he was 18.71 This offense had been expunged
from the plaintiff’s record and was not revealed when PSP obtained his
criminal history. As a result of the applicant’s self-disclosure, he was
disqualified as a cadet. The court held that Section 9125 did not apply
because the defined term “criminal history record information” does not
include information that is offered voluntarily by an applicant.72
As in other jurisdictions, a Pennsylvania employer’s failure to obtain
criminal background information about an employee who later engages
in inappropriate conduct may lead to common law claims, such as
negligent hiring, supervision, and retention. Such claims arise under
Pennsylvania tort law, as well as Restatement (Second) of Torts Section
317 and the Restatement (Second) of Agency Section 213.
In Vellafane v. Foundations Behavioral Health,73 a patient at a mental
health facility was sexually assaulted by an employee of the defendant.
The defendant argued that it could not have known that the employee
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had any propensity to engage in sexual misconduct. It had no knowledge of any criminal record or other known problems regarding the
employee when it hired him. While the court acknowledged that a pure
negligent hiring claim may have failed given these facts, it denied the
defendant’s motion for judgment on the pleadings because “there is
sufficient evidence for a finder of fact to conclude that [the defendant]
failed to train and supervise [the employee] properly.”74
In Barry v. Manor Care, Inc.,75 the court denied the defendant’s
motion for summary judgment on the plaintiff’s negligent hiring, training, and retention claim. The plaintiff was admitted to a rehabilitation
center operated by the defendant to recover from a fractured hip. While
there, Ronelle Custis, an employee at the facility, struck the plaintiff on
her temple. During Custis’s prior employment at other similar facilities,
she was disciplined for striking individuals. She also was arrested and
charged with assaulting an elderly patient at a nursing home where she
worked. In reviewing her performance, the defendant noted concern
about Custis’s treatment of residents. This evidence of prior conduct was
sufficient for the plaintiff to proceed with her claim.
DEVELOPING APPROPRIATE EMPLOYMENT POLICIES
AND PRACTICES REGARDING CRIMINAL
HISTORY INFORMATION
Although there are risks associated with conducting a background
investigation, they may be minor when compared with potential liability
for negligent hiring or retention claims. Risks can be limited as follows:
•
An employer should consider conditioning an offer of employment to a candidate who otherwise meets all job qualifications
on a background investigation.
•
An employer should conduct a narrow inquiry into prior conduct.
•
The investigation should target information that is job related,
relatively recent, and consistent with business necessity.
•
Individual employment decisions should be made carefully,
after examining why the criminal history information is related
to the job at issue and requires disqualification of the candidate, taking into consideration the particular type of business
in which the employer is engaged.
•
The employer should document the legitimate reasons for any
adverse employment action that it takes. Such documentation supports a more effective defense to any discrimination
claim.
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•
All information contained in the background check should be
maintained in as confidential a manner as possible.
•
The information should be used only in a manner consistent
with the law of the particular jurisdiction.
•
Employers should notify prospective and current employees
that they are expected to provide accurate information in
response to specific questions posed to them by the employer
and that providing false information can lead to rejection of
their application or termination of their employment.
If a third party is utilized to conduct the background checks, the
protections set forth in FCRA must be provided. Complying with these
protections for applicants also protects an employer if an adverse decision is made.
CONCLUSION
Background screening provides various benefits to employers.
However, they must be aware of what information to seek, who within
the company should conduct the check, and how to use the information
received. Employers also must develop proper procedures and practices
regarding background checks to avoid potential liability under federal
law, based upon disparate impact or disparate treatment theories, as
well as under various state statutes and the applicable common law.
NOTES
1. In 2005, InfoLink Screening Services, Inc., a company that specializes in conducting
background checks, found that 8.5 percent of the people they investigated had criminal
records; 2005 Applicant Hit Ratio Analysis, InfoLink Screening Services, Inc., available at
http://www.infolinkscreening.com/InfoLink/Resources/Articles/applicant_hit_ratio_2005.
aspx (last visited July 16, 2006).
2. The Attorney General’s Report on Criminal History Background Checks, United States
Dep’t of Justice (June 2006), available at http://www.usdoj.gov/olp/ag_bgchecks_report.
pdf (last visited July 16, 2006).
3. 42 U.S.C. § 2000e-2(k)(1)(A) (2000).
4. 29 C.F.R. § 1607.16 (2006).
5. Conviction Records, EEOC Compl. Man. (CCH) ¶ 2088, at 2113 (1998).
6. Conviction Records—Statistics, EEOC Compl. Man. (CCH) ¶ 2089, at 2114–2115
(1998).
7. Civ. A. No. 02-CV-3591, 2005 U.S. Dist. LEXIS 14133 (E.D. Pa. July 12, 2005).
8. Id. at *4.
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9. Id. at *19.
10. Id. at *18.
11. Id. at *27.
12. Civ. A. No. 00-5913, 2001 U.S. Dist. LEXIS 24068 (E.D. Pa. Oct. 30, 2001).
13. Id. at *6.
14. Id. at *7.
15. Id.
16. Policy Guidance on the Consideration of Arrest, EEOC Compl. Man. (CCH) ¶ 2094,
at 2131–2137 (1998).
17. Id. at 2131.
18. Id. at 2134.
19. Civ. A. No. 01-1407, mem. op. (D.N.J. July 28, 2004) (Doc. No. 32), aff’d, 146 F. App’x
565 (3d Cir. Aug. 18, 2005).
20. Id. at 10.
21. 73 F. Supp. 2d 944 (N.D. Ill. 1999).
22. Id. at 949.
23. Sarullo v. United States Postal Serv., 352 F.3d 789, 797 (3d Cir. 2003) (citing McDonnell
Douglas Corp. v. Green, 411 U.S. 792, 800 (1973)), cert. denied, 541 U.S. 1064 (2004).
24. See Texas Dep’t of Community Affairs v. Burdine, 450 U.S. 248, 254 (1981).
25. See id. at 255.
26. See Fuentes v. Perskie, 32 F.3d 759, 764 (3d Cir. 1994).
27. 860 F. Supp. 1347 (E.D. Wis. 1994).
28. 611 F. Supp. 321 (N.D. Ga. 1984), aff’d in part and rev’d in part, 796 F.2d 1430 (11th
Cir. 1986).
29. 42 U.S.C. § 1983 (2000).
30. Kost v. Kozakiewicz, 1 F.3d 176, 184 (3d Cir. 1993).
31. Monell v. Dep’t of Soc. Servs., 436 U.S. 658, 691 (1978).
32. Berg v. County of Allegheny, 219 F.3d 261, 275 (3d Cir. 2000).
33. Bornstad v. Honey Brook Twp., Civ. A. No. 03-CV-3822, 2005 U.S. Dist. LEXIS 19573,
at *75 (E.D. Pa. Sept. 9, 2005) (quoting Berg, 219 F.3d at 276).
34. 520 U.S. 397 (1997).
35. Id. at 410.
36. Id. at 411.
37. 299 F.3d 919 (8th Cir. 2002).
38. Id. at 923.
39. 404 F.3d 4 (1st Cir. 2005).
40. Id. at 31.
41. 15 U.S.C. §§ 1681a(d)(1), 1681a(d)(1)(B) (2000).
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42. Id. § 1681a(h).
43. Id. § 1681b(b)(2)(A).
44. Id.
45. Id. § 1681b(b)(3)(A).
46. Id. §§ 1681o, 1681n.
47. Id. § 1681h(e).
48. 15 U.S.C. § 1681h(e) (2000).
49. 145 F. Supp. 2d 371 (S.D.N.Y. 2001).
50. 135 F. App’x 499 (3d Cir. Mar. 3, 2005).
51. Id. at 501–502.
52. Id. at 501.
53. Id.
54. Cal. Lab. Code 432.7 (Deering 2006).
55. Id. §§ 432.7(c), 433.
56. Id. § 432.8.
57. 59 Cal. App. 4th 1207 (1997).
58. Id. at 1214.
59. Id. at 1215.
60. N.Y. Exec. § 296(16) (Consol. 2006).
61. N.Y. Correct. § 753(1)(a) (Consol. 2006).
62. N.Y. Exec. § 296(15); N.Y. Correct. §§ 752, 753.
63. 729 N.Y.S.2d 96 (N.Y. App. Div. 2001).
64. T.W., 729 N.Y.S.2d at 97–98.
65. N.J. Admin. Code 13:59-1.6 (2006).
66. Id.
67. 692 A.2d 61 (N.J. Super. Ct. 1997).
68. Id. at 66.
69. 18 Pa. Cons. Stat. Ann. § 9125 (2005).
70. Civ. A. No. 03-CV-6795, 2005 U.S. Dist. LEXIS 33639 (E.D. Pa. Dec. 19, 2005).
71. 2005 U.S. Dist. LEXIS 30136, at *4–5.
72. 2005 U.S. Dist. LEXIS 33639, at *5.
73. Civ. A. No. 03-1019, 2005 U.S. Dist. LEXIS 11283 (E.D. Pa. June 8, 2005).
74. Id. at *3.
75. Civ. A. No. 97-5883, 1999 U.S. Dist. LEXIS 5928, at *8–9 (E.D. Pa. Apr. 29, 1999).
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Lex Mentis
Take Your Dog to Work Day—Everyday
James J. McDonald, Jr.
W
hen the Americans with Disabilities Act was enacted, one of
the “reasonable accommodations” that was contemplated was
allowing seeing-eye dogs to accompany blind persons in places where
animals were not otherwise allowed.1 This mandate has not proven
especially problematic, as there is little doubt that persons using seeingeye dogs are disabled, and as the dogs are highly trained not only to
perform their function of guiding the blind person but to avoid being a
nuisance. As with many well-intentioned provisions of the ADA, however, this concept has been twisted and stretched to absurd dimensions
so as to cover situations not likely to have occurred to Congress when
it enacted the ADA. Now, people with all sorts of conditions purporting
to be disabilities are seeking to have their animals accompany them to
stores, to restaurants, on airplanes and buses, even to the theater. It’s
not just dogs any more, either. Cats, birds, horses, and even potbellied
pigs are being characterized as “service animals” entitled to accompany
their owners just about everywhere.
So too are employees more frequently wanting to bring their animals
to work with them as a “reasonable accommodation” of some “disability.” Employees with depression, anxiety, and other psychiatric conditions are seeking to bring their animals to work, assertedly to alleviate
their symptoms. But these animals are a far cry from highly trained
seeing-eye dogs. Some are not trained at all, and in some instances the
presence of the animal in the workplace can be highly disruptive. What
is an employer to do when an employee with a vaguely described disability insists upon bringing a “service animal” to work that barks all day,
threatens to bite other employees, and leaves a mess on the carpet?
Might Your Pet Qualify as a Reasonable Accommodation?
Whether for companionship, protection, or emotional support, millions of Americans own pets. Could your pet be characterized as a “service animal” so you could bring it to work with you? In many instances,
it is not clear. The lack of a precise statutory definition of “service aniJames J. McDonald, Jr. is a partner in the Irvine, CA, office of the national
labor and employment law firm of Fisher & Phillips LLP. He is the editor
of the Second Edition of Mental and Emotional Injuries in Employment
Litigation (2001) and author of its 2006 Supplement. He can be reached
at jmcdonald@laborlawyers.com. The author gratefully acknowledges Josh
Norris, a summer associate in the Atlanta office of Fisher & Phillips LLP, for
his assistance in the preparation of this column.
Lex Mentis
mal,” coupled with murky regulations and little case law, makes it difficult to answer the question definitively. What does seem clear is that
this issue is likely to be litigated with greater frequency in the future.
Title I of the ADA was designed to equalize employment opportunities for persons with disabilities who are otherwise qualified and can
perform the essential functions of the job with reasonable accommodations.2 Although neither Title I of the ADA nor the EEOC’s regulations
on the ADA directly addresses nor defines the role of service animals,
the EEOC’s Interpretive Guidance states, as an example, that permitting an individual who is blind to use a guide dog at work would be a
reasonable accommodation.3 The EEOC’s regulations do specify that an
employer may turn down a request for accommodation where it would
cause an undue hardship or present “a direct threat,” that is, a significant risk to the health or safety of others.4 Otherwise, the ADA and its
accompanying regulations are silent on just how far an employer must
go in allowing employees to bring service animals to work.
Under Title III of the ADA (which pertains to public accommodations), the Department of Justice (DOJ) has issued regulations stating
that “generally, a public accommodation shall modify policies, practices,
or procedures to permit the use of a service animal by an individual with
a disability.”5 The DOJ’s regulations intend that “the broadest feasible
access be provided to service animals in all places of public accommodation.”6 The DOJ’s regulations also include a broad definition of
“service animal” as
[A]ny guide dog, signal dog, or other animal individually trained
to do work or perform tasks for the benefit of an individual with
a disability, including, but not limited to, guiding individuals with
impaired vision, alerting individuals with impaired hearing to
intruders or sounds, providing minimal protection or rescue work,
pulling a wheelchair, or fetching dropped items.7
According to the DOJ, businesses may ask if an animal is a service
animal or what tasks the animal has been trained to perform but cannot
require special ID cards for the animal or ask about the disability of the
person whom the animal accompanies. In addition, persons with disabilities who use service animals cannot be charged extra fees, isolated
from other patrons, or treated less favorably than other patrons. In addition to the ADA, other federal legislation, such as the Air Carrier Access
Act8 and the Fair Housing Act,9 has addressed the issue of accommodating individuals with disabilities with service animals under a similar
liberal approach.
In addressing how far places of public accommodation must go to
accommodate a disabled patron under the ADA, the Supreme Court
has maintained that the statute contemplates three inquiries: “whether
the requested modification is ‘reasonable,’ whether it is ‘necessary’ for
the disabled individual, and whether it would ‘fundamentally alter the
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nature of’” the goods or services provided.10 As illustrated subsequently,
however, establishing that allowing service animals would fundamentally alter the nature of a business is a formidable task to overcome.
For example, in Lentini v. California Center for the Arts,11 a quadriplegic who used a wheelchair for mobility was accompanied by a small
shih tzu/poodle mix named Jazz. Jazz provided “minimal protection”
and retrieved small dropped items for the plaintiff. The plaintiff was
barred from bringing Jazz to any more performances at the defendant
arts center after Jazz was barking while other patrons were seated nearby. Subsequently, the plaintiff filed suit alleging violations of Title III of
the ADA and California’s Unruh Act.12 The district court held that the arts
center could not exclude service animals that make noise “if the behavior would otherwise be acceptable to the Center if engaged by humans.”
On appeal, the arts center contended that the dog’s “yipping or barking”
at the same decibel level as a human noise such as coughing would
nonetheless be more disruptive because it would be “an unexpected
sound in a performance space.” The Ninth Circuit disagreed, reasoning
that Jazz’s admittance was a reasonable accommodation because the
behavior was not disruptive, reasoning that “no patron complained on
the two occasions that Jazz made noise in the Center.” Furthermore, the
appellate court held that a service animal could not be excluded from
a place of public accommodation for making noise if the noise was
intended as communication for the benefit of the disabled owner, such
as to alert the owner of a potentially dangerous condition.
Health and Safety Concerns
Businesses have been largely unsuccessful in barring service animals
from their premises based on health and safety concerns. For example,
in Branson v. West,13 the plaintiff, a physician, was granted a permanent
injunction permitting her to bring her service dog to work at a veterans hospital. In order to alleviate some of the negative side effects of
using a manual wheelchair, the plaintiff used a service dog to assist her
in various activities at work, including pulling her wheelchair, opening and closing doors, holding doors open, picking up dropped items,
retrieving items, and bracing for her when she had to lean out of her
wheelchair. The court rejected as mere speculation the hospital’s protest
that the presence of a service animal was a “logistic nightmare” in the
elevator and hallways. Similarly, the court dismissed the hospital’s health
concerns about the service dog having “contact with patients having
psychological or drug-induced fears of animals or patients with allergies, asthmas or immunodeficiencies to dogs.” In addressing the hospital
safety concerns the court emphasized the hospital’s policy of permitting
seeing-eye dogs into the facility and maintained that “no difference
exists between a seeing eye dog and a service dog.”
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In Johnson v. Gambrinus Co./Spoetzel Brewery,14 a brewery would not
allow the plaintiff, who is blind, to be accompanied by his guide dog on
a tour because of a strict “no animals” policy. The brewery attempted
to accommodate the plaintiff by providing him with a human guide, but
he declined and brought suit under the ADA. The brewery defended
by claiming that the blanket “no animals” policy was required under a
Food and Drug Administration regulation which states that “guard or
guide dogs may be allowed in some areas of a plant if the presence of
the dogs is unlikely to result in the contamination of food, food-contact
surfaces, or food-packaging materials.”15 The brewery contended that
there was a risk of contamination because there was an open manufacturing system and the tour passed by places where the beer and beer
packing were exposed to air. Furthermore, the brewery asserted that if
guide dogs were allowed on the tour then beer production would have
to be shut down while a dog was present to avoid exposure which, the
brewery claimed, would fundamentally alter the nature of the tour since
the purpose of the tour was to observe the manufacturing of beer. The
Fifth Circuit nonetheless concluded that the brewery failed to show that
there was a greater likelihood of contamination because of the presence
of an animal as compared to the presence of the general public. The
court therefore ordered the brewery to amend its blanket “no animals”
policy in order to comply with the ADA.
In 2004 the EEOC and the FDA jointly issued How to Comply with
the Americans with Disabilities Act: A Guide for Restaurants and Other
Food Service Employers.16 The guide is designed to assist restaurants
and other food service employers in complying with the employment
provisions of the ADA. There is only one section pertaining to service
animals which merely provides that employers may not automatically
reject a request by an employee to use a service animal as a reasonable
accommodation. The EEOC quoted the FDA’s rule that a food service
employee may handle his service animal if he “washes his hands for at
least 20 seconds using soap, water, and vigorous friction on surfaces of
the hands, followed by rinsing and drying.” The EEOC’s guide goes on
to give this example:
Adelio, who is blind and uses a service animal, applies to work as a
cashier at a company’s snack bar. Adelio explains that the dog can
sit near the cash register area while Adelio works. The company may
not automatically reject Adelio because he uses a service animal. The
company must allow Adelio to keep his dog near the cash register
area unless it can prove that doing so would impose a significant
difficulty or expense or a significant risk of substantial harm.
The snack bar cashier’s being accompanied by a service animal is
perhaps less troubling than if the employee worked in the kitchen. It’s
one thing for the government to carefully specify the type of hand-washing procedure deemed sufficient to render handling of a service animal
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by food service employees safe. It’s another thing for those employees
actually to follow that procedure.
“It’s a Zoo in There”
The days when almost all service animals were guide dogs are past.
Today a Noah’s Ark of support animals such as cats, monkeys, and
miniature horses, among others, are used in a variety of ways to assist
disabled individuals. In an effort to help determine if an animal is in fact
a service animal, rather than just a pet, the DOJ explains:
Some, but not all, service animals wear special collars and harnesses.
Some, but not all, are licensed or certified and have identification papers.
If you are not certain that an animal is a service animal, you may ask
the person who has the animal if it is a service animal required because
of a disability. However, an individual who is going to a restaurant or
theater is not likely to be carrying documentation of his or her medical
condition or disability. Therefore, such documentation generally may
not be required as a condition for providing service to an individual
accompanied by a service animal. Although a number of states have
programs to certify service animals, you may not insist on proof of state
certification before permitting the service animal to accompany the person with a disability.17
While the DOJ’s guidance helps to recognize the ever expanding
scope of the types of animals that may encompass the definition of “service animal,” it is not particularly helpful toward distinguishing between
animals that are true service animals and those that are merely pets.
Since the penalty for guessing wrong is usually a lawsuit, most public
accommodations are likely to err on the side of allowing the animal, no
matter how seemingly peculiar.
In Access Now, Inc. v. Kitchens,18 a dispute arose over a town ordinance
which prevented a nine-year-old girl with spina bifida from utilizing a
miniature horse that was purportedly a service animal. Allegedly, the
miniature horse would assist the girl in standing, walking, maintaining
her balance, and picking up unspecified objects off the floor or ground.
In holding that the miniature horse was a pet and companion rather
than a service animal, the court concluded that the girl was not disabled
within the meaning of the ADA. It cited medical evidence that the girl
was capable of standing and walking without assistance; in fact the girl’s
own doctor admitted that the girl did not need a service animal.
Although the characterization of a horse as a service animal was
unsuccessful in the Access Now case, the contention that a miniature
horse may be used as a service animal is not far-fetched. According to
the Guide Horse Foundation,19 miniature horses can provide exceptional
help to the blind. Benefits of using a miniature horse as a guide for the
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blind include, among other things, a life span of up to 50 years and an
alternative for those individuals allergic to dogs.
In addition to the type of animals that may qualify as service animals,
the range of tasks that such animals supposedly can perform is expanding as well. Aside from being guides for the blind, service animals
are being employed to perform a variety of tasks including retrieving
dropped items, opening doors, pushing buttons, picking up phones, and
turning lights on and off. Service dogs, with their keen sense of smell,
are even being used to help diabetic patients by detecting abnormalities
in a person’s blood-sugar levels. While the benefits provided by some
of these service animals are, in some cases, life saving, the expanding
range of uses for service animals makes it more difficult for a business
to determine whether an animal truly qualifies.
When Pigs Fly
Adding to the uncertainty over what constitutes a service animal are
situations in which individuals claiming that their companion animal is
a service animal not because it provides assistance with physical tasks
but because the presence of the animal in some way soothes or calms
them. One notable incident occurred aboard a US Airways flight from
Philadelphia to Seattle where a woman insisted upon bringing her 300pound pet Vietnamese pot-bellied pig on board. The woman asserted
that she was a qualified person with a disability (a heart condition)
and that the presence of the animal helped her by relieving stress. The
airline seated the passenger and the pig in the first class cabin, but not
surprisingly, the pig ran squealing through the Boeing 757 on landing,
soiling the cabin. While seeming to overlook the safety implications of a
squealing 300-pound pig running through an aircraft cabin during landing, the Federal Aviation Administration commented in a most politically
correct fashion: “US Airways acted in a reasonable and thoughtful manner based on a legitimate request to transport a qualified individual with
a disability and her service animal.”20
The Department of Transportation (DOT) has implemented the Air
Carrier Access Act by publishing guidelines21 which generally require
carriers to permit service animals to accompany individuals with disabilities on flights. The guidelines provide that airline personnel should
engage in a two-step process. First, the airline must attempt to determine whether the animal is a service animal and whether the individual
is a qualified individual with a disability. Second, the airline must determine whether the animal presents a direct threat to the health of others or would cause a fundamental alteration in passenger service. The
DOT seems ready to permit emotional support animals aboard flights by
specifically expanding the definition of “service animal” to include “any
animal shown by documentation to be necessary for the emotional well
being of a passenger.” In order to determine that the service animal is
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not just a pet, the guidance states that the carrier should seek “credible
verbal assurances” that the animal is more than just a pet.
To test the credibility of an initial verbal assurance, according to the
guidelines, a carrier may ask the individual to identify tasks or functions
that the animal performs. The guidelines further provide that the carrier
may ask what the animal has been trained to do, and it can ask for a specific description of how tasks or functions are performed. Interestingly,
the guidelines list only “snakes, other reptiles, ferrets, rodents and
spiders” as animals that pose “unavoidable safety and/or public health
concerns” and can categorically be denied transport. However, according to the guidelines, the suitability of miniature horses, pigs, monkeys,
and other animals should be evaluated on a case-by-case basis. Thus,
the DOT may be ready to classify emotional support animals as service
animals, potentially opening the cabin door to just about every one of
God’s creatures except rodents, reptiles, and spiders.
Circumventing the “No Pets” Rule at Home
Incorporating emotional support animals, or companion animals,
into the scope of “service animals” has not been exclusive to the airline
industry. For decades, under the Fair Housing Act, housing providers have been required to accommodate physically disabled residents
who require guide dogs or other types of service animals. But recently,
housing providers with no-pets policies have begun receiving more
and more requests from individuals who claim to need “companion” or
“emotional support” animals. Similar to the ADA, the FHA does not specifically mention guide dogs or service animals as a type of accommodation; rather, the DOJ has issued regulations which require that disabled
individuals with service animals must be reasonably accommodated.
The question remains, however, as to whether the owners of emotional
support animals are entitled to be reasonably accommodated.
One of the earliest companion animal cases on point, predating the
ADA and FHA, arose under the Rehabilitation Act, Majors v. Housing
Authority of the County of Dekalb Georgia.22 On summary judgment, the
court ruled that a reasonable accommodation could include an exception to a “no pets” rule to permit a companion dog for a psychologically
disabled tenant.
More recently, in Auburn Woods I Homeowners Ass’n v. Fair Employment
and Housing Commission,23 problems arose when a husband and wife
attempted to keep a small terrier named “Pooky” in violation of their condominium’s restriction prohibiting dogs anywhere in the development.
Both spouses suffered from severe depression and found that taking care
of a dog alleviated their symptoms and enabled them to function more
productively. In holding that the homeowners should have been allowed
to keep their dog as a reasonable accommodation, the California Court
of Appeal emphasized that the homeowners’ disabilities interfered with
the use and enjoyment of their home, and having a dog improved their
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situation. According to the court, “Pooky did not need special skills to
help ameliorate the effects of the [homeowners’] disabilities.” The court
continued that “it was the innate qualities of a dog, in particular a dog’s
friendliness and ability to interact with humans that made it therapeutic
here.” The Auburn Woods decision might be read as decreeing that only
unfriendly dogs may be barred via no-pets rules in California.
The West Virginia Supreme Court took the opposite approach, however, in In re Kenna Homes Co-op. Corp.24 That case involved an occupancy rule that prohibited all animals except for those “properly trained
and certified.” Two residents who suffered from depression sought to
keep pet Yorkshire Terriers to help alleviate some of their symptoms.
The court held that both federal and state law required that a service
animal “be individually trained and work for the benefit of a disabled
person in order to be considered a reasonable accommodation of that
person’s disability.” Specifically, the court held that animals which provide nothing more than “the ordinary comfort of a pet” are insufficient
to be classified as service animals. Thus, under the reasoning of the
Kenna Homes decision, a reasonable accommodation need not be made
for companion animals.
In 2004, however, the DOJ sued Kenna Homes in federal court for its
refusal to allow an emotional support dog for a mentally disabled resident.
Despite the West Virginia Supreme Court’s ruling in 2001, Kenna Homes
elected to enter into a consent decree, which provided that residents were
permitted to keep “service animals and emotional support animals” as
long as a medical provider certified that the specific animal in question
“helps to ameliorate the effects” of the resident’s disability.25
Such a loose standard as “ameliorating the effects of a disability”
is likely to produce some bizarre results. For example, in Assenberg v.
Anacortes Housing Authority,26 the plaintiff asserted that his pet snakes
were service animals because they provided a “great therapeutic benefit
… in the treatment of his depression.” The plaintiff attempted to allege
that his housing provider denied him of a reasonable accommodation
because they required that the snakes be “professional[ly] trained, and
certified.” The court concluded that the housing provider terminated the
plaintiff’s tenancy for using illegal drugs on the premises, rather than for
his possession of the snakes, thus sidestepping the issues of whether the
housing provider would have had to make a reasonable accommodation for the snakes, and whether it would be permissible for a housing
provider to require that snakes be “professionally trained and certified”
in order to qualify as service animals.
Similarly, in DelCore v. Fire Island National Seashore,27 the plaintiff sued to overturn a policy at a national seashore prohibiting dogs
except for seeing-eye dogs. The plaintiff claimed to have posttraumatic
stress disorder and a skin condition caused by 9/11 that required him
to frequent “clothing-optional” beaches, and he sought to take his dog
“Cheekies” along for emotional support and comfort. When park rangers
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refused to consider “Cheekies” as a service animal so as to qualify for
an exemption to the no-dogs rule, the lawsuit resulted.
Workplaces Gone to the Dogs
Although most of the litigation to date regarding service animals
has occurred in the context of public accommodations, air travel, and
housing, it is likely just a matter of time before the battle shifts to the
workplace. Unless a court or the EEOC draws a firm distinction between
service animals and companion animals (and holding that the latter need
not be permitted as a reasonable accommodation in the workplace),
more employees are likely to insist upon bringing their animals to work.
Unfortunately many employers, fearful of lawsuits, may be willing to
allow these animals, which will only make it more difficult when some
employer attempts to draw the line by attempting to prove that the
presence of these animals at work presents an undue hardship. Soon it
may be doggone difficult to distinguish veterinarians’ offices from other
workplaces, with the latter becoming virtual petting zoos crammed with
dogs, cats, monkeys, horses, and other creatures whose asserted purpose is to provide emotional support and comfort to their owners while
at work.
Notes
1. See, e.g., H.R. Rep. No. 485(II), 101st Cong., 2d Sess. 106 (1990); H.R. Rep. No. 485(III),
101st Cong., 2d Sess. 59 (1990).
2. 42 U.S.C. § 12111(8).
3. 29 C.F.R. Part 1630 Appendix.
4. 29 C.F.R. § 1630.15(b)(2).
5. 28 C.F.R. § 36.302(c)(1).
6. 28 C.F.R. Part 36 Appendix B.
7. 28 C.F.R. § 36.104.
8. 49 U.S.C. § 41705.
9. 45 U.S.C. § 3601.
10. PGA Tour, Inc. v. Martin, 532 U.S. 661, 683 n.38 (2001) (quoting 42 U.S.C.
§ 12182(b)(2)(A)(ii)).
11. 370 F.3d 837 (9th Cir. 2004).
12. Cal. Civ. Code § 51, et seq.
13. 1999 WL 1186420 (N. D. Ill. Dec. 10, 1999).
14. 116 F.3d 1052 (5th Cir. 1997).
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15. 21 C.F.R. § 110.35(c).
16. See www.eeoc.gov/facts/restaurant_guide.html.
17. See www.usdoj.gov/crt/ada/animal.htm.
18. 268 F. Supp. 2d 973 (E.D. Tenn. 2003).
19. See www.guidehorse.org.
20. “Pigs Can Fly, U.S. Rules in Case of Stress-easing Pet,” San Diego Union-Trib., A7
(Nov. 30 2000).
21. The guidelines may be found at http://airconsumer.ost.dot.gov.
22. 652 F.2d 454 (5th Cir. 1981). See also Whittier Terrace Associates v. Hampshire, 532
N.E.2d 712 (1989) (holding a mentally disabled resident living in subsidized housing
should be able to keep a cat as a companion where a relationship between the resident’s
ability to function and the companionship of her cat was “undeniable”).
23. 18 Cal. Rptr. 3d 669 (Cal. App. 2004).
24. 557 S.E.2d 787 (W. Va. 2001).
25. See www.usdoj.gov/crt/housing/documents/kennasettle.htm.
26. 2006 WL 1515603 (W.D. Wash. May 25, 2006).
27. No. CV-06-3407 (E.D.N.Y., filed July 12, 2006).
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Employee Benefits
The New Pension Protection Act: More
Worl for Plan Administrators
Anne E. Moran and Karen Tucker
he Pension Protection Act of 2006 (the Act)1 was passed by Congress
just before its August 2006 recess. But since the Act was signed by
the president, plan administrators do not have the luxury of a recess.
They must now review and understand how the hodgepodge of changes contained in this Act affects day-to-day plan operations.
Although most of the public debate about the Act involved underfunded plans and the role of the government in supporting them through
the Pension Benefit Guaranty Corporation (PBGC), the Act’s scope is
broader than that. The Act changes plan limits and reporting rules for all
types of qualified plans. This column discusses first, the changes made
by the Act that will affect defined contribution plan administration; second, some special changes to the defined benefit rules that could create
challenges for plan administrators; and third, important reporting and
disclosure changes. 2
T
Changes Affecting Defined Contribution Plans
Overview of the Changes
The provisions in the Act affecting defined contribution plans reflect
Congress’s recognition that, because of the decline in defined benefit
plan sponsors, defined contribution plans are not mere supplemental
benefits, but the major source of retirement income for many employees.
In recognition of this fact, the changes in the Act discussed herein:
1. Make permanent the increased contribution levels for retirement plans passed in 2001;
2. Accelerate required vesting;
Anne E. Moran is a partner at Steptoe & Johnson LLP in Washington, DC.
She advises clients on executive compensation issues and on benefits
issues arising under retirement, health, and other benefit plans. Over the
course of her career, she has served as Tax Counsel for the Senate Finance
Committee and on the ERISA Advisory Council for the Department of Labor.
Ms. Moran can be reached at amoran@steptoe.com. Karen Tucker is a senior
paralegal specialist and legal editor at the firm who previously worked as a
defined benefit pension administration manager for Connecticut General
Life Insurance Co. (now known as CIGNA). Ms. Tucker can be reached at
ktucker@steptoe.com.
Employee Benefits
3. Encourage use of elective deferral (401(k)) opportunities by
decreasing technical barriers to automatic enrollment;
4. Assist participants with the investment opportunities available
in such plans through diversification rules and elimination of
barriers to the provision of investment advice; and
5. Encourage participants to retain money in retirement arrangements by enhancing the ability to transfer between plans.
Permanent Increases in Contribution Levels Under Economic
Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)3
The Act makes permanent certain pension and IRA provisions of
EGTRRA that were scheduled to lapse after 2010. These provisions
include the increased 401(k) and IRA contribution limits that are now
in place, as well as catch-up contributions (at $5,000 for 401(k) plans
in 2006) for participants age 50 or older, and Roth 401(k) plans. The
increased portability rules in EGTRRA (more rollover flexibility) and
the accelerated vesting of matching contributions (discussed below) are
also made permanent. Further, the Act permanently extends the saver’s
credit (set to expire December 31, 2006), allowing eligible individuals
contributing to a 401(k) plan, qualified pension plan, or an IRA to claim
a nonrefundable tax credit for the first $2,000 of their annual contribution, based on income and filing status. There is also a new provision
that requires the IRS to develop a form to accommodate direct deposit
of income tax refunds to IRAs.
Accelerated Vesting for Defined Contribution Plans
In a little-noticed but potentially expensive change for some employers, the Act requires that all employer contributions to defined contribution plans vest more quickly. Employees with an hour of service after
December 31, 2006 must vest completely in employer contributions to
defined contribution plans after three years of service, or alternatively
must vest at the rate of 20 percent per year beginning no later than the
second year, with 100 percent vesting after six years. (Prior law generally permitted five-year cliff vesting, and a slightly longer graduated
vesting schedule.) Pre-2007 service must be counted for this purpose.
Employers can decide whether to apply the faster vesting only to contributions made beginning in 2007 or to participants’ entire accounts.
For collectively bargained plans, the effective date is postponed until
the current bargaining agreement expires, but not later than 2009. The
faster vesting requirement had applied on a temporary basis to matching
contributions under EGTRRA, and those temporary rules are now made
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Employee Benefits
permanent, as discussed above, and applied to all employer contributions to defined contribution plans.
Incentives to Encourage Participant Enrollment
The new law provides incentives for employers to use automatic
enrollment for retirement plans. Automatic enrollment features provide
that the employer withholds money from participants’ pay and contributes it to a 401(k) plan unless the participants opt out. The theory
is that inertia will result in more people being covered by retirement
plans if individuals must “elect out” rather than “elect in.” There are
two separate sets of rules that apply: an exemption from state wage
garnishment laws for an eligible “automatic contribution arrangement”
(ACA) and, in addition, a new 401(k) safe harbor alternative for a
“qualified automatic contribution arrangement” (QACA). Automatic
enrollment is not required; these rules are intended to encourage its
use. Finally, default investment safe harbors are authorized to give
employers protection with respect to certain investments selected for
automatic enrollment contributions.
Preemption of State and Wage Garnishment Laws for Automatic
Contribution. Arrangements (ACAs). Many employers had not instituted
automatic enrollment in the past for fear that state wage and garnishment laws might prohibit automatic deductions from paychecks without
an employee’s affirmative consent, even if the deducted amounts were
placed in the participant’s 401(k) plan account. Under the Act, effective
immediately, ERISA preempts state wage and garnishment laws for ACAs
that make use of safe harbor investment options, making the state rules
inapplicable to plans subject to ERISA. (Plans subject to ERISA include
most qualified plans except government and certain church plans.) This
preemptive relief applies to ACAs, which are defined as arrangements
that are cash or deferred arrangements, under which the participant is
treated as having elected to contribute a uniform deferral rate provided
under the plan in the absence of a different affirmative election. If the
participant does not make an investment election, contributions are
invested according to safe harbor 404(c) default investment rules specified by the Department of Labor (DOL) (discussed below, but not yet
released as of September 2006), so as to protect plan fiduciaries from
liability for those contributions.
Effective for plan years beginning after December 31, 2007, an ACA
must distribute a notice before the beginning of each plan year that
advises participants of the right to opt out or to defer at a rate other
than the default rate. Additionally, the notice must explain the right to
direct investment of contributions and earnings, and describe how contributions will be invested absent a participant’s election. The participant
must have a reasonable amount of time after the notice to make deferral
and investment elections.
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Employee Benefits
The ACA’s rules provide that participants opting-out will have a 90day window after the first deferral to withdraw automatic enrollment.
Automatic elective contributions that are designated by an employee as
made erroneously and distributed before April 15 of the year following
the year contribution was made, are treated as compensation to the
employee in the year of distribution and are not subject to the 10 percent early withdrawal tax or to the otherwise applicable nondiscrimination rules. The withdrawal must be for 100 percent of amounts deferred
(and earnings) through the payroll period beginning before the effective
date of withdrawal election. Plans will have six months after the close of
the plan year to distribute excess contributions resulting from automatic
enrollment without the employer being subject to the 6 percent penalty
tax that would ordinarily apply to excess contributions.
New Safe Harbor for Qualified Automatic Contribution Arrangements
(QACAs). The Act authorizes a new safe harbor plan for plans with an
automatic enrollment feature that avoids nondiscrimination testing but
which is potentially less costly than the currently permitted safe harbor.
It is potentially less costly because, although the amount of employer
contributions required per participants is lower and vesting in some
cases is slower than under the current 401(k) safe harbor, it is anticipated that more people will participate due to automatic enrollment, thus
increasing the number of participants who receive contributions.
Under the new safe harbor, the automatic default deferral percentage must be 3 percent in the first year of participation, 4 percent in
the second year, 5 percent in the third year, and 6 percent in each year
thereafter. Plans may provide for automatic increases in the default
deferral percentage up to 10 percent of pay. This rule may present a
recordkeeping challenge for some employers, since contributions will
vary by a participant’s service.
The required employer contribution must be either a 3 percent nonelective contribution for nonhighly compensated employees (NHCEs)
(like the current safe harbor) or a matching contribution of 100 percent
of the first one percent of compensation and 50 percent of the next 5
percent of compensation, with a minimum required total match of 3.5
percent (potentially lower than the current safe harbor matching contribution, which is 100 percent of the first 3 percent and 50 percent of
the next 2 percent of pay). There is two-year cliff vesting required for
employer contributions rather than the immediate vesting rule applicable to the current safe harbor plans, although immediate vesting would
be permitted. For purposes of measuring service, the first year ends on
the last day of the first full plan year following the participant’s eligibility date. The second and subsequent plan years begin on the first day
of each later plan year.
Eligible employees who must be automatically enrolled include all
employees eligible to participate in the plan other than employees who
were eligible to participate prior to the date a QACA becomes effective
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and who had an election either to participate or not to participate in
effect. These eligibility limitations do not preclude inclusion of current
employees in automatic enrollment. It should be noted that the QACA
can require a waiting period of up to one year before an employee
becomes eligible, just like other 401(k) safe harbor plans.
Default Investment and Reallocation Safe Harbors. Effective January
1, 2007, the Act provides “Section 404(c) protection” for )plans that
utilize a safe harbor default fund for participants who do not make an
investment election. This generally means that if the requirements of
the Act are met, an employer that uses a default fund will be protected
from an argument by a participant who had a default investment that an
alternative investment would have better suited the participant’s needs.
The DOL must issue regulations defining the safe harbor fund within
180 days of enactment. It is expected that a default fund will be some
sort of “life cycle fund” and may not be a fixed income or money market
fund that many plans currently use as a default. This is based on the
policymakers’ view that a “safe” fixed income fund (where principal is
guaranteed, but earnings are not particularly high) may not be appropriate for all employees, particularly younger employees who have many
years until retirement. It is unclear how this view will affect plans that
currently use a fixed income fund as a default investment (on the theory
that principal must be protected at the cost of increased earnings potential). It is likely they will have to change.
For plan years after 2007, the new law eliminates Section 404(c) protection during blackout periods unless the plan has complied with the
blackout notice requirements enacted by the Sarbanes-Oxley Act4 and
meets certain other stipulated requirements. Generally, the notice must
be provided at least 30 days but no more than 60 days in advance of
the effective date of the change, and explain the changes to investment
options, the new options, and how the participants’ investments will be
made absent an election. The notice must also explain how the participants’ accounts will be “mapped” to new investments in connection with
a change in investment options. For collectively bargained plans, these
changes are delayed until the current bargaining agreement expires but
not later than 2010. At some point before the effective date of the new
rules, it is hoped that the DOL will provide guidance to make sure that
these new requirements are consistent with the current requirements for
a blackout notice. For example, ERISA currently requires notice at least
30 but no more than 60 days before the effective date of a blackout
period, but the new rules require notice of investment changes 30 to 60
days before the effective date of the change.
It will take some time before the practical effect of these rules has
been thoroughly tested. While plan administrators are certainly advised
to follow these rules to obtain the maximum protection possible, we
expect that the DOL will still issue caveats that hold the employer
responsible for prudent fund selection procedures and for monitoring
the funds selected.
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Increased Investment Opportunities and Education
These provisions reflect Congress’s view that participants need to take
an active role in their savings plan investments in order for such investments to generate enough income to provide for retirement. Therefore,
the new rules require that most contributions made in employer stock
be allowed to be diversified. The Act also eliminates barriers to employers and plans that want to make participant investment education more
accessible.
Diversification Rules. Effective for plan years starting in 2007, the Act
provides that defined contribution plans must meet new diversification
requirements for employee contributions or employer contributions to a
plan that are invested in publicly traded employer securities.5 These new
diversification rules do not, however, apply to (1) ESOPs that contain no
elective deferrals, employee contributions, and matching contributions;
and (2) one-participant plans. They would, however, apply to KSOPs
(401(k) plans with ESOP features). There is a delayed effective date for
collectively bargained plans.
All participants must be allowed to diversify the investment of their
own elective deferrals and after-tax contributions. Plans must allow
diversification of other contributions (including employer contributions)
invested in employer securities as follows. For post-2006 employer contributions, plans must permit 100 percent diversification no later than
after the completion of three years of service (or immediately for the
beneficiary of deceased participants). For pre-2007 employer contributions, plans must permit 100 percent diversification for participants with
at least three years of service who are age 55 and older by the beginning
of the first plan year after December 31, 2005. Participants under age 55
with at least three years of service must be allowed, at a minimum, the
following diversification schedule for pre-2007 employer contributions:
33 percent available for diversification for the first year, 66 percent the
second year, and 100 percent the third year.
Investment elections to allow such diversification must be permitted
at least quarterly. At least three different investment alternatives other
than the employer stock must be made available.
A participant who has a right to diversify out of employer securities
must be given 30 days’ advance notice before the first date that he or she
is eligible to exercise diversification rights and the notice must describe
the importance of diversifying the investment of retirement assets. There
is a $100-per-day civil penalty for noncompliance. As discussed below
under Reporting and Disclosure, notices of investment rights must be
provided to all participants.
Individualized Investment Advice. Many employers hesitated to provide employees with access to individual investment advice due to concerns that they would be held accountable for investments that did not
perform as projected using the advice. There were also technical “prohib-
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ited transaction” concerns under ERISA regarding the use of investment
advisors. Beginning in 2007, under a new prohibited transaction exemption (PTE), “fiduciary advisors” are allowed to provide personally tailored
professional investment advice to employees to assist them in managing
their 401(k) plan, IRAs, and other plans. A “fiduciary advisor” is a person
who is a plan fiduciary by reason of giving investment advice and who
is a registered investment advisor, bank, or similar institution, insurance
company, or registered broker-dealer, or an employee, agent, or registered representative of such organization. A “fiduciary advisor” will be
allowed to give investment advice if either its fee does not vary based on
the participant’s investment choices or its recommendations are based on
a computer model certified and audited by an independent third party.
Before dispensing advice (and then annually), the “fiduciary advisor” must
provide written notice to participants explaining services provided, fees
to be charged, and how information obtained from the participant will
be used. The participant directs all investment transactions. “Fiduciary
advisors” may be compensated for giving participant investment advice
rendered after December 31, 2006 but the compensation must be reasonable. Whether employers will take advantage of this opportunity remains
to be seen. In particular, the audit requirement may be expensive.
Other Special Rules
The Act contains a variety of other new rules that will affect plan
administration.
Hardship Distributions and Rollovers for Nonspouses. The Act recognizes a more diversified workforce whose employees have domestic
partners or other nontraditional partners, including two additional benefits for nonspouse beneficiaries.
First, the Act expands the types of benefits eligible for “safe harbor”
hardship distributions for expenses like medical costs and tuition even if
the affected recipient of the funds is not a “dependent” as defined in the
Internal Revenue Code. Obviously, this expands the use of hardship withdrawals beyond traditional dependents and even beyond same sex partners.
Plans are not required to adopt this rule, but many are likely to do so.
Also, under current law, only a spouse can roll over his or her deceased
spouse’s retirement benefit into an IRA or to another qualified plan or
403(b) plan. The law expands this opportunity to all beneficiaries, but
only for rollovers to an IRA. This IRA will still have to apply the minimum
distributional rules that “would have” applied to the participant.
Distributions to Qualified Reservists. The Act provides for special
rules applicable to National Guard and Reserve members called to active
duty between September 12, 2001 and December 31, 2007, for a period
of at least 179 days. The new law permits (but does not require) plans
to make distributions to eligible members while on active duty without
regard to applicable restrictions. This rule applies to distributions made
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after September 11, 2001. The distributions would be exempt from the
10 percent early withdrawal penalty and could be re-contributed to an
IRA at any time within the two-year period following the end of active
duty without regard to the annual contribution limit.
Fiduciary Bonds. Currently, fiduciaries and other service providers
that handle plan funds must be bonded for at least $500,000 (this may
be more depending on the amount handled). The Act increases this
minimum amount to $1 million after 2007 for plans holding employer
securities.
Portability. As noted above, the EGTRRA rules that are now permanent
had taken some initial steps to increase the ability to transfer between different types of retirement plans (commonly known as portability). Under
EGTRRA, for example, distributions could be rolled over from 401(k) to
403(b) plans and certain government-sponsored deferred compensation
plans and vice versa, and an employee’s surviving spouse could roll over
distributions to qualified plans and 403(b) plans. But rollovers by nonspouses and certain after-tax contributions were still limited.
The Act provides that effective in 2008, 401(k) plan distribution can
be rolled over directly to Roth IRAs. The taxable portion of the rollover
amount is taxed at the time of rollover and subject to the Roth IRA conversion rules. After-tax amounts will also be able to be rolled over after
2006. Additionally, as discussed above, effective for distributions made
after 2006, a nonspouse beneficiary is permitted to roll over benefits to
his or her own IRA. However, the IRS is expected to issue regulations
that will require the transferee IRA to comply with minimum distribution rules applicable to the participant. These rules will expand rollover
opportunities but may result in more recordkeeping and reporting issues
for retirement plans.
Changes Affecting Defined Benefit Plans
Funding and Deduction Rules
The changes most widely discussed under the Act involve changes
to minimum funding and deduction rules for defined benefit plans.
While significant, these changes are more likely the focus of the plan’s
actuaries and accountants. However, some special non-funding rules
that could affect the operation of defined benefit plans are discussed
below.
Lump-Sum Payments
The Act changes the interest rate assumptions used to convert annuity benefits to lump sums. It is not expected that the mortality rate
change will have a significant effect, but the interest rate change could
be important.
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The interest rate assumption affects the amount of lump sums a participant can receive. It also affects a participant’s decision as to when
to retire. If the interest rate appears to be increasing, a participant may
retire early so that his or her lump sum does not decrease.
Once it is fully phased in, the interest rate will be based on the corporate bond yield curve during the one-month period before the distribution date. Unless IRS regulations provide more flexibility for determining
the date (and the Act does provide some authority for the IRS to do
that), the rate is set on that monthly date. The plan administrator will be
required to track these rates.
The yield curve rate is expected to be higher than the current 30-year
Treasury rate, thus decreasing potential lump sums. However, that rate
is phased in over a five-year period, and the 30-year Treasury rate is
used in 2006 and 2007. The rates are phased in as follows:
Year
Rate
2006 and 2007
30-year Treasury rate
2008
30-year Treasury (80 percent) and corporate bond
yield curve (20 percent)
2009
30-year Treasury (60 percent) and corporate bond
yield curve (40 percent)
2010
30-year Treasury (40 percent) and corporate bond
yield curve (60 percent).
2011
30-year Treasury (20 percent) and corporate bond
yield curve (80 percent)
2012
Corporate bond yield curve
Some plan administrators are concerned that participants will be
tempted to retire early if it appears that the rates will change and decrease lump sums. Most observers believe that the Act will result in
higher rates and lower lump sums generally. A dramatic change in lumpsum values is more likely to occur in plans where the lump-sum rate is
set once a year (as is currently permitted).6 If the IRS does not allow use
of an annual date but requires a determination of the interest rate each
month, this effect will be decreased. However, other problems, like trying to estimate a lump sum quickly based on rates that change monthly,
may cause difficulties for plan administrators.
Possible Effects on Executive/Nonqualified Plans
Some of the funding changes may indirectly affect plans and arrangements for executives. Two such changes are discussed below.
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Section 415 Limits. The so-called 415 limits on defined benefit plan
payments are the lesser of a participant’s average compensation over his
or her highest three years of compensation7 or $175,000. These maximum limits are expressed as a life annuity, so an interest rate is needed
to convert that annuity to a lump sum in plans that authorize lump
sums. The law allowed a temporary rate of 5.5 percent but that expired.
Beginning for distributions starting in 2006, the Act provides that this
rate must be at least the greatest of (1) 5.5 percent; (2) the rate providing
a benefit of 105 percent of the benefit using the lump-sum interest rate;
or (3) the rate stipulated in the plan. There are some technical issues
with this provision. For example, it applies to 2006 distributions, some
of which may have been made before the law was signed.
If these rates are higher than the current rate used in the plan, the
practical effect will be to decrease qualified plan benefits for certain
highly paid participants. This could shift more plan benefits for highly
compensated employees to a nonqualified plan, if the employer sponsors a “mirror” nonqualified plan.
Restrictions on Executive Plans If Plan “at Risk.” If the company’s
defined benefit plan is deemed to be “at risk” under the new funding rules, the Act would restrict the ability of an employer to set aside
amounts in a nonqualified deferred compensation trust for (1) the period the defined benefit plan is at risk; (2) the period the employer is in
bankruptcy; and (3) the 12-month period beginning six months before
an underfunded plan is terminated. The executive will be taxed on any
amounts set aside during these periods (but not on amounts set aside
beforehand) and any “gross-up” provided to compensate the executive
will be nondeductible and subject to a 20 percent excise tax. These provisions apply as of the date of enactment.
New Required Survivor Annuity Option
In what some might see as a new level of government micro-management of retirement plan design, the Act provides that plans that are
required to have a qualified joint and survivor annuity (a benefit providing
an annuity to the participant with a survivor benefit of at least 50 percent
of the annuity amount paid during the participant’s life) must offer as an
option a joint and 75 percent (or more) survivor option as well as a joint
and 50 percent survivor option. This requirement is effective in 2008.
Phased Retirement
Beginning in 2007, the Act allows plan distributions at age 62 (rather
than age 65) if the plan so provides. It is not clear how many employers will take advantage of this feature. Proposed IRS regulations allowed
for certain early distributions, but they were fairly complex and many
employers did not use them.
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Reporting and Disclosure Requirements
Plan administrators will have to comply with a number of new reporting and disclosure requirements generally effective for post-2007 plan
years. Some of the key provisions of the Act include:
•
Requiring plan Form 5500 annual reports to be made available
in electronic form on the company’s Intranet Web site in accordance with DOL regulations as well as on the DOL’s Web site.
Additional information is required for Form 5500 annual report
for certain defined benefit and multiemployer plans. (DOL to
issue regulations within one year.)
•
Requiring a notice of the right to diversify (see prior discussion
of Diversification Rules). Plan participants must be notified of
their right to divest employer securities no later than 30 days
before the date diversification is first available. Separate notice
is required for different types of contributions. (DOL to issue
model notice within one year.)
•
Requiring defined benefit plans to provide an annual funding
notice to participants, the PBGC, beneficiaries, unions (and for
multiemployer plans to employers contributing to the plan)
120 days after the beginning of the plan year. The notice
must include detailed plan funding information and additional
information on whether the plan is in an endangered or critical status. The summary annual report (SAR) requirement is
eliminated for defined benefit plans.
•
Requiring periodic benefit statements. Defined benefit plans
are required to issue a benefit statement every three years
or upon written request. The statements must include total
benefits, vested benefits (or earliest date amounts will be
vested) and the value of each investment held by the participant including those investments in employer securities.
Alternatively, the defined benefit statement requirement can
be met by annual notification to participants on how to obtain
the information. Defined contribution plans generally will have
to provide annual notices; however, where there is individual
investment direction, quarterly notice is required.
•
Imposing new requirements for notices to workers, retirees, or
beneficiaries for plan terminations and blackout periods.
•
Requiring that for post-2007 years, within 30 days of a written
request, plan administrators of a multiemployer plan must provide participants and other affected parties with the plan information. (The DOL must issue regulations within one year.)
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Conclusion
The Act provides challenges as well as opportunities for plan administrators. Although the law appears to allow a delay in formal plan amendments, there are notices and system changes that need to be in place
almost immediately, as well as decisions to be made as to whether to
implement some of the optional changes. These decisions are harder to
make given that certain important guidance from the IRS and the DOL
has yet to be issued. It is hoped that the regulatory agencies will provide flexible transition rules so that plan sponsors can implement these
changes in a reasonable manner.
Notes
1. Pub. L. No. 109-280.
2. This column does not discuss the changes made by the Act to pension funding
rules, multi-employer plan rules, hybrid (cash balance) plans, and ERISA’s prohibited
transaction rules as applied to plan investments and plan fiduciaries.
3. Pub. L. No. 107-16.
4. Pub. L. No. 107-204.
5. In some cases, non publicly traded securities of a subsidiary of companies that are part
of a controlled group in which a publicly traded company is a member will be subject
to this rule.
6. See Treas. Reg. § 1.417(e)-1(d)(9)(ii).
7. For years after 2005, the high three years need not be years in which the employee
was both a participant and employee. This may increase the limits for certain terminated
employees.
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ERISA Litigation
Something Fishy This Way Comes:
Haddock v. Nationwide Financial Services
Craig C. Martin and William L. Scogland
A
recent federal court decision threatens to seriously muddy the waters
regarding permissible compensation for companies that provide
administrative services to ERISA plans. By concluding that payments
made under so-called “revenue sharing” arrangements between mutual
funds and administrative service providers can be plan assets, and hence
can give rise to liability for prohibited transactions and breach of fiduciary duties under ERISA, the court may well have quashed the growing
interest in using such arrangements to provide investment options to
plans and plan participants. If that proves to be true, it means that plans
and participants could end up paying more.
Revenue-sharing arrangements have become increasingly popular
among companies whose administrative services to ERISA plans include
the selection and monitoring of mutual funds offered to or through the
plans for investment of plan assets. In contrast to the more traditional
fee-for-service model for compensating those companies, in which the
ERISA plan simply pays a fee to its service provider, revenue-sharing
arrangements can reduce costs to the plan. A revenue-sharing arrangement allows the service provider to shift some of its costs away from the
plan and toward mutual funds—which benefit from being selected as a
plan option through increased investment. Thus, the costs to plans and
plan participants should decrease.
Haddock v. ationwide Financial Services
In Haddock v. Nationwide Financial Services, Inc.,1 the US District
Court for the District of Connecticut became the first district court to
hold plaintiffs could state prohibited transaction and breach of fiduciary
duty claims under ERISA on the theory that fees received by a plan’s
administrative agent from a mutual fund could constitute plan assets
under ERISA.2 In so doing, the court set a dangerous precedent that will
Craig C. Martin, a partner in Jenner & Block LLP’s Chicago office, is
chair of the firm’s ERISA Litigation Practice. William L. Scogland, who also
is a partner in the firm’s Chicago office, is chair of the firm’s Employee
Benefits and Executive Compensation Practice and co-chair of the ERISA
Litigation Practice. The authors can be reached at cmartin@jenner.com and
wscogland@jenner.com, respectively. The authors wish to thank Amanda
S. Amert, an associate at Jenner & Block LLP, for her assistance on this
column.
ERISA Litigation
encumber plans in seeking the most efficient arrangements for managing and investing plan assets, and created new confusion regarding the
status of plan assets and prohibited transactions.
The Haddock plaintiffs are trustees of five employer-sponsored retirement plans, which are participant-directed 401(k) retirement savings
plans.3 The plan sponsors used service providers to create the plans
and to provide administrative services to them. The service providers, in
turn, persuaded the plan sponsors to use Nationwide as their investment
provider. In that capacity, Nationwide offers the plans various investment options, including insurance products such as variable annuities,
which are fund vehicles for the investment of plan and participant retirement contributions. Some of these variable annuities permit investment
in a variety of mutual funds.4
Nationwide’s role in the selection of mutual funds available for plan
and participant investments is two-fold.5 First, Nationwide offers selections of funds to the plans and to individual participants, who make
investment choices among them. Second, Nationwide retains limited
authority to delete and substitute mutual funds from the list of available
investment options if Nationwide determines that the funds are inappropriate investment options.
By the early- to mid-1990s, in response to concerns about the competitiveness of its pricing on certain annuity contracts, Nationwide investigated and implemented a system under which it receives payments
from mutual funds based on a percentage of the assets that plans and
participants invested in those funds through Nationwide.6 Nationwide
originally referred to these payments as “mutual fund revenue” and
“sharing,” but later came to refer to them as “service contract payments” or “competitive pricing.” Nationwide’s contracts with the mutual
funds are called “service contracts.” The amounts of the payments to
Nationwide were based on the amount of plan and participant investment in the mutual funds.7
Revenue Sharing Payments May Be Plan Assets
The court began by casting Nationwide’s service contracts in the
worst possible light. The court held that
[a]lthough Nationwide contends that it contracted with the mutual
funds to provide services to the funds, a fact-finder viewing the
evidence in the light most favorable to the [plaintiffs] could conclude
that the contracts were a guise for making payments to Nationwide
or that Nationwide provided only nominal services and that the
payments were not in consideration for those services.8
In making that determination, the court noted that, prior to the
implementation of the service contracts, the concept was discussed
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within Nationwide as one of generating additional revenue from the
mutual funds or encouraging the mutual funds to share revenue with
Nationwide. The court further noted that, when the service contracts
were implemented, Nationwide did not begin to perform any new services; rather, it continued to provide the services that were being paid
for by the plans. The court concluded, “a reasonable jury9 could find that
the purported service contracts were a means for Nationwide to collect
payments from mutual funds in exchange for offering the mutual funds
as investment options to the Plans and participants.”10
The court then considered whether that theory was sufficient to
state prohibited transaction and breach of fiduciary duty claims under
ERISA. First, after concluding that Nationwide could be considered a
fiduciary by virtue of its control over the disposition of plan assets, the
court concluded that Nationwide “may be a fiduciary to the extent that
it exercises authority or control over plan assets by determining and
altering which mutual funds are available for the plans’ and participants’
investments.”11
Standing alone, the conclusion that there was a factual issue as to
whether Nationwide is a fiduciary is rather unremarkable. Courts have
repeatedly held that fiduciary status under ERISA is defined functionally, and that whether someone is a fiduciary for a particular purpose
depends on the facts of the particular situation.12 However, when
coupled with the court’s other holdings, it turns the terrain of revenuesharing arrangements into a potential minefield for those companies that
may believe their roles do not trigger ERISA fiduciary duties, but are not
certain enough to risk a potentially sizable judgment.
No Requirement of Evidence That Payments Were at the
Expense of Participants
Recognizing that a transaction is prohibited under to ERISA only if it
involves plan assets, the court next considered whether the payments
by the mutual funds to Nationwide constituted plan assets. The court,
citing the Ninth Circuit’s Acosta13 decision, devised a two-pronged test
for making this determination, holding that “‘plan assets’ include items
a defendant holds or receives: (1) as a result of its status as a fiduciary
or its exercise of fiduciary discretion or authority, and (2) at the expense
of plan participants or beneficiaries.”14
Applying its test, the court concluded that the plaintiffs’ claims were
sufficient to survive summary judgment.15 With respect to the first prong,
it held that the plaintiffs had sufficiently alleged that Nationwide’s receipt
of payments from mutual funds in exchange for offering the funds as an
investment option resulted from its fiduciary status or function.
Applying the second prong, the court went on to hold that the plaintiffs sufficiently alleged that the payments were made at the expense
of plan participants or beneficiaries by alleging that the mutual funds
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ERISA Litigation
set the fees they charged plans and participants “‘to cover not only
the fees they would have normally charged, but also the amount of
the revenue-sharing payments they had to make to Nationwide.”16 The
court found the plaintiffs’ bare allegation that the revenue-sharing
arrangement came at the expense of plan participants and beneficiaries sufficient to satisfy the second prong of its test at the summary
judgment stage, even though plaintiffs had not proffered any evidence
to support it.
Thus, the court concluded that a reasonable finder of fact “could conclude that Nationwide received consideration (i.e., the revenue-sharing
payments) from a party dealing with the Plans (i.e., the mutual funds
whose shares are available for investment by the Plans and participants)
in connection with a transaction (i.e., the so-called service contracts)
involving assets of the plan (i.e., the shares of the variable accounts
. . . .),” and that the plaintiffs “have raised a triable issue concerning
whether Nationwide in fact performed services in consideration for the
payments.”17
In other words, the mere fact that the revenue-sharing payments were
made was enough to get the plaintiffs to trial.
The Fall-Out
If the District of Connecticut’s analysis were adopted across the
board, it could result in a de facto ban on revenue-sharing arrangements, because companies could well be leery of their potential pitfalls.
In essence, the Haddock plaintiffs demonstrated nothing more than (1)
the existence of a revenue-sharing agreement; and (2) a service provider with just enough control over decisions about plan assets that a
potential fiduciary relationship could not be completely ruled out. These
circumstances may well be true of many revenue-sharing arrangements
currently in place.
Of course, the court’s denial of summary judgment is not the same as
a judgment against Nationwide. It may well be enough to chill interest
in revenue-sharing arrangements, however, since few companies relish
the idea or the publicity of going through a trial to prove that they have
done nothing wrong. The alternative for those companies is simply to
return to the old model, and push the entire cost of administrative services back onto ERISA plans, diminishing plan assets.
The real losers, of course, would be plan participants, who would
end up shouldering the increased costs of administrative activities,
rather than sharing administrative costs with mutual funds. So not only
is Haddock bad news for service providers and ERISA plan administrators, but it may well end up hurting the very people whose interests
the prohibited transaction and fiduciary duty statutes are designed to
protect.
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Notes
1. 419 F. Supp. 2d 156 (D. Conn. 2006).
2. Although the procedural posture of the case was a motion for summary judgment,
the court notes that discovery had not been completed, and apparently did not require
the plaintiffs to meet the usual evidentiary standard for surviving summary judgment as
a result.
3. Id. at 160–161.
4. Id.
5. Id. at 161.
6. Id. at 162.
7. Id. at 163.
8. Id. at 162.
9. Needless to say, the very notion that a jury would hear the case is perplexing to those
familiar with ERISA.
10. Id. at 163.
11. Id. at 166.
12. See generally William L. Scogland, “Fiduciary Duty: What Does It Mean?,” 29 Torts &
Ins. L.J. 803 (1989).
13. Acosta v. Pac. Enters., 950 F.2d 611 (9th Cir. 1992).
14. Haddock, 419 F. Supp. 2d at 170.
15. Id.
16. Id.
17. Id.
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