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Liability exposure for discrimination and harassment in the workplace can have far-reaching effects -- far beyond the liability imputed to the company and to the individual who acted on his or her bias.

Monday, February 22, 2010
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This month's column explores potential-liability exposure in discrimination cases for executives and owners as well as the enhanced duties placed on HR professionals and supervisors to report such incidents.

Question: Can you explain if there is any difference between the duty to report an incident when you are an HR professional or a regular employee? From a legal standpoint, do courts hold HR professionals to a higher standard? Also, are supervisors held to a higher standard as well?

Answer: Management employees, such as HR professionals and supervisors, are largely responsible for maintaining a harassment-free and discrimination-free workplace. Therefore, courts expect HR professionals and supervisors to exercise a higher standard of care than regular "rank and file" employees to report and attempt to remedy acts of harassment and discrimination.

If a management employee fails to properly report and remedy acts of harassment and bias that he or she knows of -- or should have known of -- the failure will be imputed to the employer, and thereby expose the employer to liability. See my column: The Ins and Outs of Investigations.

Who Qualifies As Management?

In order to determine who qualifies as a "management-level" employee, for purposes of ascribing knowledge of discriminatory acts to the employer, courts consider whether the employee in question is: (1) sufficiently senior in the employer's governing hierarchy, such as a departmental or plant manager, so that such knowledge is important to the employee's general managerial duties; and (2) specifically employed to deal with discrimination, such as a human resource professional or employee-relations personnel. See Huston v. P&G Paper Prods. Corp., 568 F.3d 100, 107-08 (3d Cir. 2009).

In the latter scenario, if the employer has designated an HR manager as a point-person for receiving complaints of harassment and/or discrimination, knowledge by this employee of such conduct will be imputed to the employer based on the employer mandate to report and respond to such events. Id.

Therefore, although not very many courts have made a direct ruling on this issue, as an HR professional, it is wise to be conscious of harassment and discrimination (you cannot turn a blind eye to potential occurrences) and to report any and all events of which you are aware.

Determining whether a particular supervisor qualifies as a "management official" requires a more in-depth inquiry.

Because the duties and responsibilities that accompany the title "supervisor" vary from company to company, having the title of "supervisor" may not automatically mean that that person is, in fact, a member of management.

Therefore, determining whether that person is in fact a management employee largely depends on the facts of the specific case. See Adler v. Wal-Mart Stores, 144 F.3d 664, 673-74 (10th Cir. 1998).

To be considered "management," the supervisor in question must have the authority to act on behalf of the employer to stop discriminatory behavior, such as by disciplining employees or by changing their employment status or work assignments. Id.

Additionally, the "supervisor" should also have the authority to recommend tangible employment decisions affecting the employee, and also have authority to direct the employee's daily work activities. That said, a supervisor who is directly in line with one or more of the employees involved in the alleged discriminatory incident is likely to have a duty to report and to take reasonable actions to remedy incidents of discrimination. Id. at 669, 674.

At least one court has gone so far as to hold that it is part of an employer's duty to exercise due care to instruct all supervisors to report incidents of harassment, especially if the employer's complaint procedure requires or encourages supervisors to do so. See Varner v. Nat'l Super Mkts., Inc., 94 F.3d 1209, 1214 (8th Cir. 1996).

Therefore, although not every supervisor has a heightened duty to report, it is best for supervisors to err on the side of caution and report any known incidents of discrimination.

Question: We have a manager who had about 11 employees file written complaints about him for harassment against Mexicans, anger issues and just being disrespectful. The owners have decided they want to keep this manager even though a temporary agency, which acts as a co-employer with us for HR, payroll, etc., recommends termination, with 90 days' notice. Do the company executives face the possibility of personal liability should any of the employees decide to litigate this matter? I have proactively contacted the temporary agency to assist in training this manager, but do not think the owners will require the manager to meet set goals.

Answer: The executives/owners in your question do face potential liability risk if it is found that they unreasonably failed to take steps to remedy or at least address the employee complaints -- and based on the facts that you have presented in your question, it is highly likely that their inaction will be deemed to be unreasonable.

Federal Anti-Discrimination Laws

Executives who are also owners face an increased risk of potential liability because, as owners, they are considered employers under federal anti-discrimination law. Under Title VII, only an "employer," as defined by the statute, can be held liable for discrimination in the workplace. U.S. EEOC v. AIC Sec. Investigations, Ltd., 55 F.3d 1276, 1282 (7th Cir. 1995). See generally John A. Bourdeau, Annotation, Individual Liability of Supervisors, Managers, or Officers for Discriminatory Actions ? Cases Postdating the Civil Rights Acts of 1991, 131 A.L.R. Fed. 221 (1996). Title VII defines "employer" as "a person engaged in an industry affecting commerce who has fifteen or more employees ... and any agent of such person." 42 U.S.C. ยง 2000e(b) (2010). The ADEA and the ADA use the same standards used by Title VII to determine who qualifies as an "employer" for purposes of liability. See AIC Sec. Investigations, Ltd., 55 F.3d at 1280.

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While mere employees may not be held individually liable under federal law for discrimination in the workplace, owners may be held individually liable, whether or not they participated in the discriminatory acts by virtue of the fact that they are owners, and therefore, employers. See Horney v. Westfield Gage Co., 95 F. Supp. 2d 29, 30 (D. Mass 2000); Lissau v. S. Food Serv., 159 F.3d 177, 180-81 (4th Cir. 1998); Wathen v. G.E., 115 F.3d 400, 405-06 (6th Cir. 1997); Dici v. Commonwealth of Pa., 91 F.3d 542, 551-52 (3d Cir. 1996); Haynes v. Williams, 88 F.3d 898, 898-901 (10th Cir. 1996); Tomka v. Seiler Corp., 66 F.3d 1295, 1313-17 (2d Cir. 1995); Gary v. Long, 59 F.3d 1391, 1399 (D.C. Cir. 1995); Lenhardt v. Basic Inst. of Tech., 55 F.3d 377, 380-81 (8th Cir. 1995); AIC Sec. Investigations, Ltd., 55 F.3d at 1279-82; Cross v. Ala. State Dep't of Mental Health & Mental Retardation, 49 F.3d 1490, 1504 (11th Cir. 1995); Grant v. Lone Star Co., 21 F.3d 649, 653 (5th Cir. 1994); Miller v. Maxwell's Int'l, Inc., 991 F.2d 583, 587-88 (9th Cir. 1993).

State Anti-Discrimination Laws

State anti-discrimination laws are, in general, more expansive than federal laws. Many states permit individual liability in discrimination cases to attach to supervisors as well as to owners. Washington, Ohio, Massachusetts, Iowa and New York are examples of states that allow personal liability under state law for discrimination and harassment in the workplace.

For example, in order for an executive who is not the alleged discriminating official to be held personally liable under New York law for discrimination in the workplace, he or she must either: (1) have an ownership interest in the company or (2) have the power to do more than simply carry out personnel decisions made by others. See Patrowich v. Chem. Bank, 63 N.Y.2d 541, 542-43, 483 N.Y.S.2d 659, 660 (1984) and Maher v. Alliance Mortgage Banking Corp., 650 F. Supp. 2d 249, 260 (E.D.N.Y. 2009).

New York courts use the "economic realities" test to determine whether an executive who does not have an ownership interest in the company qualifies as an "employer" based on his/her supervisory authority within the company. Patrowich, 63 N.Y.2d at 543, 483 N.Y.S.2d 661.

Factors considered in the economic realities test include: (1) whether the executive had the power to hire and fire employees; (2) whether the executive supervised and controlled employee work schedules or conditions of employment; (3) whether the executive determined the rate and method of payment; and (4) whether the executive maintained employment records.

Because many executives may meet the above criteria, incurring liability for the acts of others under New York law is often possible.

Based on the facts provided in the reader's question, should any of the employees litigate this matter, the executives may be personably liable under state law for damages resulting from the offending supervisor's conduct if it is found that they unreasonably failed to take appropriate remedial action to remedy or, at the very least, to address the multiple complaints against the offending supervisor.

Keisha-Ann G. Gray is senior counsel in the Labor & Employment Law Department of Proskauer Rose in New York and co-chair of the Department's Employment Litigation and Arbitration Practice Group.

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