How To Reduce Liability Risks When Discharging Employees

The best way to reduce the liability risks associated with firing employees is to make sure that you hire good employees. But, even employers who screen very carefully during the hiring process will find themselves from time to time with employees they do not wish to retain. Here are some important things to keep in mind when deciding to let somebody go:

1. Employment at will is a myth. Although California law provides that employment is at will in the absence of a contrary agreement (see Labor Code section 2922), the reality is that you cannot fire someone for no reason. Because of the way the burden of proof is allocated in a lawsuit, a discharged employee generally need only show that he or she was performing competently in order to put the burden on the employer to show a legitimate reason for the discharge. We explained this in more detail a couple of years ago in a post entitled Layoffs Mean Lawsuits. When you decide to discharge somebody, make sure that you can articulate a good reason for doing so.
2. Document the reason before you discharge the employee. You are at a trial where a former employee testifies that she was fired a week after she complained about sexual harassment. The vice president of the department where she worked testifies that she had to let her go because everybody agreed that she was the worst employee they had ever hired. Cross-examination goes like this. "Q: Can you show me a single piece of paper that ever criticized the employee's performance? A: No, we don't do things that way." Is there much doubt about how the jury will vote? 
3. Evaluate employees regularly and tell them how to improve. Another trial. Same type of retaliation claim. The director of human resources testifies that the employee was let go because she was ten minutes or more late for work five times in the first six months that she worked at the company. Cross-examination goes like this: "Q: Was the employee ever written up for being late? A: No. Q: After the employee started work, did you ever tell her that she could be fired for being late? A: No, it's in the policy posted on the employee bulletin board--five lates means you can be fired. Q: Did you ever go over the policy with her? A: No, that's her responsibility. Q: Did it matter to you that she was late the fifth time because her son came down with the flu? A: No. The policy is the policy." How much better the case would be for the company if (1) the policy were in an employee handbook that the employee acknowledged having reviewed in writing, (2) the first time she was late, the employee's supervisor sat down with her and explained the importance of the policy and asked whether there was a reason she could not get to work on time, (3) the second time she was late, there was further counseling and a note in her personnel file, (4) the third time, she received a written warning, and (5) the fourth time she got a written final warning that the next late would result in termination.
4. Consider a severance agreement. Instead of just letting the employee go, you could offer something extra in return for a release of all liability -- another few weeks of pay, a couple of months extension on medical benefits. With such an agreement, you have an ironclad defense to any lawsuit the employee might try to pursue. This will not work every time. Sometimes, offering a severance package will get the employee wondering whether he or she might have a valuable claim that is worth a lot more, leading him or her to consult an attorney and file a lawsuit.

Whistleblower Lawsuits

Last week, an employee whistle blower complaint was filed against individuals and organizations associated with the Lap-Band weight-loss device. Deuel v. 1 800 Get Thin, LLC, Case No. BC477064 (Jan. 17, 2012). A copy of the complaint is available here. This prompts a reminder that whistle blower, or retaliation, lawsuits pose difficult problems for employers.

There are two types of whistle blower lawsuits. In a qui tam action, the plaintiff seeks relief against the substantive wrongdoing on behalf of the government. The federal False Claims Act is an example. It allows a civil action by a private person on behalf of the government against a contractor who fraudulently bills the government. The successful plaintiff gets a portion of the recovery and attorney's fees. California has its own False Claims Act, which provides for similar relief. For an example of a successful such action, see "Quest Diagnostics settles Medi-Cal whistle-blower suit" in the L.A. Times.

The more common type of whistle blower lawsuit is where an employee calls attention to illegal activity, and then is subjected to adverse action by the employer. The anti-discrimination laws all contain provisions that prohibit retaliation against employees who complain about discrimination and harassment. See EEOC v. Go Daddy Software, Inc., 581 F.3d 951 (9th Cir. 2009) ($135,000 in lost earnings, $5,000 for emotional distress, and $250,000 in punitive damages for retaliation against employee who complained about discrimination); Wysinger v. Automobile Club of Southern California, 157 Cal.App.4th 413, 69 Cal.Rptr.3d 1 (2007) (jury awarded $204,000 in economic damages, $80,000 in noneconomic and $1 million in punitive damages for retaliation against employee who complained about age discrimination).

In some circumstances, employees may also pursue claims for retaliation based on other types of unlawful conduct by the employer. For example, the California Whistleblower Protection Act authorizes claims by state employees who are subjected to adverse action for complaining about waste, fraud, abuse of authority, violation of law, or threat to public health. The employee must first file an administrative charge with the designated state agency.

Labor Code section 1102.5 is the basis for an action by employees of private and public employers who can prove that their employer retaliated against them for providing information to a government or law enforcement agency, where the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation or noncompliance with a state or federal rule or regulation. This and other whistle blower statutes establish a public policy to protect whistle blowers, which may be invoked to support a claim for wrongful termination in violation of pubic policy. See Green v. Ralee Engineering Co., 19 Cal.4th 66, 960 P.2d 1046, 78 Cal.Rptr.2d 16 (1998).

When an employee has complained about activity that is protected by one of the statutes, the employer must be prepared to prove a legitimate reason for any adverse action that it takes against that employee. That is because a complaining employee can prove a prima facie case of retaliation by establishing the protected activity, adverse action, and that the adverse action followed closely on the protected activity. The establishment of a prima facie case puts the burden on the employer to prove that it had a legitimate reason for its actions.

Retaliation Claims Based On Co-Worker Harassment

Employers may not retaliate against employees who complain in good faith about conduct that they believe is unlawful. There are many cases where courts or juries have found conduct not harassing or discriminatory, but went on to find that an employee who complained about the conduct had been subjected to retaliation. Employers must be alert to this possibility so that they can take steps to limit liability for retaliation. There were previous posts to this blog about retaliation on 7/13/2008, 8/17/2008, 10/13/2008, 11/2/2008, 11/16/2008 and 2/1/2009.

One of the elements of a retaliation claim is proof that the employee was subjected to adverse employment action. When the employee has been fired, demoted or suspended, the element is easily proved. But, the federal and state courts have ruled that sufficiently severe and pervasive retaliatory harassment may also constitute adverse action. The concept involves two inquiries: (1) whether the conduct is sufficiently severe to constitute adverse action, and (2) whether the conduct may be imputed to the employer.

Ostracism (or a cold shoulder) is not enough to satisfy the severity element. Here are some examples of what may be enough:

• After he complained about harassment, a male employee's co-workers called him "snitch" and other offensive names, and told him he would be lucky if he did not get his ass beat after work. Kelley v. Conco Cos., 196 Cal.App.4th 191, 126 Cal.Rptr.3d 651 (2011).
• After she complained about harassment, a female employee was subjected to a steady stream of abuse, including false accusations of misconduct, taunting and false statements about how she was to conduct herself. Noviello v. City of Boston, 398 F.3d 76 (1st Cir. 2005).

For the employer to be responsible for retaliatory harassment, a supervisor or manager must either engage in the conduct or be aware of it and fail to take prompt and effective action.

In light of these principles, employers should take the following steps to limit the risk of liability for retaliatory harassment by co-workers:

1. Provide training to all employees at least annually on prevention of harassment in the workplace, including the requirement to refrain from retaliatory conduct.
2. When a complaint is received, separate the subject of the complaint from the complainant, and instruct the subject to have no contact with the complainant.
3. Monitor the complainant's work environment to assure that co-workers are not engaging in retaliatory harassment.

Layoffs Mean Lawsuits

An article in The New York Times on Saturday, January 31, reports on a trend that should come as no surprise -- Layoffs Herald a Heyday for Employee Lawsuits. While the article is concerned chiefly with WARN notification requirements, other statutes pose much greater liability risks for employers who have to let employees go because of difficult economic circumstances. We'll discuss WARN briefly, and then turn to the other statutes.

WARN

WARN is the Worker Adjustment and Retraining Notification Act, a federal statute that requires most employers with 100 or more employees to provide notification 60 calendar days in advance of plant closings and mass layoffs. Failure to comply with WARN makes the employer liable for the pay and benefits during the period of the violation up to 60 days. The court in an enforcement action may also award a prevailing plaintiff his or her attorney's fees. The United States Department of Labor has detailed information about WARN at this web page. California has its own WARN statute that applies to employers with 75 or more employees and defines the circumstances requiring notice somewhat differently. The California Employment Development Department compares the two statutes on this web page.

Wage and Hour Liability

A discharged employee can make easy extra money if his or her employer is not in compliance with the federal and state wage and hour laws. Misclassification of employees, failure to follow the overtime rules, not providing meal and rest periods, and other violations can easily lead to awards in the several thousands of dollars from the California Labor Commissioner. Read our 10 Tips for Avoiding Wage and Hour Violations to make sure that you are in compliance before you discharge any employees.

Discrimination Liability

That anti-discrimination statutes prohibit discrimination based on race, religion, color, national origin , ancestry, physical disability, mental disability, medical condition, marital status, sex, sexual identity, age, and sexual orientation. That means that every discharged employee has at least four characteristics that could form the basis for a discrimination claim.

Further, the prima facie case approach that applies to discrimination lawsuits makes it relatively easy for the plaintiff in a lawsuit to burden on the employer to justify the discharge. All the employee need show is showing (i) that she has a protected characteristic, (ii) that she was performing her job competently; (iii) that, despite her job performance she was discharged; and (iv) that the position remained open to qualified applicants after her discharge. If the employee makes that showing, the employer must prove that it had a legitimate reason for the discharge.

Retaliation Liability

Discharged employees may also file retaliation claims. We have explored the risks of such claims in two previous posts -- August 17, 2008 and November 16, 2008.

To establish a prima facie case of retaliation, the employee need only establish that he or she engaged in protected activity and was discharged, and that there was a causal link between the two. To establish the link, it is enough to show that the adverse action followed closely on the heels of the protected activity. Such a showing then places the burden on the employer to establish that it had a legitimate reason for the adverse employment action.

What Employers Should Do

The key to limiting the risk of liability is to put yourself in a position to be able to prove the legitimate reason for the discharge or layoff. That means if layoffs are necessary for financial reasons, you must be ready to show the financial difficulties and the reasons why those laid off were chosen.

If performance is the reason, follow this advice:

1. Make sure that each employee's personnel file includes a job description acknowledged by the employee. This will avoid disagreement over job duties if an issue arises about an employee's ability to continue working.
2. Develop a set of written performance expectations for each employee. This will avoid an employee's argument after being subjected to adverse employment action that he or she never understood what was expected.
3. Insist on honest annual performance evaluations. This will avoid an employee's argument that nobody ever told him or her that there were performance issues.
4. Document every communication with an employee about performance or misconduct, no matter how minor. This will avoid a possible argument that it never happened.

Retaliation Lawsuits Cost Millions

Yet another multi-million dollar verdict highlights the substantial stakes in retaliation lawsuits. In Donald Bender v. City of Los Angeles, Case No. BC361139 (Nov. 12, 2008), an LAPD officer claimed that he was demoted and kicked out of the department's canine bomb unit after standing up for the only woman in the unit. The LAPD's lawyers argued that the plaintiff had improperly stored dangerous equipment, was insubordinate, and had problems getting along with others in the unit. The jury agreed with the officer an awarded him $3.6 million.

The Los Angeles Times reported that another jury last year awarded over $1 million to a female LAPD detective who said she was demoted after complaining that her former boss promoted women in exchange for sexual favors. Ya-May Christle v. City of Los Angeles, Case No. BC351899 (Oct. 3, 2007). In another 2007 case, a police commander received a $650,000 settlement based on allegations that he was denied a promotion after clashing repeatedly with the police chief.

A previous post on this blog described steps employers should take to reduce the risk of liability for retaliation claims, which included (1) preparing job descriptions, (2) preparing performance expectations, (3) preparing regular performance evaluations, and (4) documenting performance problems. If you have not taken these steps, these recent retaliation cases should provide the motivation to do so.

Employment Cases on US Supreme Court Docket

The 2008-09 term of the United States Supreme Court will bring decisions in the following cases that involve employment law issues. We will report on the decisions themselves when they are handed down.

Locke v. Karass, Case No. 07-610. Question Presented: "In Ellis v. Railway Clerks, this Court unanimously “determined that the [Railway Labor Act], as informed by the First Amendment, prohibits the use of dissenters’ [union] fees for extraunit litigation.” Lehnert v. Ferris Faculty Ass’n, 500 U.S. 507, 528 (1991) (opinion of Blackmun, J., citing Ellis, 466 U.S. 435, 453 (1984)). In Lehnert, a four-member plurality therefore held “that the Amendment proscribes such assessments in the public sector.” Id. Moreover, Justice Scalia’s separate opinion, concurring in part in the judgment announced by Justice Blackmun, reasoned that “there is good reason to treat [Ellis and the Court’s other statutory cases] as merely reflecting the constitutional rule.” Id. at 555. May a State, nonetheless, consistent with the First and Fourteenth Amendments, condition continued public employment on the payment of agency fees for purposes of financing a monopoly bargaining agent’s affiliates’ litigation outside of a nonunion employee’s bargaining unit? Oral Argument: 10/06/2008. Merits Briefs

A unanimous Court answered "yes" in a decision issued on January 21, 2009. A local may charge for its national's litigation expenses so long as (1) the subject matter of the national litigation bears an appropriate relation to collective bargaining and (2) the arrangement is reciprocal—that is, the local’s payment to the national affiliate is for "services that may ultimately inure to thebenefit of the members of the local union by virtue of their membership in the parent organization."

Crawford v. Metro. Gov't of Nashville & Davidson County, Case No. 06-1595. Question Presented: "Does the anti-retaliation provision of section 704(a) of Title VII of the 1964 Civil Rights Act protect a worker from being dismissed because she cooperated with her employer's internal investigation of sexual harassment? Oral Argument: 10/08/2008. Merits Briefs

The Court answered "yes" in a decision issued on January 26, 2009. Justices Alito and Thomas concurred, but wrote separately to emphasize that the Court was not adopting a broad definition of "oppose" that might encompass non-purposive conduct.

AT&T Corp. v. Hulteen, Case No. 07-543. Questions Presented: "Before the passage of the Pregnancy Discrimination Act of 1978 (PDA), it was lawful to award less service credit for pregnancy leaves than for other temporary disability leaves. Gilbert v. Gen. Elec. Co., 429 U.S. 125 (1976). Accordingly, the questions presented are: 1. Whether an employer engages in a current violation of Title VII when, in making post-PDA eligibility determinations for pension and other benefits, the employer fails to restore service credit that female employees lost when they took pregnancy leaves under lawful pre-PDA leave policies. 2. Whether the Ninth Circuit’s finding of a current violation of Title VII in such circumstances gives impermissible retroactive effect to the PDA. Oral Argument: 12/10/2008. Merits Briefs

14 Penn Plaza LLC v. Pyett, Case No. 07-581. Question Presented: " Is an arbitration clause contained in a collective bargaining agreement, freely negotiated by a union and an employer, which clearly and unmistakably waives the union members’ right to a judicial forum for their statutory discrimination claims, enforceable?" Oral Argument: 12/01/2008. Merits Briefs

Resources for Following the Court

United States Supreme Court (official site)
FindLaw US Supreme Court Center
LII Supreme Court Collection
A-Z Merit Briefs for Supreme Court (from ABA)

Liability For Bullying And Microinequities

Over the past few years, workplace bullying and microinequities not obviously based on protected characteristics have received much attention. Although the California Workers' Compensation Act preempts civil lawsuits for such claims unless a recognized exception to preemption applies, such conduct can pose liability risks. Such matters have been the subject of law firm commentary and an entire website.

The Workers Compensation Act preempts claims by an employee against the employer or a fellow employee for any injuries (including emotional injuries) that arise out of the employment relationship, even if based on conduct that is "manifestly unfair, outrageous, harassment, or intended to cause emotional disturbance resulting in disability." See Cole v. Fair Oaks Fire Protection Dist., 43 Cal.3d 148 (1987).

The Act itself expressly exempts some injury claims from preemption, such as those resulting from a willful and unprovoked physical act of aggression of another employee (Labor Code section 3603(a)(1)) and from failure to install or removal of a guard on a power press (Labor Code section 4558). The courts have determined that claims based on other conduct may survive preemption if the conduct contravenes fundamental public policy or exceeds risks inherent in employment relationship. See Livitsanos v. Superior Court, 2 Cal.4th 744 (1992). The most important court-created exceptions are for claims under the anti-discrimination laws, and for wrongful termination in violation of public policy. See City of Moorpark v. Superior Court, 18 Cal.4th 1143 (1998) and Shoemaker v. Myers, 52 Cal.3d 1 (1990).

Although these principles would appear to severely limit liability, the reality is that the plethora of protected characteristics in the anti-discrimination laws and the multitude of public policies that can provide a basis for wrongful termination claims make almost any workplace unpleasantness a potential source of civil liability.

If an employee treats female employees unpleasantly, but is neutral to male employees, there may be a sexual harassment claim, even if the conduct is not expressly based on sex. See EEOC v. National Educ. Ass'n, Alaska, 422 F.3d 840 (9th Cir. 2005). An employee who appears equally abusive to all will create liability for an unlawful hostile environment by letting one epithet slip, even though a single epithet alone would not create liability. See Dee v. Vintage Petroleum, Inc., 106 Cal.App.4th 30 (2003) ("it is your Filipino understanding versus mine" created liability for harassment when combined with other abusive behavior).

To limit the risk of liability for hostile environment claims, the employer must intervene when an employee makes life unpleasant for other employees. Any such situation may turn into an unlawful harassment claim. Preventing unpleasant conduct will also make the workplace more comfortable for all, and promote employee productivity.

Retaliation Claims Lurk in Meritless Discrimination Lawsuits

Two recent verdicts from California Superior Court juries illustrate the risk of retaliation liability that arises in the wake of employee complaints about mistreatment. It is not uncommon for employers to prove that a discrimination, harassment or other employment claim lacks merit, only to be held liable because the complainant suffered adverse employment consequences after complaining. An employee who files a complaint in good faith (even if it turns out to be unfounded) is protected from retaliation.



Retaliation Verdicts

In one case, a state correctional officer claimed to have been discriminated against and harassed because of her sexual orientation and disability. She also alleged that her supervisors retaliated against her for complaining about their actions. The jury decided that the supervisors had not engaged in unlawful harassment or discrimination, but awarded the officer $800,000 on the retaliation claim, all for non-economic, that is, emotional distress damages. The court also awarded attorney fees of $442,400 and costs of $60,123. Mootz v. Department of Corrections and Rehabilitation, Case No. 05AS04214 (Sacramento Superior Court 3/27/2008).


In the second case, two sales persons alleged that they had complained to their employer about various wage and hour practices, and were terminated as a result. They recovered a combined verdict of $840,400. Boren v. Global Medical Mobile Diagnostics Inc., Case No. BC356430 (L.A. Superior Court 5/22/2008).



The Law

All employment laws prohibit employers from taking adverse employment action against employees for engaging in protected activity. Protected activity includes complaining about or opposing practices forbidden by the statutes and participating in investigations of prohibited conduct. Adverse employment action includes termination, failure to promote, punitive transfers and other actions that have a material impact on the terms and conditions of employment.



To establish a prima facie case, the employee need only establish that he or she engaged in protected activity and suffered adverse employment action, and that there was a link between the two. To establish the link, it is enough to show that the adverse action followed closely on the heels of the protected activity. Such a showing then places the burden on the employer to establish that it had a legitimate reason for the adverse employment action. If the employer provides evidence of a legitimate reason, the burden shifts to the employee to prove that the given reason was a pretext for retaliation.

A successful plaintiff in a retaliation case may recover any economic loss, damages for the emotional distress from experiencing retaliation, punitive damages (if the retaliation was egregious), and, under most employment statutes, attorneys fees.

What Employers Should Do

To navigate between the Scylla of a large damages award and the Charybdis of not taking action against a poor-performing employee who happens to have complained, employers must adopt good documentation practices. Such practices will prevent corrective measures from boomeranging and exposing the employer to liability.

1. Make sure that each employee's personnel file includes a job description acknowledged by the employee. This will avoid disagreement over job duties if an issue arises about an employee's ability to continue working.

2. Develop a set of written performance expectations for each employee. This will avoid an employee's argument after being subjected to adverse employment action that he or she never understood what was expected.

3. Insist on honest annual performance evaluations. This will avoid an employee's argument that nobody ever told him or her that there were performance issues.

4. Document every communication with an employee about performance or misconduct, no matter how minor. This will avoid a possible argument that it never happened.