Contentious Issues in Hiring and Firing: Plaintiff Perspective

By Linda Wong, Esq. and Daniel C. Fleming, Esq.

I. INTRODUCTION – THE PROBLEM OF MANAGING MANAGERS TO MAKE SURE THEY FOLLOW COMPANY POLICY AND THE LAW

This discussion is limited to at-will employees and executives who may have been bound by some contract entered into at the beginning or during the course of the employment. Not covered here are those special problems related to employees whose relationship to the company is governed by a collective bargaining agreement.

As we all know, most managers have received – or absorbed – little training on the art of managing, and often have failed to absorb the training provided by their employers on the legal aspects of hiring and firing, as well as the day-to-day management decisions entrusted to line managers. They not only have to follow company policy, but they also need to understand that company policy (hopefully) reflects and follows the law that governs many of their day-to-day decisions. Of course, problems will occur where the manager is inadequately trained or informed, or where there are no governing policies in place, or the manager resorts to making seat-of-the-pants decisions. Problems also arise where the manager allows emotion rather than policy and procedure to control employment decisions, and where existing polices and rules are not uniformly applied or enforced.

The problem often is that the managers who are making day-to-day decisions are skilled employees who have been rewarded for their technical skills by a promotion to managing people – an area where, in most cases, they never had any experience or demonstrated any skill. With that in mind, it is extremely important that the employer manage its managers to ensure that they are following company policy. Often, the company is not committed to spending time and resources to train managers in management skills and lawful workplace policies. The company fails to see how policies, and the manner in which managers carry them out, affects the “bottom line.” Inevitably, the neglect by the company will have an effect on the bottom line – a negative one – in the loss of good employees and in litigation and liability.

The case of Bauer v. Metz Baking Co., 59 F. Supp. 2d 896 (N.D. Iowa 1999) reinforces an important point that is sometimes overlooked. In that case, biased comments by a supervisor who was without power to hire and fire could still be direct evidence of discriminatory intent because the court recognized that, in reality, the line supervisor’s input and recommendations are often the basis for an adverse employment decision.

Of course, the employer will have made certain that the company policies conform to the evolving law of the workplace. If that is so, the employee handbook, which every manager should know thoroughly, may be the company’s best training and guidance tool for managers.

II. SOURCES OF COMPANY POLICY AND POTENTIAL CONTRACTUAL OBLIGATIONS REGARDING EMPLOYMENT DECISIONS

“Wrongful discharge” and “employment at will” are two concepts that cover the same ground, the first a tort-based claim from the point of view of the terminated employee; and the second from the position of the employer with a non-contract labor force. Most states still follow the so-called American rule that the employer can discharge an employee for any reason at all; however, the rule has been modified judicially to reflect modern attitudes and recognize the unequal bargaining position of the parties, although the law continues to preserve a large amount of freedom in the employer over the company’s workforce.

Increasingly, the “just cause” basis of termination, an effect probably created by the influence of unionization, has made inroads on the law of at-will employment. Employees who are hired “at will,” when terminated, are looking to insulate against the effect of a sudden job loss by some provision by which the employer will only be able to terminate for “just cause.”

Apart from the “good cause” theory, the at-will employee who has been terminated ordinarily looks to two areas for protection: (1) some element of the employment relationship that will sustain a theory that the employment is contractual, whether a written document that contains a term which can be relied upon, or where the totality of the circumstances indicate that the parties intended something other than an at will relationship, or where the employee offers some additional consideration that improves his/her bargaining position with the employer: such as relocation, refusing other employment, special talent or experience; or (2) discharge for an unlawful reason, or for a reason that contravenes public policy as expressed by positive law or judicial decision. This will not protect the employee who reports on matters of internal company concern, no matter how serious, absent a “whistleblower” statute that covers the complaint.

A. EXPRESS POLICIES HAVING CONTRACTUAL IMPLICATIONS

The employer may create many documents that can lead to litigation over the terms of the employment, beginning with the advertisement that led the applicant to the company in the first place. Some employers also have promotional materials that they have created to encourage interest in employment with that company, and which promote the benefits of a job there. Increasingly, prospective employees who use the Internet as part of a job search strategy will find attractive promotional web sites for companies who are hiring. These web sites provide a further opportunity for employers to make representations about employment with the company that may lead to later litigation and liability.

For a more traditional approach to inferring an agreement for a definite term, see Edgar v. Dual Inc., 14 IER Cases 351 (E.D.Va. 1998). In that case, in addition to a handbook issue, the employee claimed (unsuccessfully) that he had a contract with the employer for a certain term based upon an offer letter stating an annual salary, as well as several other letters referring to raises in terms of their annual worth. Plaintiff worked for defendant approximately one year and two months before he was terminated. See also Corder v. Oklahoma Medical Research Foundation, 15 IER Cases 367 (Okla. 1999) (Affirming summary judgment for the employer, plaintiff’s alleged written contract was a collection of letters and memos, none of which included a definite term of employment, and the court refused to construe annual letters concerning terms of employment and salary as “reappointment” letters renewing plaintiff’s employment for an additional year. The appeals court maintained that the letters merely set forth conditions of employment if neither side elected to terminate the at-will relationship.)

The most common sources of problems, however, are employee handbooks. The extent to which such handbooks may burden the employer’s freedom to discharge what the company believed was an “at-will” employee has been litigated widely, and new cases continue to crop up.

Why have a handbook anyway? As noted above, to some extent it is an easy way to make line managers aware of the company’s position on a variety of day-to-day job issues, perhaps more valuable than conditioning the response of employees who rarely read these handbooks, anyway, until a problem looms. Perhaps the very existence of the handbook provides assurance to employees that the workplace is run in a regular fashion and according to rules, and thus promotes the image of the employer, particularly if the handbook adopts a pleasing tone. See Safeway Stores vs. Bulman, 15 IER Cases 673 (Wash. App. 1999) (“…the principal purpose of employee handbooks is to ‘create an atmosphere of fair treatment and job security'” citing earlier Washington precedent; and “it is the entire body of promises represented by the handbook, which creates an atmosphere of job security and fair treatment, and it is that atmosphere, not any single promise, by which the employee is induced to remain on the job.”); and see Reed v. Alamo Rent-A-Car, 15 IER Cases 273, 280 (Tenn. App. 1999) (quoting the trial court: “I don’t believe that this [handbook] is anything other than a very touchy feely wildly drawn document by some attorney to engender loyalty, which is what, naturally, a company would want of its employees, but I don’t believe that it in any way made [plaintiff] anything other than an at-will employee.” However, the appeals court reversed.)

Employers have learned that they can be held to specifics they include in these handbooks, making a disclaimer necessary. Because the courts have held that this disclaimer must be prominent, a bold statement that the handbook does not alter that at-will status of the employee and that the employer has a right to amend or change the manual at any time, would seem to avoid a reading that the handbook created a contractual obligation on the part of the employer. See also Edgar v. Dual Inc., 14 IER Cases 35 (E.D.Va. 1998), also referred to above. In that case, the court found no merit to the discharged employees’ claim that the employer breached an employment contract by failing to follow the handbook’s disciplinary and termination procedures, where the handbook not only confirmed the at-will nature of the employment, but disclaimed any intent to use the handbook to create contractual obligations. Plaintiff was told he would be an “at will” employee when he was hired; the handbook also stated the employment was “at will” and the handbook also had a disclaimer.

Recently – and perhaps because the employer had dispensed with the handbook entirely (the opinion is unclear) – the litigating employee was forced to rely on the manager’s handbook and guidelines in making his argument. See Vice v. Conoco, Inc. 150 F.3d 1286 (10th Cir. 1998), infra.

1. Employment Handbooks or Manuals

A. Disclaimers

By now, it is fairly clear in the majority of jurisdictions that language in an employment manual or handbook can give rise to an implied contract which will bind the employer. See, e.g., Woolley v. Hoffmann-LaRoche, Inc., 101 N.J. 10 (1985) In order to protect themselves, employers generally issue such handbooks with prominent disclaimers. See McDonald v. Mobil Coal Producing, Inc., 789 P.2d 866 (Wyo. 1990), modified on rehearing, 820 P.2d 986 (Wyo. 1991) (disclaimer not given effect because it was not capitalized, not set off from the introductory section, and was in the same typeface as remainder of manual). See also Arch of Wyoming, Inc. v. Sisneros, 14 IER Cases 1404 (Wyo. 1999) (An employee laid off under a reduction in force had a claim for a breach of implied contract of employment under the company handbook where the disclaimer which included the employer’s reservation of the right to alter the handbook language was not obvious – it was the last page in the handbook. Although in a later edition of the handbook (which plaintiff also received), the disclaimer was moved to the front of the book, the court found, contrary to defendant’s assertions, that it failed to change the relationship created from contractual to at-will. Although plaintiff was laid off after he received the handbook with the prominent disclaimer, the old handbook’s terms as to reductions in force applied to him.); Demasse v. ITT Corp., 15 IER Cases 97 (Ariz. 1999) (The employer cannot unilaterally change the terms of employment. The attempt to remove seniority rights by handbook revision, even in the presence of a disclaimer and with documented distribution to employees, was ineffective.); and similarly, Doyle v. Holy Cross Hospital, 15 IER Cases 164 (Ill. 1999).

B. Quality or specificity of representations in handbooks

Vague statements of policy or of a general approach to the employment relationship will not generally give rise to any enforceable rights. Bauer v. American Freight System. Inc.,422 N.W. 2d 435 (S.D. 1988) (assurances of fair treatment). The employee will have to identify specific language which establishes a right sought to be protected. See also Vice v. Conoco, Inc., 150 F.3d 1286 (10th Cir. 1998) (Employee terminated for sexual harassment was not entitled to rely on any substantive restrictions on the employer’s ability to terminate him based on language identified in both the supervisor’s guide and guidelines issued to supervisors, as both documents were intended to provide suggestions to supervisors for handling specific situations.)

Contrast the foregoing with the case of Reed v. Alamo Rent-A-Car, 15 IER Cases 273, 280 (Tenn. App. 1999). There, the appeals court reversed the trial court, finding that the FamPact (the employee handbook) contained specific language showing the employer’s intent to be bound by its provision. This was unequivocally demonstrated by language at the beginning of the FamPact which states: “Now Therefore, Alamo and I agree to my employment with the company on all the terms and conditions set forth in this FamPact document….’FamPact’ means Family Member Pact. It is my personal agreement of employment with Alamo.”

C. Legitimate employee expectations should not be defeated

However, courts have generally held that the disclaimer will not permit the employer to defeat legitimate employee expectations by arbitrarily departing from the language of the handbook. Bobbitt v. Orchard, Ltd., 14 IER Cases 1445 (Miss. 1992) In reversing a grant of summary judgment, the state Supreme Court held that absent a disclaimer, the employer is obligated to follow procedures it set forth in the employment manual regarding discipline for violations of rules specifically covered by manual, and an at-will employee who was summarily terminated for insubordination, rather than given counseling and formal written warning, stated a claim for breach of contract. In that case, the manual stated that after three months probationary period, an employee who was not then terminated would gain “regular employee status.” The manual also contained guidelines for employee conduct and policies concerning graduated discipline for a variety of infractions, and required that the employee abide by the conduct guidelines “as a condition of employment.” Thus, the employee’s legitimate expectations could have reasonably included that the employer would abide by its progressive discipline policy.

But contrast the Bobbitt case with Altman v. Luther College, 14 IER Cases 1270 (Iowa App. 1998). In this case, the discharged employee had no claim for breach of contract, where the handbook she relied on was not sufficiently definite in its terms to constitute an offer. The handbook had a disclaimer in this case, and the handbook set forth that before a decision to terminate was made for unsatisfactory performance, the employee “should be informed of the specific deficiencies and given an opportunity to improve. If sufficient improvement [did] not take place within a minimum of 30 days, the department should initiate termination.” However, this decision probably turned on the issue of causation, where the plaintiff alleged termination for filing safety complaints and a worker’s compensation claim but the court found no causal connection because all of these complaints were made more than two years before the plaintiff was fired.

In the case of Waldman v. NYNEX Corp., t/a New York Telephone Co., 14 IER Cases 1331 (NY Sup. Ct. 1999), the court denied the employer’s motion to dismiss and found detrimental reliance upon a handbook, by an at-will in-house attorney who voiced concerns that the company may be violating federal and state debt collection laws. In that case, the employment manual required employees to report suspected violations and assured protection to employees who made such reports.

In Safeway Stores v. Bulman, 15 IER Cases 673 (Wash. App. 1999), a 33 year managerial employee’s claim of wrongful termination was upheld, where the plaintiff, who was an area district manager, was terminated for violation of an anti-nepotism policy he had initially implemented many years ago. He testified that he was aware of the anti-nepotism policy, had implemented it as a manager of a thousand people, and that he continued to work for the defendant for more than three decades because he felt that the employer was fair and just. In 1994, the employer revised the anti-nepotism policy to include indirect as well as direct reports within the prohibitions of the policy. Plaintiff was terminated for initiating pay raises for his sons who were employed as helper clerks within plaintiff’s district. In 1995, plaintiff had a disagreement with his superior over the re-hiring of a former employee; thereafter, he learned that his son’s personnel records had been examined. While he agreed that granting the raises for his sons was bad judgment, given the existence of the company policy, the raises had the support of the boy’s supervisors. Plaintiff also complained that the company had not followed the remedies outlined within the policy which allowed for reassignment or resignation. In addition, on the day of his termination, he received an “unsatisfactory” performance rating which called into play another series of procedures that the company failed to follow. Both matters were covered in the employee handbook. The case went to trial on plaintiffs claim that he had relied on the remedies outlined in the policies, and the jury awarded more than $900,000 in damages, including costs and attorneys fees which was upheld on appeal. The reviewing court found that there was no dispute that the employer’s promises were specific as to the treatment accorded specific situations, and that the employer’s promises were breached. The only question under consideration on appeal was whether Bulman’s evidence was sufficient to support the jury’s finding that he was justified in relying upon those promises. Holding that, providing an employee was actually aware of the policy before it was breached, “and his sense of job security is enhanced thereby, he need take no action in reliance on the promise except to remain on the job.” Id. at 676.

2. Covenants not to Compete

Covenants not to compete, or restrictive covenants must be reasonable as to duration, scope and geographical area. The following are some interesting, and recent cases that highlight this area of concern.

In the case of Advanced Marine Enterprises v. PRC Inc., 14 IER Cases 4 (Va. 1998), the factual background was that PRC experienced a business downturn and then was involved in a proposed purchase by Litton Industries. A senior manager in PRC’s marine engineering department contacted AME and put together a plan to essentially move PRC’s entire marine engineering department to AME, hoping to attract PRC’s customers. Both the PRC team and AME were well aware of the covenant not to compete in the employment agreements of all PRC managers, but decided to take the risk of litigation. However, the court upheld the covenant and did not agree with the PRC managers that it was unenforceable because it was unreasonably broad, harsh or oppressive even though it restricted each employee from soliciting the former employer’s customers or rendering competing services within 50 miles of one of the employer’s 300 offices worldwide for a period of eight months. There was, however, no blanket prohibition in the restrictive covenant against working for a competitor.

A non-compete agreement that prevented a flooring installer from working within an 80-mile radius of his former employer for a period of two years was invalidated as unduly restrictive as to scope, territory and duration. Brunswick Floors v. Guest, 14 IER Cases 586 (App. Ga. 1998). As one interesting element of that case, which highlighted the employer’s intent to restrict the employee by means of the covenant in a manner that had little to do with the employer’s legitimate business needs, the installer was prohibited from working within the 80 mile radius of the Brunswick, GA, office, although the employer had other office locations, and the installer, who had specialized training and skills, had, in fact, been sent out of state on jobs. The installer was also prevented from a variety of other contacts with the floor covering industry, including participation as a stockholder.

In Communications Technical Systems. Inc. v. Densmore, 14 IER Cases 522 (S.D. 1998), the “agreement not to recruit” between CTS, defendant’s former employer, and Gateway 2000 Inc. effectively prevented defendant from working in the state of South Dakota, as Gateway was the only employer in that state with a need for someone with defendant’s advanced skills. Accordingly, the court refused to enforce the agreement to prevent defendant from servicing Gateway through his own consulting company, after he had quit his job with CTS. CTS’s ex-employee had been relocated to South Dakota to service Gateway for CTS, but over the course of the long-term assignment, had grown increasingly dissatisfied with CTS as an employer.

In Valley Medical Associates v. Farber, 15 IER Cases 419 (Ala. 1999), the court invalidated a restrictive covenant between a pulmonologist and his former practice group which prevented him from practicing for three years in a 235 square mile area. Finding a public policy interest in a patient’s right to see the doctor of his/her choice, the doctor/patient relationship clearly had an effect on the extent of the former employer’s interest. The court opined that any limiting period in excess of six months was unreasonable, given the practice of patients visiting their doctor every six months.

Finding an unreasonable partial restraint of trade, the appeals court invalidated a restrictive covenant in Smith Adcock & Co. v. Rosenbohm, 15 IER 350 (Ga. App. 1999). In that case, an accountant under an employment contract who left his employer successfully challenged the requirement that he pay royalties for five years to his old firm for any business from former clients of the old firm. In addition, there were no geographical limits in the covenant.

B. ORAL REPRESENTATIONS GNING RISE TO CONTRACT CLAIMS

1. Representations about the nature of the job by non-decision makers

Caron v. The Travelers Corp., 14 IER Cases 292, (S.D.N.Y. 1998) and Caron v. The Travelers Corp.,199 WL 782542 (S.D.N.Y. 1999). The employer’s motion for summary judgment was denied in this case because of credibility issues best left to the fact finder. After a jury verdict in favor of the plaintiff, judgment n.o.v was granted. In this case, a senior litigator and appellate advocate alleged that he was induced into giving up another job and accepting employment as a result of a prospective employer’s false representations that plaintiff was being hired to staff a project to centralize appeals that the employer had allegedly approved but which never materialized. Most of the alleged false representations that plaintiff attributed to the defendant were made through or by plaintiff’s long-time friend who headed up a Traveler’s office, and who wanted to help his friend find employment after an extended period of job dissatisfaction. Plaintiff was ultimately terminated by Travelers in a corporate downsizing after somewhat more than a year’s employment. After trial, j.n.o.v. was granted on the strength of testimony and documentary evidence, inter alia, that plaintiff had proposed the project to the long-time friend at a social function. The friend, who was employed by the defendant, “went to bat” for plaintiff, and appeared to succeed to some extent in selling the concept to Travelers. When hired by Travelers, plaintiff was assigned to the friend’s staff, and although he handled some appeals, no centralized project was ever implemented by defendant, who expected plaintiff to seek assignment of appellate work from various offices, but never communicated this. In arriving at the decision to grant j.n.o.v., the trial court appeared to consider that any statements that the Traveler’s manager made that could have been construed as confirming the existence of the appeals project were in the nature of hopeful statements, and also that the evidence revealed that the plaintiff’s own documentation confirmed that he understood that Travelers was not committed to the appeals project. There was also evidence in the case that plaintiff would have accepted a position with Travelers, even without the possibility of the appeals project.

2. Comments on the job by non-decisionmaking supervisors:

In Bauer v. Metz Baking Co., 59 F. Supp. 2d 896 (N.D. Iowa 1999), plaintiff’s day-to-day supervisor made some comments to plaintiff that she construed as age-biased. Although the supervisor had no power to hire and fire, such comments may still be direct evidence of discriminatory intent because, the court recognized that, in reality, the line supervisor’s input and recommendations are often the basis for an adverse employment decision. (In this case, however, although the claim was age discrimination, the court found the complained-of comments innocuous.)

3. Assurances by supervisors

In Prescott v. Farmers Telephone Cooperative, 15 IER Cases 427 (S.C. 1999), plaintiff was discharged for allegedly lying, after 20 years with the employer. Plaintiff maintained that he had been told frequently over the years that he would have a job if he did his work and “kept his nose clean.” Summary judgment was granted in favor of the employer on the basis that these assurances were not sufficiently specific to alter the at-will status of the employment, and because a reasonable person in plaintiff’s position should have understood such comments as encouragement, praise, or simple “puffery.”

C. IMPLIED REPRESENTATIONS GIVING RISE TO CONTRACT CLAIMS

1. Implied Covenant of Good Faith and Fair Dealing

While many states recognize such a covenant to the employment relationship, recognition of the covenant of good faith and fair dealing, depends upon whether the employee can show some element of the relationship that would lead to a reasonable conclusion that the employee could expect a measure of security and fair treatment. In Era Aviation Inc. v. Seekins, 14 IER Cases 1487 (Alaska 1999) summary judgment was granted to the employer on the employee’s claim that she had been fired after working for about one year because of a personality conflict, and that the employer violated its implied covenant of good faith and fair dealing where it fired her without good cause. Plaintiff argued unsuccessfully that the implied covenant of good faith and fair dealing imposed a general requirement upon the employer to act reasonably and fairly, thus, in effect, converting any termination to a “for cause” firing. The Alaska court rejected this. Plaintiff had signed an acknowledgment that she was employed at-will at the time she was hired, and the Supreme Court of Alaska found that this made her unilateral expectation of termination only for “good-cause” unreasonable.

The covenant of good faith and fair dealing is usually implied by the court where the employee would be denied some benefit that had been earned in the context of the relationship. Thus, the covenant can be said to effectuate the original intent of the parties in recognition of a mutuality of obligation inherent in the contractual relationship. For example, in Cashdollar v. Mercy Hospital, 595 A.2d 70 (Pa. Super. Ct. 1991), the plaintiff quit a secure job and relocated his family to accept employment with the defendant, and the court found that this additional consideration was “sufficient to rebut the at-will presumption.” Other courts may express the plaintiff’s action as reliance, but the effect is that it demonstrates (to the court) that the parties did not intend the relationship to be strictly “at will.” Alternatively, it could be said that the employer is on notice that the employee will suffer some detriment in order to accept the job, and this creates a good faith obligation in the employer to extend the employment sufficiently to permit the employee to recoup any losses incurred in accepting the job. However, defending employers will seek to establish that the employee would have taken the risk in accepting the employment at will in any event, so unless that plaintiff is prepared for this attack plaintiff’s case may still fail for lack of no independent consideration.

2. Long-term employees

Similarly, termination of a long-time employee at will may be successfully challenged where no good cause for the termination was expressed. For a 40-year employee (who also relocated just before he was fired), a court found that his longevity of service had given rise to an implied contract right to only be terminated for cause. Foley v. Community Oil, 64 F.R.D. 561 (D. N.H. 1974). See also, Foley v. Interactive Data Corp., 765 P. 2d 373 (Cal. 1988) (six and three-quarters years of service). And see Fonnan v. BRI Corp., 532 F.Supp. 49 (E.D. Pa. 1982), where the presumption of at will employment was overcome by statements during the interview that the job was a good one in which to “stay and grow” and concerns were expressed that the applicant would accept the job and “not stay.”

In Waldman v. NYNEX Corp., t/a New York Telephone Co., 14 IER Cases 1331 (NY Sup. Ct. 1999), an at-will in-house attorney’s claim that the company breached its implied covenant of good faith and fair dealing when it discharged him for voicing concerns that the company may be violating federal and state debt collection laws, was meritless, where New York does not require good faith in an at-will employment relationship (and New York’s whistleblower law, Labor Law Sec. 740, covering reports of “substantial and specific danger to the public health and safety” was not applicable). However, in that case, the plaintiff survived a motion to dismiss where the court found detrimental reliance on the language of the employment manual, which required report of suspected violations and assured protection to employees who made such reports.

3. Public policy exception

However, a claim of wrongful discharge – a tort theory – may be an alternative ground, or the best ground in some cases. This is particularly true of those situations in which the plaintiff is claiming violation of public policy, or other abusive bases for termination. For example, in the case of Washington v. Guest Services, 718 A.2d 1071 (D.C. Ct. App. 1998), in reversing summary judgment for the defendant, the court found that a cook who alleged that she was fired for complaining about a co-worker’s use of a spray cleaner that was poisonous and contaminated food stated a public policy violation anchored in health regulations concerning the preparation and service of food. The cook’s affidavit in opposition to summary judgment stated that she knew the stainless steel cleaner was poisonous, and that she could both feel the spray and see the spray land on the food she was preparing for nursing home residents. After she told the co-employee to stop using the spray around the food, her manager called her into the office, told her that she had no authority to order the co-employee to stop work, and sent her home. When she reported for work the following day, she was fired for alleged insubordination.

In the case of Deerman v. Beverly California Corp., 15 IER Cases 952 (N.C. App. 1999), a nurse was discharged for advising the family of a nursing home patient to get another doctor for a deteriorating patient with an unresponsive doctor. The plaintiff nurse alleged that she was terminated for meeting the minimum requirements of the state’s nursing practice act. Looking at the public policy exception to at-will discharges, the court found no meaningful distinction between an employee fired for refusing to violate public policy expressed in a statute, and the case at bar, where the plaintiff alleged she was fired for complying with regulatory standards.

Extending the public policy exception slightly, in Liberatore v. Melville Corp., 14 IER Cases 1545 (D.C. Cir. 1999) an at will pharmacist alleged that he was wrongfully discharged for threatening to report inadequate temperature control in his employer’s pharmacy to the FDA under federal and D. C. provisions that protect the public from purchasing adulterated drugs. Denying summary judgment, the court refused to make any distinction between the threatened complaints and actual complaints. The stated reason for discharge –lapse of the pharmacist’s license to dispense– may be shown to be pretext, where the plaintiff’s supervisor had known plaintiff’s license had lapsed for months before he was terminated, and the employer retained other pharmacists even though their licenses had lapsed.

In a drug-testing case with a twist, an at-will employee sued after being terminated for testing positive for drug use in violation of the employer’s substance abuse policy on the ground that the drug test was not performed by an “approved” laboratory as required by North Carolina drug testing statute. Gamer v. Rentenbach Constructors, Inc., 14 IER Cases 51 (N.C. Ct. App. 1998). In that case, the court found that the public policy ensuring reliable drug testing was violated.

D. SOME RECENT DRUG TESTING CASES

In O’Brien v. Massachusetts Bay Transportation Authority, 162 F.3d 40 (1st Cir. 1998), the state transportation authority was not enjoined from conducting random drug and alcohol testing of employees in safety-sensitive positions on the ground that the authority’s testing protocol imposes stricter standards than those mandated under federal drug testing law, where protocol’s standards do not conflict with federal law and are permitted under federal regulations.

1. Sufficient safety interest

Rodriguez v. Bagnola, 14 IER Cases 331 (Ill.App.Ct. 1998). The appeals court found that a police officer who appealed a police board’s order discharging him for illegal possession of cocaine after he tested positive for drugs was not subjected to unreasonable search and seizure of his person and urine specimens under U.S. and Illinois Constitutions, and he could be subjected to urinalysis tests whether he was on or off duty.

Oman v. State of Indiana, 14 IER Cases 1662 (Ind. Ct. App. 1999). A city policy that mandates warrantless drug testing of fire truck drivers involved in traffic accidents is permissible due to substantial risks to public safety resulting from impairment of firefighters by consumption of alcohol and drugs, and interest of the government in preventing or deterring such conduct.

Aubrey v. Lafayette Parish School Board, 148 F.3d 559(5th Cir. 1998) The random drug testing of a school custodian did not violate the employee’s Fourth Amendment privacy interests where the custodian’s job was properly designated as a “safety sensitive” position and the school board had a substantial interest in maintaining safe and efficient operation of the schools, including decreasing the spread of drug use among the students. In a similar vein, this time, for teachers: Knox County Education Assn. v. Knox Board of Education, 14 IER Cases 609 (6th Cir. 1998). (A lengthy and careful opinion upholding the board’s policy on suspicion-based and suspicion-less drug testing but reversing on suspicion-based alcohol testing.)

2. Insufficient safety interest

Random drug testing of trash truck mechanics who were renewing commercial driver’s licenses or city vehicle or equipment operators’ permits violated the Fourth Amendment where city failed to show any special governmental need. Mechanics v. City of Albuquerque, 156 F.3d 1068 (10th Cir. 1998). In that case, the mechanics only had authority to move the truck around the repair facility, not to operate any vehicles or equipment on public streets.

E. SOME RECENT ISSUES IN FIRING

1. Workers’ Compensation claims

In Montgomery Coca-Cola Bottling Co. v. Golson, 14 IER Cases 1096 (Civ. App. Ala. 1998), the employer appealed the denial of judgment n.o.v. on the issues of retaliatory discharge and punitive damages. In this case, the employee alleged that he was discharged for seeking Workers’ Compensation benefits for a work-related injury. Prior to his injury, he was well-liked and had performed satisfactorily; when he returned to work after an injury, there was evidence that upper level management told plaintiff’s supervisors to harass him in order to induce him to quit. The court found that a pattern and practice had been established as to the employer’s treatment of injured employees, where plaintiff produced three other former co-workers who had been discharged after seeking workers’ compensation. In contrast, see Warnek v. ABB Combustion Engineering, 14 IER Cases 1537 (Wash. 1999) (Failure to rehire former employees who had filed workers compensation claims during their previous employment with the employer is not actionable retaliation under common law or under state statute that prevented retaliation, and was not a “wrongful discharge.”)

2. Family Medical Leave Act – alleged violation of return to work requirements

In King v. Preferred Technical Group, 166 F.3d 887 (7th Cir. 1999) a prima facie case of retaliation shown where the employee was fired one day after returning from FMLA leave, given the close proximity of firing to the protected activity. The employer stated that the employee was terminated for failing to return to work, but the employee established that she was advised that her file lacked certain documentation concerning her leave, that she could not return to work until this was supplied, and the employer failed to specify which materials were lacking in her personnel file.

3. Failure to take measures to stop harassment

In the case of Excel Corp. v. Bosley, 165 F.3d 635 (8th Cir. 1999), the pattern of harassment by the estranged husband was well known to the employer and in the workplace. In addition to the estranged wife’s complaints, co-workers also complained because of the unpleasantness and disruption to the workplace. Plaintiff had a regularly assigned job, but the estranged husband was a “floater” who could be assigned to work any of several positions, including plaintiff’s immediate area. On the day of her discharge, the estranged husband had been assigned to work in her immediate vicinity, and had begun his usual pattern of abuse. The female employee twice asked to be relieved of her position in order to get away from her harasser, but her supervisor twice refused her request. She then shoved her harasser, and was removed from the workplace for assaultive behavior. While still on company property, she also shoved a supervisor in her attempt to berate her attacker, which became the immediate cause for her termination. The jury found that she was entitled to back pay in connection with her discharge for engaging in a confrontation with her harasser, her estranged husband. The court found that a termination process cannot be free from discrimination where an employee is discharged for defending herself against harassment that her employer knew about, but took no steps to eliminate.

4. BFOQ (despite the presence of a statute)

In Wood v. South Dakota Cement Plant, 14 IER Cases 1402 (So. Dak. 1999) the plaintiff was discharged for off-duty smoking. Plaintiff had a long-standing smoking history, and applied for work as a kiln operator, a job that subjected him daily to a dusty environment. After working the position as a temp, plaintiff was offered the job full-time contingent upon successful completion of, inter alia, a physical exam. The physical exam revealed abnormal lungs, and the examining physician recommended that plaintiff’s employment be conditioned upon his cessation of smoking because of the additional risk to plaintiff’s health created by the dusty working environment. Plaintiff continued to smoke, but managed to successfully manipulate his periodic urine test results for a while. Eventually, when he failed a test, he admitted that he had never stopped smoking. However, the appeals court affirmed the trial court’s decision against the plaintiff, and found that the plaintiff had no claim for wrongful discharge under the state statute that prohibits discharge for off-duty tobacco use. The smoking restriction was a BFOQ, within the meaning of that statute as reasonably related to the employment activities, and further, the employee had waived his rights under the statute by accepting employment conditioned on a written agreement to stop smoking.

5. Age discrimination as to an employee under age 40

Unlike the ADEA, the protection of New Jersey’s Law Against Discrimination is not limited to those beyond a certain age, especially in consideration of the public policy of the State that the LAD was to be liberally construed. Bergen Commercial Bank v. Sisler, 157 N.J. 188 (1999). While the LAD was arguably enacted to prevent discrimination against older workers, the New Jersey Supreme Court found that where Mr. Sisler was hired as a bank vice president because of his qualifications, but management expressed surprise and dismay upon learning that Mr. Sisler was still in his 20’s, moved to dismiss him, and hired an older replacement, the state anti-discrimination law provided him with a basis for his claim of discriminatory discharge.

6. Mental illness

In a case that expresses the leading edge in disability litigation, plaintiff, suffered her first onset of mental illness after serving satisfactorily for 20 years as an employee of a school district. In Taylor v. Phoenixville School District, 184 F.3d 296 (3d Cir. 1999) plaintiff had the misfortune to become symptomatic during the first week that a new principal took over the school. She was initially hospitalized for several weeks. With her condition brought under control by medication, she returned to work. Her son requested accommodation on her behalf, and her son and her health care providers supplied information to the school concerning her condition. Instead of providing her with an accommodation, her job was altered and augmented, further stressing and disorienting her. The new principal’s assistant documented plaintiffs every misstep, saving the matters for regular disciplinary meetings. Plaintiff was eventually placed on probation, and then discharged. Reversing summary judgment for the employer, the Court of Appeals found that plaintiff’s disease substantially limited her abilities to think, concentrate and interact with others, and her employer was on notice of her disability but failed to engage in any interactive process. The Court of Appeals stated that on a motion for summary judgment, a trial court should be especially wary of underestimating how well an employee with a stigmatizing disability may be able to perform with accommodation. See also Bultemeyer v. Fort Wayne Community Schools, 100 F.3d 1281 (7th Cir. 1996) (The employer may have an even greater responsibility to initiate the process of accommodation where the employer knows that the employee has a mental disability.)

III. STRATEGIES TO DEAL WITH WHISTLEBLOWER CLAIMS

A. Establish clear policies and procedures

Monitor managers and employees to insure that workforce is complying with the law as well as ethical concerns. In Palladino v. VNA of Southern New Jersey, 68 F.Supp. 2d 455 (D.N.J. 1999), a nurse was discharged from a home health care agency after she complained to the directors of quality assurance, admissions and patient services about alleged Medicaid fraud perpetrated by staff who falsified patient information to make the patient eligible for reimbursed services. In this case, the plaintiff nurse had both a federal False Claims Act (FCA) case and a case under New Jersey’s whistleblower statute, (Conscientious Employees Protection Act (CEPA). The New Jersey district court found that the plaintiff’s retaliation claims under CEPA were not pre-empted by the FCA because the federal act did not indicate an intent by Congress to provide a comprehensive scheme for remedying retaliation against whistleblowers, and that managers of the defendant could be individually liable under CEPA.

Establish written workplace procedures for dealing with complaints arising from the workforce that address perceived violations of law, conflicts of interest and other ethical violations. Unless these materials are accompanied by an adequate disclaimer, the employer may find that it has unwittingly created a set of conditions that a court may construe as terms of a contract of employment. See Waldman v. NYNEX Corp., t/a New York Telephone Co., 14 IER Cases 1331 (NY Sup. Ct. 1999) (Despite the lack of an applicable whistleblower statute, motion to dismiss denied: the employment manual required employees to report suspected violations and assured protection to employees who made such reports.)

Establish a procedure for the “whistle blowing” employee to follow-up with reports of alleged unlawful actions, conflicts of interest, or other unethical behavior which includes identification of the persons to whom such complaints must be made, and the manner of making the report or complaint, reporting lines, and the nature of the investigation to be done and who will do it. Require employees to follow and exhaust all portions of this procedure concerning any complaint of perceived wrongdoing within the company. After investigation of any such employee complaint, if the matter reported does not constitute unlawful behavior or an ethical violation, report this, with a brief explanation, to the complaining employee and document this report on the investigation. In many cases, employees’ complaints which did not report a violation of enacted law also failed to express a complaint of an action that violated public policy. See Pierce v. Ortho Pharmaceutical Corp., 84 N.J. 58 (1980) (Plaintiff, an employee at will and director of medical research and therapeutics claimed that she was forced to resign (wrongful discharge) because she refused to continue a project which she found medically unethical. The formulation which was the subject of the project would be prescribed for infants and the elderly and included a substance that was medically controversial. Plaintiff made no allegation that eventual drug testing would violate federal or state law (it had to be pre-approved for testing by the FDA) or that her participation violated ethical principals of the AMA, or would expose plaintiff to medical malpractice claims. Plaintiff claimed, instead, that continued work on the project violated her duty under the Hippocratic Oath to “do no harm.” The court characterized the dispute as a medical difference of opinion.) However, the court did find that the Hippocratic Oath could form the basis of a public policy claim.

If the complaint uncovers a matter which requires intervention, this should, of course, be done, and the correction of the matter should be reported to the employee, with an expression of the company’s appreciation to the complaining employee. The existence of such a procedure, with follow-through to inform the complaining employee of the action taken, should prevent a complaining employee from resigning over his concerns and filing a whistleblower lawsuit. It will also provide the company with a defense in the event that the employee files a lawsuit, despite appropriate and adequate handling of his/her concerns.

Of course, the company should not retaliate against any employee who reports alleged wrongdoing to the company, and should be careful to avoid any appearance of retaliation that may trigger further employee complaint. The company, presumably, would prefer to police its own behavior. The company includes the employee on its team when it establishes the reporting policy and procedure, and builds employee loyalty when it acts fairly and responsively.

As with any company policy and procedure, it will be necessary to train managers, and then subordinates in these policies and procedures to make them aware of them, to ensure understanding, to promote their use in the event any employee has such a concern, and to demonstrate the company’s commitment to lawful, fair business practices.

Have a written policy and procedure concerning “whistleblower” complaints. Establish regular training schedules for managers and employees concerning the policy and document when training occurred and who attended.

Record all employee complaints in writing, or require the employee to file a written complaint. Interview the employee to make certain the full extent of the complaint is understood and investigated. Document the file concerning the specifics of the complaint. If the complaint is not a violation of law, conflict of interest or other ethical conflict, document this, and report it to the complaining employee.

In Fields v. U.S. Dept. of Labor, 14 IER Cases 1829 (11th Cir. 1999) the court found that the whistleblower provisions of the Energy Reorganization Act did not prevent discharge of employees who had performed unauthorized tests on a power plant nuclear reactor because of safety concerns, but which created conditions that triggered plant alarms.

Two recent cases under the False Claims Act (FCA) are also noteworthy in this developing area. Both held, for different reasons, that an FCA claim against a state could not be sustained. In U.S. ex rel. Foulds v. Texas Tech University, 15 IER Cases 6 (5th Cir. 1999), the Court of Appeals for the Fifth Circuit held that no FCA claim could be brought by an individual against a state in federal district court because the 11th Amendment to the U.S. Constitution bars such suit, and the federal government’s sovereign exemption under the FCA was not delegated to individuals. In this case, the U.S. declined to intervene against the state. However, in U.S. ex rel. Long v. SCS Business Institute, 15 IER Cases 32 (D.C. Cir. 1999), the court concluded that states are not proper defendants.

Where the employer is perceived as fair and responsive when dealing with employee concerns, particularly employee complaints of wrongdoing within the company, such an employer will undoubtedly have fewer “whistleblower” claims. A key element of the process, however, is keeping the complaining employee informed of the company’s investigation and conclusions with regard to the complaint. Employees who complain, and hear nothing further may conclude that the complaint was ignored or that the company is engaged in a cover-up. Either inference, even if incorrect, will undoubtedly raise the complaining employee’s concerns about the integrity of the workplace and management. As outlined above, this is easily avoided by keeping the employee informed by means of brief, periodic reports, which need not, and indeed should not, detail the company’s investigation and response to the complaint.

IV. NEGLIGENT HIRING

A. Actions brought by third parties

The plaintiff has the burden of proof that the employer knew or had reason to know of the employee’s dangerous propensity or liability producing propensities, or that any objectionable behavior that the employer has notice of can be sufficiently tied to the events sued upon.

In Van Horne v. Muller, 14 IER Cases 1088 (Ill. 1998), plaintiff, who alleged that an on-air disc jockey had defamed him, had no viable claim for negligent hiring and retention where plaintiff alleged that the employer knew that the disc jockey engaged in outrageous and malicious conduct, but where the prior outrageousness was not defamatory. Plaintiff did not establish that the disc jockey had a propensity to make defamatory comments, so as to place the employer on notice of the potential liability causing behavior, an essential element of plaintiff’s case. Interesting questions not decided in this case included consideration of whether a cause of action for negligent hiring, supervision or retention exists where there is no physical injury to the plaintiff; and under the facts of this particular case, whether allowing a cause of action for defamation would contravene any 1st Amendment rights and have a chilling effect on free speech.

Another recent case which provides an example of the difficulties plaintiffs may face, this time involving loss of life, again states the need to prove that the employer had notice of any wrongdoing of potential for wrongdoing, and whether the chain of causation is too attenuated. In Taylor v. Shoney’s, Inc., 15 IER Cases 285 (La. App. 1999), a restaurant manager, while on the restaurant premises, sold or gave a handgun to a minor with a criminal record and the minor used the gun to commit armed robbery and murder at another location. There was no evidence that the restaurant knew of the gun transfer, or that the manager had a propensity for engaging in illegal activities. The appeals court affirmed the trial court’s decision that there was no cause of action.

There is, however, no doubt that an employer can incur liability to third parties for its negligence in hiring or retaining an employee that it knew, or should have known was unfit, incompetent or dangerous. The third party bringing suit generally establishes its right to recover against the employer for negligent hiring or negligent supervision based upon evidence that the employee was in some way unfit for the job, that employer failed to make a reasonable investigation of the prospective employee’s background before hiring, or based upon matters which occurred during the employment relationship, the employer had reasonable notice that the employee was unfit. In either case, it is necessary to show that the employment or retention of the unfit employee is the cause of the third party’s injury or damages. The employer’s liability under this theory may extend to acts ordinarily outside the scope of the employment.

Such suits may include claims brought by co-employees, although workplace or work-related incidents resulting in medically treated injury of a co-worker by the “unfit” worker may be subsumed under workers’ compensation statutes of various states. See Thornton v. Chamberlain Manufacturing Corp., 62 N.J. 300, 300 A.2d 146 (1973), for example. However, in the case of Perkins v. Spivey, 911 F.2d 22 (8th Cir. 1990), the federal Court of Appeals, reviewing a decision of the district court sitting in Kansas in consolidated cases against the harasser and the employer (GM Corp.) in a sexual harassment claim of psychological and physical injury found that Kansas common law recognized a cause of action by an employee against the employer on a theory of negligent hiring or retention of an employee which the employer knows or should have known was dangerous and another employee suffers emotional harm resulting in physical injury.

And of course, where the behavior complained of alters the terms and conditions of the employment relationship, as in the case of sexual harassment by a supervisor, for example, the matter may be brought under state or federal anti-discrimination laws.

The category of suits brought by third parties to the employment relationship is broad and far-ranging. The employer’s liability is easiest to establish where the nature of the relationship between the employer entity and third parties already encompasses a duty such as those recognized under the law of bailments or innkeepers, or similar types of relationships, as in the following cases.

Given the existence of such a relationship, some courts may be lowering the bar for plaintiff’s cases. In the case of Pittard v. Four Seasons Motor Inn, 688 P.2d 333 (N.M. App. 1984), a child was sexually molested on the hotel premises by a hotel employee with a history of drinking and violence, and who had been fired (but rehired) on at least one occasion for his behavior. Reversing a directed verdict by the trial court after the close of plaintiff’s case-in-chief on the issues of negligent hiring and negligent retention, the appeals court found that the jury should be permitted to decide whether the employee’s history of alcohol abuse and violence made the sexual assault foreseeable by the defendant employer.

In its opinion, the New Mexico court contrasted the Pittard facts to those of an older New Mexico case of F & T Co. v. Woods, 92 N.M. 697, 594 P.2d 745 (1979), in which a woman was raped by a F & T’s off-duty employee. The employee had delivered a television set to the woman’s home, and returned five days later, breaking into the home to commit the rape. The case was brought on the theory of negligent hiring and retention and the plaintiff’s case focused on the employer’s limited inquiry into the employee’s background. (The employee was an ex-convict.) There had also been several rapes in the locality, the employee was one of two black employees of defendant, and the employer had been questioned by a detective because a rape victim’s purse had been found near defendant’s trash area. In that decision, it was found that negligent hiring and/or retention was not the proximate cause of the rape.

In the case of Harvey Freeman & Sons, Inc. v. Stanley, 378 S.E. 2d 857 (Ga. 1989), the court found that the sexually abused minors would not have gone to the perpetrators’ apartment if the Clarks had been merely other tenants – but the children were latchkey kids, and the Clarks were the resident managers. Summary judgment was granted to the landlord on agency principles, but denied on the claims of negligent hiring and negligent retention. The court found that an issue of fact was presented as to whether the landlord had constructive notice of the sexual tendencies of the resident managers, and there was evidence that the resident managers both used and sold drugs, were “swingers” (to quote the court), and that the wife had lesbian relationships.

B. Giving references re former employees

Employers owe a duty of due care when giving references to prospective employers and third parties. It is surprising (and frightening) that some employers still haven’t insured that this is being handled appropriately, given the risks created by some employees which are well-known at the time the employee and the former employer part ways. For example, in the recent case of Davis v. Board of Commissioners of Dona Ana County, 15 IER Cases 740 (N.Mex. App. 1999), a psychiatric patient was sexually harassed and assaulted by a hospital mental health technician who had received a positive reference from his former employer, a county detention center, which failed to mention sexual harassment charges filed by inmates against the technician.

McQuirk v. Donnelley, 189 F.3d 793 (9th Cir. 1999). Plaintiff sued his former employer, naming the sheriff as well as the county sheriff’s department, for giving an allegedly defamatory reference to his prospective employer, and which caused the job offer to be rescinded. Plaintiff executed a release in connection with his job application which permitted his prospective employer, a city police department in another state, to contact his prior employer. The release that the plaintiff had executed purported to excuse the recipients from liability resulting from information received. Plaintiff’s former employer told the prospective employers that plaintiff had committed thefts, submitted a false insurance claim, committed perjury, and fabricated a false police report. Reversing summary judgment for the defendant, the Court of Appeals for the Ninth Circuit, interpreted various state laws in arriving at its holdings. However, despite the presence of a California statute to which the court referred, the holding that the release was unenforceable because it purported to shield informants from liability for intentional torts has general applicability, as it also expresses a generally accepted legal principle.

C. The shoe on the other foot – can there be liability for terminating an employee with a criminal past?

In the very interesting case of Cedeno v. Montclair State University, 319 N.J. Super. 148 (App. Div. 1999), a New Jersey appeals court grappled with an unusual problem in the face of the state’s very liberally interpreted anti-discrimination and whistleblower statutes. In that case, a discharged former public employee fought his discharge under the state laws after he was discharged during the course of resolution of an internal complaint filed with his employer which alleged discriminatory treatment. Plaintiff’s real problem, however, turned out to be the fact that the University qualified as a public employer under New Jersey law, and under state law, he had a prior criminal conviction which disqualified him from holding public employment. In a former job in another state where he held the same position with a public entity, plaintiff had pleaded nolo contendere to grand jury presentments of bribery. He did not disclose this when he applied for the job with the University several years later, nor did he reveal that he had been discharged from interim employment in a similar position. The New Jersey appeals court held that the plaintiff was not entitled to any remedy under either the antidiscrimination statute or the whistleblower statute because he was absolutely disqualified from holding the job. Accordingly, he had no cognizable wrongful discharge claim. However, the court was clearly troubled by its decision, given the liberal New Jersey law in employment matters. It acknowledged that the lower court had relied on cases such as McKennon v. Nashville Banner Publishing Co., 513 U.S. 352 (1995), which held that after-acquired evidence was irrelevant at the liability stage of a discrimination case, and that there was no state appellate decision applying this rule in New Jersey, although the federal district courts sitting in New Jersey had predicted this probable result. The appeals court also acknowledged the important public policies behind the New Jersey statutes, and agreed that “ordinarily” New Jersey would not permit an employer to defeat a wrongful discharge claim by showing that the employee made a misrepresentation on the employment application which, if discovered during the employment, would have resulted in discharge. The appeals court concluded that the misrepresentation on the plaintiff’s employment application was of a different quality than that of the usual case, because, as a result of plaintiff’s conviction for bribery, he was statutorily barred from ever obtaining any public employment in New Jersey. This decision has not been appealed to the New Jersey Supreme Court.

D. General Duties under OSHA and the dangerous employee

The Occupational Safety and Health Act of 1970 (OSHA) covers almost all private sector workers. Small farms are entirely exempt, and businesses with 10 or fewer employees with good safety records are exempt from regular inspections. The major exceptions to coverage are federal employees and those governed by federal safety legislation, as well as many state and local government employees.

Under OSHA’s “general duty” clause, where the Secretary of Labor has not promulgated detailed health and safety standards pursuant to Section 6 of OSHA, the employer is subject to a general duty to “furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees.” [Sec. 5(a)(1)] 29 U.S.C. Sec. 654(a)(1). Breach of the general duty clause may subject the employer to fines assessed per violation.

While the general duty clause appears to be cast in absolute terms, it has not been construed to impose strict liability on employers where the hazard consisted of conduct by employees, which the courts have recognized cannot be entirely prevented. See National Realty & Construction Co. v. OSHRC, 489 F.2d 1257 (D.C. Cir. 1973) (“A demented, suicidal, or willfully reckless employee may, on occasion, circumvent the best conceived and most vigorously enforced safety regime.”) What Congress intended to abate were the preventable hazards. Id. While the National Realty case involved employees who were riding on equipment in unauthorized and unsafe manner, the soundness of the position taken by the Court of Appeals in this early case under OSHA points the way to construing the impact of this law on employers with employees who prove to be a threat to others in the workplace.

If the employer could have prevented the risk by a pre-hire investigation that would have either limited the jobs into which the employee was hired, or eliminated the prospect entirely from the hire pool, the employer may be held to that duty. In the words of the National Realty court, “[t]he record must additionally indicate that demonstrably feasible measures would have materially reduced the likelihood that such misconduct would have occurred.” Id. OSHA’s 1983 Field Operations Manual sets forth the four elements of a “general duty clause” violation:

The employer failed to keep the workplace free of a hazard to which employees of that employer were exposed;
The hazard was recognized;
The hazard was causing or was likely to cause death or serious physical harm; and
There was a feasible and useful method to correct the hazard.

In an early decision, it was held that “the proper question is not whether an accident is likely to occur but whether, if an accident does occur, the result is likely to be death or serious physical harm.” R.L. Sanders Roofing Co., 7 O.S.H. Cas. (BNA) 1566 (1979). However, as to whether the incident creating the hazard must be “reasonably foreseeable,” Bomac Drilling, 9 O.S.H. Cas. (BNA) 1681 (1981), or a “significant risk,” Kastalon, Inc., 12 O.S.H. Cas. (BNA) 1928 (1986), remains unclear.

V. INCONSISTENT RESULTS BETWEEN THE UNIFORM SELECTION GUIDELINES AND THE CIVIL RIGHTS ACT

The Uniform Guidelines on Employee Selection Procedures are guidelines only and plaintiffs and defendants cannot rely on the “rule of thumb” described in the guidelines to either conclusively prove a case, or guarantee a successful defense. The employer’s compliance with the Guidelines will only make it less likely that the government will expend scarce funds on enforcement proceedings against the company.

The Uniform Guidelines on Employee Selection Procedures have been adopted by the EEOC, the Office of Personnel Management (formerly the Civil Service Commission), the Justice Dept., the Labor Dept.’s Office of Federal Contract Compliance Programs, and are codified within each agency’s regulations. The EEOC’s guidelines at 29 CFR part 1607 include amendments dating from 1981.

The Uniform Guidelines on Employee Selection Procedure (“Guidelines”) are intended to set a uniform federal approach to non-discriminatory hiring. One of the main thrusts of the Guidelines concerns the use of pre-employment testing. The Guidelines reflect the position that the law in this area has always been that policies which have an adverse impact on any group subject to the protection of anti-discrimination laws are illegal, unless justified by business necessity. See Griggs v. Duke Power Co., 401 U.S. 424 (1966); Albemarle Paper Co. v. Moody, 422 U.S. 405 (1975). A selection device which does not have an adverse impact generally does not violate Title VII. See Furnco v. Waters, 438 U.S. 567, 98 S.Ct. 2943 (1978). In Albemarle Paper Co. v. Moody, 422 U.S.450, 431 (1975), the Supreme Court noted that “[t]he message of these Guidelines is the same as that of the Griggs case – that discriminatory tests are impermissible unless shown, by professionally acceptable methods, to be ‘predictive of or significantly correlated with important elements of work behavior which comprise or are relevant to the job.’ ”

In 1989, the United States Supreme Court effectively reversed Griggs by its decision in Wards Cove Packing Co. v. Atonio, 490 U.S. 642, 109 S.Ct. 2115 (1989), substantially increasing the burden of proof for plaintiffs in adverse impact cases. To the credit of our lawmakers, the Civil Rights Act of 1991 was enacted largely to nullify the Wards Cove decision for later cases.

The Griggs opinion recognized that the plaintiff has a heavier burden of proof in a disparate impact case than in a disparate treatment case. In order to prove the disparate impact case, it is necessary to resort to statistical proof, and thus the use of experts. This raises the cost to plaintiff’s pursuing a disparate impact theory case. (Opinions intervening between Griggs and Wards Cove had also denied plaintiffs the right to recover expenses for experts, and the Civil Rights Act of 1991 gave plaintiffs a statutory right to such recovery.) Under Griggs, if the plaintiff’s statistics established a disparity, and thus, direct evidence of a violation of Sec. 703(a)(2) of Title VII, the defendant was required to justify the selection practice as a business necessity. Under Wards Cove, the plaintiff was put to the task of proving both disparate impact and that the selection practice caused a significantly disparate impact on employment opportunities for protected class members in order to make out a prima facie case. Then, the burden of production shifted to the defendant to prove business necessity, but as the burden of persuasion always remained with the plaintiff, and the plaintiff was effectively put to the third task of showing that the selection practice did not serve the employer’s legitimate interests. Additionally, plaintiff could show that there was an alternative practice that would serve the employer’s business needs as well as the challenged practice without burdening the protected class, and that the employer refused to adopt the alternative practice. Indeed, under Wards Cove, plaintiff’s burden was a heavy one.

While the CRA of 1991 reinstated the construct of Griggs, it also clarified the allocations of burdens or proof. Under Section 104(m) “[t]he term ‘demonstrates’ means the burdens of production and persuasion.” Under Section 105(a) which amended 42 U.S.C. 2000-e-2 by adding a new subsection:

(k)(1)(A) An unlawful employment practice based on disparate impact is established under this title only if a complaining party demonstrates that respondent uses a particular employment practice that causes a disparate impact on the basis of race, color, religion, sex, or national origin and the respondent fails to demonstrate that the challenged practice is job-related for the position in question and consistent with business necessity; or
the complaining party makes the demonstration described in subparagraph (C) with respect to alternative employment practice and the respondent refuses to adopt such alternative employment practice.

(B)(i) With respect to demonstrating that a particular employment practice causes a disparate impact as described in subparagraph (a)(I), the complaining party shall demonstrate that each particular challenged employment practice causes a disparate impact, except that if the complaining party can demonstrate to the court that the elements of a respondent’s decision-making process are not capable of separation for analysis, the decision-making process may be analyzed as one employment practice.

(ii) If the respondent demonstrates that a specific employment practice does not cause the disparate impact, the respondent shall not be required to demonstrate that such practice is required by the business necessity.

(C) The demonstration referred to by subparagraph (A) (ii) shall be in accordance with the law as it existed on June 4, 1989, with respect to the concept of “alternative employment practice.”

(italics added). (Interestingly, the CRA of 1991 failed to deal with the central question in Wards Cove, whether it was necessary to show that the labor group that alleged that it was disadvantaged under the employer’s selection process was a qualified labor pool for selection for the desirable jobs.)

The record-keeping requirements of the Uniform Selection Guidelines, in effect, require employers to continually monitor and verify the business necessity of their selection practices, processes and procedures. Employers are required to maintain records of the number of applicants and the number of hires by race, sex and ethnic group. Accordingly, the employers have the data (and the resources), unlike plaintiffs, to conduct validation studies.

Under the Guidelines, once an employer has determined that a selection device has an adverse impact on a protected group, it can abandon or modify the procedure, or attempt to validate its continued use on the grounds of “business necessity.” Validation is a highly technical matter, and is made further complex by the regular emergence of new theories and concepts in industrial psychology. In attempting to secure validation of a particular procedure, the employer also has the burden of investigating alternative selection methods which would satisfy the employer’s business necessity, but that would have less of an adverse impact. (Section 3B)

Under Section 4D, the Guidelines adopt a “4/5ths” or “80%” rule for determining if there may be an adverse impact created by the use of a selection device. This “rule of thumb” is a convenient indicator for enforcement agencies who may be considering the initiation of enforcement proceedings. Where the selection rate for any protected group is less than 80% of the selection rate for applicants within the group with the highest selection rate, this will be regarded as evidence of adverse impact, and there is a risk that the procedure will be subjected to a challenge. The 80% rule is not applied rigidly, however, but merely opens the door to the possibility that the procedure will be challenged. There may be other factors at work in the recruitment process which have skewed the statistics, such as the employer’s reputation for discrimination in the community in which it recruits, a very small applicant pool, or an unusually aggressive recruitment campaign which results in an atypical applicant pool. In addition, the Guidelines reserve the possibility that a selection rate difference of less than 20% may still provoke a challenge from an enforcement agency as constituting adverse impact, again, depending on the presence of other factors in the recruitment process. Where the employer has not maintained hiring data to document any adverse impact as required under the Guidelines, the enforcement agency is entitled to draw the inference of adverse impact of the selection process if the selection rate for the job category does not reflect the group’s representation in the relevant labor market or the applicable work force, for promotions and laterals.

What about the test that screens out minorities and requires a score unrelated to actual job needs, but where the employer has actually hired sufficient minorities to obscure the effect of the test? In other words, while a particular component of the selection process may be demonstrably unfair, the employer’s “bottom line” on hiring minorities is acceptable. In that situation, an enforcement agency will probably not want to expend limited resources to force the employer to abandon such a pre-employment test that cannot be shown to be required as a “business necessity.” Section 4C of the Guidelines covers this prosecutorial discretion. However, an individual harmed by the screening device may, in fact, choose to pursue a case.

VI. In conclusion…

Monitor managers to make certain that they are complying with the law and company policies. Policies are great on paper, but unless they are followed and implemented, they are almost worthless.

Ascertain to what extent company goals, policies and programs are being met. Use evaluations of managerial employees performance to communicate and work with managerial employees to improve effectiveness. There should be regular training and managerial development in a variety of topics, as well as periodic follow-up to make certain that the topic has been absorbed and merged into the manager’s day-to-day performance.

Annual needs assessment plan. Advance planning prevents or diminishes the need for downsizing terminations. It lessens the possibility of panic hiring as well as diminishing the need for later terminations because of overstaffing. Identify areas where employees may be redeployed, if necessary, to cover staffing shortfalls. The goal is to do everything possible to make sure that the hire will be a long-term contributor and to ensure that any separation is as voluntary as possible.

Recognize the need to communicate within the organization and implement a communication plan, both top down and bottom up, in order to ensure that employees and managers understand their responsibilities under the company policies and managers understand the effects of bad decisions on company liability exposure.