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Liable Nightmares

No lawsuit is a picnic, but our legal experts have pinpointed five areas that should be of most concern to human resource executives.

Monday, May 16, 2005
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The Atlanta Journal newspaper once noted that "the Ten Commandments contain 297 words. The Bill of Rights is stated in 463 words. Lincoln's Gettysburg Address contains 266 words. A recent federal directive to regulate the price of cabbage contains 26,911 words."

The complexity of employment-related laws -- as well as the complexity of the regulations and guidelines issued by various federal and state agencies and departments interpreting those laws -- has kept human resource professionals and their legal counsel on their toes, with pens poised and noses to the grindstone.

A most uncomfortable position, to be sure.

The staggering number of lawsuits filed against employers every year has been remarkably steady over the years. The average number of employment discrimination charges filed with the U.S. Equal Employment Opportunity Commission in the 10 years ending fiscal 2004 was 81,00 annually.

Don't expect any relief in the future, say legal experts.

"I don't think the trend over time is that the number of charges will fall," says Lawrence Rosenfeld, a partner in the Phoenix office of Greenberg Traurig. "I just don't see that."

While there are many legitimate charges filed, there are also a great many frivolous ones, he says. "It doesn't cost a penny to file a charge at the EEOC . . . . I think sometimes employees file these claims because they are angry or they don't want to admit they didn't do a good job. They want to blame somebody else."

Whatever the claimant's motivation or the claim's substance, however, the impact of a lawsuit on the employer is considerable in expense, time and anxiety -- particularly if the case is class-action, which an increasing number of cases are. And no matter how much training is done and how often important information is communicated, problems still occur.

Looking at today's landscape, our legal experts have identified five major areas of concern to employers: class-action lawsuits, harassment claims, retaliation claims, leave issues and wage-and-hour class-action cases. Following are stories on each of those areas, as well as some information on what headaches our experts believe will be coming in the future.

The laws governing many of these areas are different, but the prevalence of employment-related litigation is often linked to company culture, say experts.

"If you treat people and jobs as fungible [like commodities], then you are likely as an employer not to treat them in ways that value them," says Richard Shaw, a partner in the Pittsburgh office of Jones Day. "You are likely to have a lot of turnover and no loyalty to the company.

"Employers have to be sensitive to their workforce. . . . It's that valuing of employees that allows them to avoid lawsuits," he says.

While employers must have consistent policies and procedures, they also must exhibit flexibility when necessary. "What you did yesterday will not necessarily work tomorrow," Shaw says.

1. Class Actions

More Than a Touch of Class

If you ever wonder how large an employment-related class-action lawsuit can get, just think Wal-Mart.

Last year, such lawsuits reached a new level when Betty Dukes vs. Wal-Mart Stores Inc. was given class-action status. If an appeals court allows the

certification to stand, the suit will cover an estimated 1.6 million current and former female employees who allege they were systematically denied promotion opportunities because of their sex. That's right, 1.6 million. If that doesn't cause a few sleepless nights for HR leaders at the world's largest retailer, nothing will.

Seeing a chance to hit the jackpot, plaintiffs and their attorneys have been pursuing class-action certification for employment-related cases in record numbers.

"What we have is a perfect storm for class-action lawsuits," says John B. Phillips, an attorney with Miller and Martin in Chattanooga, Tenn. "On one hand, you have disgruntled employees who are mad at their company and hear and read about the huge class-actions going on. Then, on the defense side, you have a company that knows defending against the suit is going to be very expensive. So the company begins to think about settlement from the beginning."

Not all the news has been bad for employers. In February, the Bush administration signed into law the Class Action Fairness Act, which opened the doors for certain class-action suits to be moved from state court to federal court. Under the act, federal courts are granted jurisdiction over class-actions in which the proposed class contains at least 100 members, the complaint exceeds $5 million for all members of the class and there is minimal diversity -- at least one of the class members is from a different state than at least one of the defendants.

If the primary defendant and two-thirds or more of the class members reside in the defendant's home state, the case can remain in state court.

Business groups have applauded the legislation because federal judges are less likely to certify class-actions than state judges. But while most employment attorneys say the act is important, many believe its effect on employment-related lawsuits will be limited.

"As a practical matter, a lot of employment-related class-action suits were already filed in federal court, so it won't have a huge effect on these suits," says Peter Carmen, an attorney with Mackenzie Hughes in Syracuse, N.Y. "Where it would be felt is in the product-liability area."

While the most likely candidates for class-action suits have been race- and gender-discrimination cases and wage-and-hour cases, employment attorneys advise HR executives to brace for more age-related claims, because of an aging population, and national-origin cases, because of the increasing number of Latino workers in the United States.

To truly make a dent in class-action suits, attorneys say, legislation is needed that goes beyond CAFA and makes it much harder for plaintiffs to file a class-action lawsuit in the first place.

"There are proposals out there, but I'm not sure they have much leg," Phillips says.

Jeff Hollingsworth, an attorney with Perkins Coie in Seattle, believes there's another antidote to class-action mania. "The thing that would have the greatest effect in eliminating these cases would be to take a harder look at settling them," he says. "It would grind things to halt were employers to resist the pressure of settling for large sums."

2. Harassment

An Ounce of Prevention

Beyond the trauma felt by those on the receiving end of unwelcome sexual advances, physical threats, verbal abuse, stalking, bullying, intimidation or other forms of harassment, such behavior can create a poisonous atmosphere in the workplace.

And without adequate policies and ongoing training to eliminate or respond to harassment within its ranks, the actions of one employee can leave an organization liable in the eyes of the law.

Nearly 18 percent of the charges filed with the U.S. Equal Employment Opportunity Commission in fiscal year 2003 were harassment charges.

According to a recent study conducted by White Plains, N.Y.-based law firm Jackson Lewis, 63 percent of the 456 HR executives polled say their companies handled a complaint of sexual harassment last year, compared to 57 percent in 2003. In a 2004 Harris Interactive poll, 26 percent of the 1,747 employed adults surveyed say they believe they have experienced sexual harassment at work.

To deal with workplace harassment, or head off potential litigation, the best defense may be a good offense, says attorney Laura Roppe of the Brown Law Group in San Diego. Roppe, who specializes in employment counseling and litigation, suggests, as a first preventive step, creating and implementing a broad policy that protects the organization's interests, and is "against harassment" in general. "For most companies, the goal is zero tolerance," she says.

Furthermore, Roppe adds, policymakers are obligated to "train employees and make sure they know there are consequences to their actions."

Attorney Michael Overly, of Los Angeles-based Foley & Lardner, and author of E-Policy: How to Develop Computer, E-Mail and Internet Guidelines to Protect Your Company and its Assets, advises that policies cover appropriate use of technology as well.

The proliferation of electronic communication, Overly says, is currently one of HR's biggest issues in regard to harassment. With virtually all employees accessing ever-evolving technology, he says, "the circle has expanded to those who haven't had the benefit of using e-mail or other forms of electronic communication."

To prevent use of the Internet, company intranets, e-mail, instant messaging and fax machines as a means for co-workers, disgruntled customers, former employees, spurned lovers and bullies to torment others, Overly recommends keeping it simple.

A key, he says, is drafting a policy with language "not specific to e-mail or instant-messaging use, Internet access or any one form of communication." He urges policymakers to make clear to employees what is and is not appropriate use of any and all of the company's technological resources.

In addition to a clear and well-written policy, he lists two further steps in addressing the problem of harassment: thorough training and software to prohibit access to inappropriate electronic content.

Overly identifies effective training as a key step that many employers overlook. "Most companies have written policies. Most are using some form of technology to crack down on the problem," he says. "The thing that we're not seeing done well is training. Conduct initial training when employees are hired. Conduct ongoing training on new threats, and make sure you follow up with employees."

Ultimately, "it's harder to fire someone and hire someone new," Overly says, "than it is to talk to an employee and eliminate the problem."

3. Retaliation

Revenge Is Not So Sweet

Revenge is a dish best served cold, the popular adage goes. But these days revenge is a dish best left off an employer's menu of options altogether. That's because employment law, at both the state and federal level, is replete with regulations designed to prevent an employer from retaliating against an employee who is engaging in activity that is legally permitted.

 "The true nightmare of a retaliation claim occurs when the underlying allegation -- such as a claim of discrimination -- is defeated but the retaliation claim is found to have merit," says Jeffrey Tanenbaum, partner and Labor and Employment Practice Group leader at the San Francisco-based firm of Nixon Peabody.

The formula for proving retaliation is well-established: A plaintiff must first show he or she was engaged in a "protected activity," then the plaintiff must show he or she was subjected to an "adverse employment action" and, finally, the plaintiff needs to show a "causal connection" between the protected activity and the adverse employment action.

Tanenbaum says it's crucial employers understand how broad that range of "protected" activities is.

 "A classic example of [protected activity] would be filing a charge of discrimination with the EEOC," says Tanenbaum. "However, other, less obvious conduct is also considered protected, including expressing an intention to file an administrative charge or assisting fellow workers in their discrimination claims."

Another mistake is assuming that truth is on your side: "Even if the employee is ultimately wrong on the merits of the administrative charge, perhaps even when the contents of that underlying charge are malicious, defamatory and false," courts have ruled the complaint is still protected.

 "When an employee files a retaliation claim, it takes on a life of its own, separate from the original, underlying claim," says Hillary Pettegrew, claims counsel for Chevy Chase, Md.-based United Educators Insurance. "The validity of the underlying claim is irrelevant to the later retaliation claim, provided the employee honestly and, in good faith, believed the employer engaged in wrongdoing. And it is very difficult to prove that an employee's motive was anything less than honest."

How can an employer guard against retaliation claims? Tanenbaum has some suggestions.

* 1. Have a policy. "It should state that unlawful retaliation will not be tolerated," he says, "and contain internal reporting mechanisms similar to those in an unlawful harassment policy. Promise an investigation and an appropriate response."

* 2. Train. "Train managers on how to respond properly [to discrimination claims]," he says. "Employees should also receive training on the anti-retaliation policy."

* 3. Communicate. "Provide a complaining employee with an additional copy of the anti-retaliation policy, review it with the employee, then document that this action was taken," he says. Then, a few days later, contact the employee again to determine whether any indications of retaliation are being perceived.

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* 4. Investigate. "The investigation into the retaliation should be independent," he says. "This not only reassures the complaining employee, but it has a potential benefit for the employer: If it is determined that neither the underlying complaint nor the retaliation has validity, the employer can point to two separate investigators and investigations [in support of] that conclusion."

4. Employee Leave

The Pain of FMLA

For countless employees, the Family and Medical Leave Act of 1993 has been a godsend. But for employers, it's been a source of pain.

One of the biggest headaches has been in the area of the law dealing with "serious health conditions," says attorney Jeffrey Braff of Philadelphia's Cozen O'Connor. The FMLA mandates that employees receive up to 12 weeks of unpaid leave per year for the treatment of serious health conditions, but employers face severe restrictions in determining their validity.

"Employers can face a lot of difficulty in ascertaining the veracity of a health certificate presented by an employee, because the Department of Labor's regulations preclude direct contact with the health-care provider that issued the certificate," says Braff. "All the employer can do is inquire whether the provider filled out the form."

Employers may request a second opinion from another health-care provider at their own expense, but the provider can't be employed on a regular basis by the company.

Another headache has been in determining what constitutes a serious health condition that qualifies for FMLA leave. The law initially included serious medical conditions such as cancer treatment and heart disease, but court rulings since then have expanded the definition to include depression, peptic ulcers, migraine headaches, morning sickness and other conditions that are arguably less "serious." Courts have also ruled that a qualifying medical condition need not necessarily be "debilitating;" only that it interfere with a person's ability to perform one or more job functions.

Perhaps the biggest FMLA headache is the "intermittent leave" issue, which lets workers take time off in increments as small as several minutes in a day.

"Intermittent leave drives employers up the wall because it's often something they can't plan for," says Braff. "It's one thing if an employee needs to take every Friday afternoon off for chemotherapy treatment, but if an employee with diabetes announces she needs the day off because she's not feeling good, that can throw a wrench into things."

Employers are not without options for managing intermittent leave, however. According to the Kentucky Law Letter, published by Greenebaum, Doll & McDonald in Louisville, employers have the right to request that employees make a reasonable effort to schedule their treatments during times that interfere the least with the company's operations, provided treatment is available during those times. Employers may also transfer an employee to a position that would better accommodate her intermittent leave or to an alternate work schedule, although the employee's pay and benefits cannot be altered. Employers must also ensure the new job or work hours comply with FMLA regulations designed to ensure that companies don't make such changes to "punish" employees for taking leave.

Although the FMLA has proved frustrating for employers that suspect their workers may be abusing the law, Braff cautions that all things considered, it's best to err on the side of the employee.

"I tell my clients to get real and look at the big picture," he says. "The cost of granting FMLA leave is marginal, and the fact that it's unpaid serves as a disincentive for employees who want to abuse the system. It's usually not worth litigating."

5. Wage-and-Hour

Law's Effect Remains a Toss-Up

With different opinions circulating about the effect the new federal wage-and-hour law will have on employers, one thing employment-law and HR experts seem to agree on is the full impact remains to be seen.

Some believe the new regulations contained in the Fair Labor Standards Act -- which took effect August 2004 with the professed goal of clarifying the white-collar exempt status for executive, administrative and professional employees -- will quell the recent surge of overtime lawsuits, most of them class-action.

Indeed, the numbers are staggering: An estimated 3,400 class-action FLSA suits were filed in federal courts in the first half of 2004 alone, following a 70 percent rise in such cases between 2000 and 2003. (Final numbers for 2004 are not yet available.) With the new regulations, says U.S. Secretary of Labor Elaine L. Chao, "we expect the number of lawsuits to decline because workers won't have to go to court to get their overtime."

Such a decline may be a long time coming, especially as the new regulations will undoubtedly be used as proof of job misclassifications and back pay owed, says Tim Bartle, employment lawyer with the Washington firm of McGuiness, Norris & Williams. "But in the long run," he says, "these suits will diminish; the law will eventually make it clearer what the classifications should be."

Some aren't so sure. In an article entitled There's No Real Relief in Sight for the Flood of Wage-Hour Class Actions: How Employers Should Respond, authors Steven T. Catlett and Michael J. Gray, partners in the labor and employment practice at Jones Day in Chicago, write that "with a few exceptions, application of the classification rules still promises to be the grist for lawsuits since, with a few notable exceptions, such as employees earning more than $100,000 or assistant managers at retail establishments or restaurants . . . the new regulations do not establish bright-line tests for exemption." 

Nor, they contend, do the rules address a growing source of class-action claims -- nonexempt hourly employees who say they're forced to work off the clock, such as in call-center preparations or in safety equipment "donning and doffing." Cingular Wireless, for instance, recently agreed to pay more than $5.1 million in back wages over this issue in a settlement with the U.S. Department of Labor.

Thanks to this omission, and many others, says Michael J. Ossip, an employment lawyer with the Philadelphia firm of Morgan, Lewis & Bockius, "this problem is going to get much bigger and much worse before it gets any better, and, yes, this is something that could bring the house down."

"Bottom line," he says, "there's been some clarity, but I don't think it's going to dissuade litigation. In some cases, such as off-the-clock filings, you might even see an increase."

All experts agree the law should serve as a wake-up call to HR executives to, as Bartle says, "look at how jobs in the gray area are classified . . . immediately."

While many HR leaders are re-examining workforce classifications, few such efforts have been aggressive, Bartle adds.

The DOL's Wage and Hour Division should offer better guidance in revising classifications, particularly in the high-tech arena, he says.

"To comply, there has to be some give and take," he says.

"It's not a simple process, but it can be done."

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