Legal Clinic

Singled Out for Discipline

An employer that singles out one worker for discipline when the offense is one committed by others in the workforce leaves the organization open to liability under federal, state and local laws. The Legal Clinic this month also reviews whether companies can ban salary discussions by employees.

Monday, April 18, 2011
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Question: A supervisor has singled out one employee's time and attendance as improper although many other employees engage in the same practices and are not disciplined. The employee was placed on administrative leave while being investigated and will be terminated unless she admits guilt and agrees to be demoted. This is a common practice with the employer. Please explain what, if any, liability risks the company and supervisor may have for this practice.

Answer: Disciplining some employees but not others for the same or similar conduct leaves employers vulnerable to claims of discrimination and retaliation. In this situation, an employer may face liability risks under federal, state and local laws.

Additionally, singling out a certain employee for discipline while ignoring the same acts committed by other employees diminishes overall employee moral and conveys the dangerous message that management favors certain employees over others.

This message, in and of itself, is a liability risk for the company.

However, it can also contribute to additional liability if it influences other employees to target the disciplined employee for harassing treatment due in part to their perception that they will not be punished because the disciplined employee is already considered a persona non grata by management.

Employer Liability under Anti-Discrimination Statutes

Disciplining certain employees and not others who commit the same or similar conduct will likely be seen as unlawful discrimination and can result in liability under a range of anti-discrimination statues -- both federal and state -- including but not limited to Title VII, the Age Discrimination in Employment Act and the Americans with Disabilities Act.

Title VII prohibits covered employers from basing employment decisions on factors such as race, sex (including pregnancy), religion or national origin. 42 U.S.C. § 2000e et seq.

The ADEA prohibits discrimination in hiring, firing, compensation, assignment and promotion against persons who are age 40 and over. 29 U.S.C. §§ 623, 631.

Under the ADA, no covered entity may discriminate against a qualified individual with a disability because of the disability of such individual in regard to job-application procedures, the hiring, advancement, or discharge of employees, employee compensation, job training, and other terms, conditions and privileges of employment. See 42 U.S.C. §12101 et seq.

State anti-discrimination statutes mimic and often expand upon the protections offered by the federal statutes. See, e.g., Cal. Gov't Code § 12940(a) (California statute makes it an unlawful employment practice for an "employer, because of the race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, marital status, sex, age, or sexual orientation of any person, to refuse to hire or employ the person or ... to bar or to discharge the person from employment ? or to discriminate against the person in compensation or in terms, conditions, or privileges of employment.").

Potential Liability under Anti-Retaliation Statutes and Supervisor Liability

Engaging in the conduct described in the reader's question may also expose employers to liability under anti-retaliation or whistleblower provisions of federal and state employment laws that protect employees, who complain of an employer engaging in illegal activity, from retribution or retaliation in the workplace.

Additionally, Title VII and similar state laws prohibit employers from discriminating against employees on account of the employee's opposition to unlawful employment practices or because the employee made a charge, testified, assisted or participated in an investigation, proceeding or hearing under the statute. 42 U.S.C.A. § 2000e-3(a).

If the employee who has been disciplined has complained about prior discrimination in the past or is a whistleblower, subjecting him or her to discipline while ignoring the same conduct of other employees will likely expose the employer to substantial liability.

Further, the supervisor (in the reader's question) who has singled out the employee for discipline will not be immune from liability should the employee sue.

Some states allow supervisors to be held personally liable if they have been found to have aided and abetted in the discriminatory conduct. For example, under New York State Human Rights Law, an individual may be found liable pursuant to Section 296(6), where he has "aid[ed], abet[ted], incite[d], compel[ed] or coerce[d]" the doing of acts otherwise forbidden under the article. N.Y. State Exec. Law § 296(6).

Bottom line: Discipline, when administered should be done in a fair and nondiscriminatory fashion. The practice of disciplining certain employees while giving others passes for the same or similar conduct implies unfairness. Failure to correct this practice will leave the company open to allegations and potential findings of discrimination, harassment and retaliation.

Question: The company wants to add a clause to its employment contracts that restrict employees from discussing salary with each other. Can we legally do that?

Answer: No. A clause in an employment contract that restricts an employee from discussing salary with his or her colleagues is prohibited by the National Labor Relation Act. 29 U.S.C. § 151 et seq.

The NLRA's protections extend to cover employment relationships, even in the absence of a union, where employees are not covered by a collective-bargaining agreement and are not seeking to be represented by a labor organization. 29 U.S.C. § 152(2).

Most employees in the private sector are covered by the NLRA. Its provisions extend to all workers except for the following who are:

* Employed by federal, state, or local government;

* Employed as agricultural laborers;

* Employed in the domestic service of any person or family in a home;

* Employed by a parent or spouse;

* Employed as an independent contractor;

* Employed as a supervisor (supervisors who have been discriminated against for refusing to violate the NLRA may be covered);

* Employed by an employer subject to the Railway Labor Act, such as railroads and airlines; and

* Employed by any other person who is not an employer as defined in the NLRA.

National Labor Relations Board, Employee Rights, (last visited on April 12, 2011).

Section 7 of the NLRA protects employees who engage in concerted activity -- with or on the authority of other employees -- undertaken for the purpose of the employees' mutual aid or protection. 29 U.S.C. § 157.

The National Labor Relations Board has held that conversations about terms and conditions of employment, specifically wages and other forms of compensation, are for the purpose of employees' mutual aid and protection. See Wilson Trophy Co., 307 N.L.R.B. 509 (1992), enfd., 989 F.2d 1502 (8th Cir. 1993) (finding that a nonunion employee's conversations concerning wages to be concerted activity for mutual aid and protection); Jeannette Corp., 217 N.L.R.B. 653, (1975), enfd., 532 F.2d 916 (3d Cir. 1976). Section 8(a)(1) of the NLRA prohibits employees from interfering with, restraining or coercing employees with regard to the exercise of their Section 7 rights. 29 U.S.C. § 158(a)(1).

The NLRB website states:

The [NLRA] also protects employees' rights to act together, with or without a union, to improve working terms and conditions, including wages and benefits. These are known as protected concerted activities.

Some examples include:

* Two or more employees addressing their employer about improving their working conditions and pay;

* Two or more employees discussing pay or other work-related issues with each other.

National Labor Relations Board, Employee Rights, supra. (emphasis added).

The NLRB has recently interpreted § 8(a)(1) to reach a variety of employer policies on confidentiality and communications in the workplace. Although these decisions do not discuss provisions in employment contracts, it is safe to assume that the same reasoning would apply in both situations.

The NLRB has stated that it will find that an employee-handbook policy "violates Section 8(a)(1) when it ... reasonably tends to chill employees in the exercise of their Section 7 rights." Martin Luther Mem'l Home, Inc., 343 N.L.R.B. No. 646, 646 (2004) (citation omitted).

If the rule "explicitly restricts activities protected by Section 7," the NLRB "will find the rule unlawful. If the rule does not explicitly restrict activity protected by Section 7, the violation is dependent upon a showing of one of the following: (1) employees would reasonably construe the language to prohibit Section 7 activity; (2) the rule was promulgated in response to union activity; or (3) the rule has been applied to restrict the exercise of Section 7 rights." Id. (emphasis in original).

In Cintas Corp., 344 N.L.R.B. 943, 943 (2005), the NLRB held that the employer violated § 8(a)(1) by maintaining a confidentiality rule in its employee "reference guide" that provided "[w]e recognize and protect the confidentiality of any information concerning the company, its business plans, its [employees], new business efforts, customers, accounting and financial matters" because the "unqualified prohibition of the release of 'any information' regarding 'its [employees]' could be reasonably construed by employees to restrict discussion of wages and other terms and conditions of employment with their fellow employees and with the Union."

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In Double Eagle Hotel & Casino v. NLRB, 414 F.3d 1249 (10th Cir. 2005), the 10th Circuit granted enforcement of the NLRB's order finding that a casino violated § 8(a)(1) of the NLRA by maintaining handbook policies prohibiting the communication of certain "confidential information" and the discussion of working conditions around customers.

The employee handbook defined "confidential information" to include salary information, salary grade and types of pay increases, and prohibited the sharing of this information outside an employee's department without "a valid need to know" or the unapproved communication of this information to non-employees. Id. at 1259.

The 10th Circuit affirmed the NLRB's ruling that these rules violated NLRA § 8(a)(1) because the confidentiality provision covered salary, salary grade and pay increase information, and because employees "could reasonably interpret [the communication rule] to prevent discussion of salary information ... ." Id. at 1260.

In addition to the NLRA, California law prohibits employers from (i) requiring any employee to refrain from disclosing the amount of his or her wages as a condition of employment; (ii) requiring an employee to sign a waiver of the right to disclose his or her wages; (iii) discharging, formally disciplining or otherwise discriminating against an employee who discloses his or her wages. Cal. Lab. Code § 232.

In Grant-Burton v. Covenant Care, Inc., 99 Cal. App. 4th 1361 (Cal. Ct. App. 2002), a California appellate court held that an employee could maintain an action for wrongful discharge in violation of public policy where she was terminated for discussing the employer's bonus system with co-workers.

California employers should note that state law is more expansive than the federal statute. While federal law exempts workers designated as supervisors from its protection, California law contains no similar provision. Therefore, employers should not prohibit any employee from discussing salary information.

While employers may rebut the presumption that workplace polices that treat salary information as confidential are unlawful by showing a substantial and legitimate business justification for the policy (Int'l Bus. Machs. Corp., 265 N.L.R.B. 638 (1982)), the NLRB is unlikely to find that a desire to prevent dissension, division and dissatisfaction among employees arising from disparate salaries is sufficient to satisfy that burden.

For example, in Coosa Valley Convalescent Center, the NLRB held that preventing dissension among employees who earned different salaries is insufficient to uphold a wage-discussion policy. 224 N.L.R.B. 1288 (1976).

See also Jeannette Corp., 217 N.L.R.B. 653 (limiting jealousies and strife among employees is an unacceptable justification for a company's rule prohibiting wage discussions among employees).

On the other hand, the NLRB has found the existence of a substantial justification where an employer's wage information nondisclosure rule does not preclude employees from discussing their wage rates with one another or from attempting to determine what other employees earned but merely prohibits employees from distributing wage information, such as a wage-data compilation, that the company has compiled for its own internal use.

See Int'l Bus. Machs. Corp., 265 N.L.R.B. 638 (upholding confidentiality policy that did not prohibit wage discussions among employees where the employer stated that the basis for the policy was to attract, motivate and retain employees by allowing supervisors to reward them for good performance without creating dissatisfaction among co-workers, to inhibit competitors from stealing employees and to reduce resistance to transfers).

While there are obvious reasons why an employer may want to dissuade employees from discussing compensation, because the liability risks are so great, employers should err on the side of not prohibiting or even attempting to prohibit such discussions.

Practically speaking, transparency is often the best policy for anything related to compensation.

Therefore, being open about salary structure and the factors that are considered in determining salaries will result usually in the demystification salaries and, thereby, reduce employee interest in discussing the subject altogether.

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

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