Review. Employment Law. ReedSmith

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1 May 2006 Volume VII, Number 1 Employment Law Review In This Issue: Understanding Sarbanes-Oxley Whistleblower Actions Page 2 The People Behind Our Business Page 3 The Wild, Wild West: California Law Two Laws Prohibiting Discriminatory Violence and Intimidation Available in Employment Cases Page 5 Amendments to CA Labor Code by Assembly Bill 1093 Page 5 Another Side of the Atlantic: European Law Final UK Age Discrimination Regs Page 9 A Significant Relaxation of French Redundancy Laws Page 9 A German Perspective: The Impact of the Newly Elected Grand Coalition on Labour Matters Page 11 New TUPE Regulations Published Page 12 Why Business Owners Need to Worry About Workplace Harassment Page 13 Recent Reed Smith Publications Page 15 Protection and Remedies for NJ Whistleblowers Enhanced Through Recent Statutory Amendments Page 16 NJ District Court Rules Against Airline in Passenger-Removal Litigation Page 18 NEW YORK LONDON LOS ANGELES PARIS SAN FRANCISCO WASHINGTON, D.C. PHILADELPHIA PITTSBURGH OAKLAND MUNICH PRINCETON NORTHERN VA WILMINGTON NEWARK MIDLANDS, U.K. CENTURY CITY RICHMOND r e e d s m i t h. c o m New Jersey Appellate Court Imposes Legal Duty Upon Employers to Investigate and Report Employees Who Access Child Pornography on Work Computers In a case of first impression, the New Jersey Appellate Division recently held that an employer has an affirmative duty to investigate when it knows or has reason to know that an employee is using a workplace computer to access pornography and to take prompt remedial action, including contacting law enforcement, if the employee has violated child pornography laws. Doe v. XYC Corp., 887 A (N.J. Super. Ct. App. Div. December 27, 2005), involved a company accountant who used his work computer to repeatedly view various pornographic websites, including child pornography pages, and to transmit explicit pictures of his ten-year old step-daughter over the internet. Company officials received several complaints from the accountant s co-workers and supervisors that the accountant was viewing pornography on his computer. However, despite this knowledge, the company failed to conduct a thorough investigation or appropriately discipline the employee. Rather, the company performed a cursory review of some of the websites accessed by the accountant without fully analyzing the specific content of the pages. Moreover, despite uncovering evidence suggesting that the employee may have been accessing child pornography, the company only issued him a mild rebuke. Upon her later discovery of the transmitted photos of her daughter, the girl s mother sued the employer, claiming, inter alia, that her daughter suffered severe and permanent harm because the employer negligently failed to report the employee s unlawful conduct to the police. After finding that the employer had actual or constructive notice that the employee was accessing child pornography, the court concluded that company officials had a legal duty to investigate and report any potentially criminal wrongdoing to the proper authorities, and to stop the employee s illegal activities by instituting internal controls or possibly discharging him. In so holding, the court noted that the company had both the capability to monitor its employees Internet activity and written Internet/ policies that erased any legitimate expectation of privacy that the employee may have had in his computer usage. The company failed, however, to effectively implement the procedures set forth in its own policies. Although the Appellate Division s holding is amorphous as to precisely when an employer s duty to investigate is triggered, once an employer has (continued on page 17)

2 Understanding Sarbanes-Oxley Whistleblower Actions The authors of the whistleblower section, Senators Grassly and Leahy, sought to deter retaliatory conduct by subjecting individuals who perpetrate such acts to substantial civil and criminal penalties, including prison sentences of up to 10 years and substantial monetary fines. On July 30, 2002, President Bush signed the Sarbanes Oxley Act ( SOX or the Act ) into law, hoping to restore investor confidence in struggling financial markets declining, in part, as a result of the highly publicized corporate financial scandals at companies such as Enron and Adelphia. Primarily, SOX reforms the oversight of corporate accounting practices and addresses a range of corporate accountability issues. Additionally, the legislative history of the statute evinces Congress intent to close loopholes in existing state and federal laws that provide protection for whistleblowers. See 148 Cong. Rec. S , 107 th Cong., 2d Session (2002). The authors of the whistleblower section, Senators Grassly and Leahy, sought to deter retaliatory conduct by subjecting individuals who perpetrate such acts to substantial civil and criminal penalties, including prison sentences of up to 10 years and substantial monetary fines. Id. Section 806 of SOX, codified at 18 U.S.C. 1514A, prohibits publicly traded companies from discriminating or retaliating against employees who lawfully provide information to or assist an investigation of conduct that they reasonably believe constitutes a violation of securities law or any federal law relating to shareholder fraud. See 18 U.S.C. 1514A(a)(1). To fall within the protection of the statute, the employee s acts must be lawful and the information must be provided to a federal regulatory or law enforcement agency, a member of Congress, or, significantly, a person with supervisory authority over the employee. Id. The law also protects employees who file, testify or participate in, or otherwise assist, government proceedings involving such laws. See 18 U.S.C. 1514A(a)(2). Generally, the relief available to a successful claimant is make whole-type remedies, including reinstatement, economic reinstatement, back pay with interest, promotion, bonuses, and litigation costs, including reasonable attorney s fees. See 18 U.S.C. 1514A(c)(2)(A). Further, civil remedies are not the only protection provided to whistleblowers. Anyone who knowingly retaliates against an individual for providing truthful information to a law enforcement officer relating to the commission or possible commission of a federal offense can be subject to criminal sanctions. See 18 U.S.C. 1513(e). SOX expressly covers publicly traded companies and their officers, employees, contractors, subcontractors and agents. See 18 U.S.C. 1514A; 29 C.F.R , Although there are contradictory administrative law judge (ALJ) decisions on the issue, the trend suggests that non-publicly traded subsidiaries of publicly traded companies may face liability under SOX. See Grant v. Dominion East Ohio Gas, 2004 SOX 63, 33 (ALJ Mar. 10, 2005). Cases that have held non-publicly traded subsidiaries liable have focused on the following factors in reaching their determination: (1) interrelation of operations, (2) common management, (3) centralized control of labor relations, and (4) common ownership. See e.g. McIntyre v. Merrill Lynch, 2003 SOX 23 (ARB July 27, 2005). Initially, to be considered timely, complaints under SOX must be filed within ninety (90) days of the alleged violation; that is, when the discriminatory decision has been both made and communicated to the employee. See 29 C.F.R (d). For example, when an employee learns 2

3 Employment Law Review that his or her employment will be terminated in the future, the clock begins running on the date the employee is notified of that decision, not the date of termination. See 29 C.F.R (d). Within the Department of Labor, the Occupational Safety and Health Administration (OSHA) is responsible for receiving and investigating SOX complaints in accordance with the enforcement scheme established by the Act. However, if OSHA fails to adhere to certain time restrictions, the complainant may remove the case to federal district court. See Hanna v. WCI Cmtys., Inc., 348 F.Supp.2d (S.D. Fla. 2004). To establish a violation of Section 806 of SOX, the complainant must establish by a preponderance of the evidence that: the complainant engaged in protected activity as defined by the Act; his employer was aware of the protected activity; the complainant suffered an adverse employment action; and the circumstances are sufficient to raise an inference that the protected activity was likely a contributing factor in the unfavorable action. See 29 C.F.R (b), (a). If a claimant establishes these elements, a respondent employer may still avoid liability by presenting clear and convincing evidence that it would have pursued the same unfavorable personnel action absent any participation in protected activities. See 29 C.F.R (a). Activity protected by SOX includes legally providing information to a federal regulatory or law enforcement agency, a member of Congress, or a person with supervisory authority over the employee. Id. The law also protects employees who file, testify or participate in, or otherwise assist, government proceedings involving such laws. See 18 U.S.C. 1514A(a). Further, by its terms, SOX only protects an employee who reasonably believes that the information reported constituted a violation of the federal mail, wire, bank or securities fraud statutes; any SEC rule or regulation; or any other federal law relating to fraud against shareholders. See Lerbs v. Buca Di Beppo, 2004 SOX 8 (ALJ Sept. 9, 2004). Notably, the complainant does not have to prove an actual violation of the law, only a reasonable belief that a violation occurred. See Halloum v. Intel Corp., 2003 SOX 7 (ARB Jan. 31, 2006). Consequently, the complainant s belief is scrutinized under both a subjective and an objective standard; i.e., the complainant must have actually believed the employer was in violation of the law and that belief must have been reasonable. For purposes of SOX cases, reasonableness is determined on the basis of the knowledge available to a reasonable person in the context of the (continued on page 4) The People Behind Our Business Joel S. Barras is an associate in the Labor & Employment Group, where his practice consists primarily of managementside public and private sector labor law, including collective bargaining, interest and grievance arbitration, and employment-related litigation. Joel provides legal guidance and counseling to municipalities on matters relating to the Policemen and Firemen Collective Bargaining Act (Act 111), the Police Pension Fund Act (Act 600), the Public Employee Relations Act (Act 195), the Police Tenure Act, the Borough Code, the First and Second Class Township Codes, and Local Agency Law, as well as other areas of law relating to municipal affairs and administration. Joel is a 2000 graduate of Vassar College, earning a B.A. in Political Science. In 2003, he earned his J.D., cum laude, from Boston University School of Law. While in law school, Joel was awarded two Dean s Awards, presented to the student receiving the highest grade in a course. Also while attending Boston University, Joel served as a student-attorney with its Civil Litigation Clinic, where he defended indigent clients in employment and social security disability matters. In addition, in 2003, Joel received a Master s in Mass Communication from Boston University College of Communication. Following law school, Joel served as assistant counsel for the Pennsylvania Labor Relations Board. He is admitted to practice in Pennsylvania and New Jersey. 3

4 Understanding Sarbanes-Oxley Whistleblower Actions continued from page 3 To satisfy the final element of his or her prima facie case, a complainant must establish, by a preponderance of the evidence, that the participation in protected activity was a contributing factor to the challenged adverse action. complainant s training and experience and is examined in light of the totality of the circumstances. See Lerbs. To establish that the employer knew of the protected activity, the complainant must prove, again by a preponderance of the evidence, that the employer had actual or constructive knowledge of the protected activity. 29 C.F.R (b)(1). Legally, constructive knowledge is defined as knowledge that one using reasonable care or diligence should have. Black s Law Dictionary 314 (6 th ed. 1990) Section 806(a) of SOX expressly prohibits retaliation in the form of discharge, demotion, suspension, threats, harassment or any other discrimination against an employee in the terms and conditions of employment. In defining the more ambiguous of the identified terms, some ALJs and courts have looked to decisions under other whistleblower statutes and Title VII cases. To satisfy the final element of his or her prima facie case, a complainant must establish, by a preponderance of the evidence, that the participation in protected activity was a contributing factor to the challenged adverse action. See 18 U.S.C. 1514A(b)(2). Critically, this is a far less arduous standard to satisfy than Title VII s requirement that the membership in a protected class be a substantial factor in the adverse employment action. Courts and ALJs have interpreted the phrase contributing factor to mean any factor, which alone or in connection with other factors, tends to affect in any way the outcome of the decision. This test is specifically intended to overrule existing case law interpreting other whistleblower statutes, which requires a whistleblower to prove that his or her protected conduct was a significant, motivating, substantial or predominant factor in a personnel action in order to establish a sufficient nexus between the protected activity and the adverse action. See Grant at , citing, Marano v. Department of Justice, 2 F.3d 1137 (Fed. Cir. 1993). If a complainant establishes the requisite elements by a preponderance of the evidence, the burden then shifts to an accused employer or individual to establish by clear and convincing evidence that it would have taken the same unfavorable personnel action in the absence of any protected behavior. See 29 C.F.R The employer, therefore, must establish some non-discriminatory reason for taking the adverse employment action against the employee, such as poor work performance, violation of the employer s policies and procedures, or even lay-offs. Clear and convincing evidence is somewhat nebulously defined as more than a preponderance of the evidence, but less than beyond a reasonable doubt. To date, the number of SOX complaints has been relatively small, but they have been growing as knowledge of the retaliatory provisions spreads. It is likely that the number of complaints will continue to increase, and unaware employers could be hit with significant awards, causing not only financial damage, but also significant harm to their company s reputation. Joel S. Barras Philadelphia Office 4

5 Employment Law Review Two California Laws Prohibiting Discriminatory Violence and Intimidation in General are Available in Employment Cases According to Court of Appeal On February 27, 2006, in Stamps v. Superior Court, 39 Cal.Rptr.3d 706 (2006), the California Court of Appeal addressed two issues that have been of interest since at least the California Supreme Court s decision in Rojo v. Kliger, 52 Cal.3d 65 (1990), more than a decade ago. In Rojo, the Supreme Court decided that California s Unruh Civil Rights Act has no application to employment-related cases and, therefore, that employmentrelated lawsuits cannot be based on alleged violations of California Civil Code section 51(b), which is part of the Unruh Civil Rights Act. Section 51(b) provides that all persons within the jurisdiction of this state are free and equal, and no matter what their sex, race, color, religion, ancestry, national origin, disability, medical condition, marital status, or sexual orientation are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever. However, Rojo left undecided the issue of what else should be considered part of the Unruh Civil Rights Act and, thus, also left undecided the issue of the applicability in employment-related lawsuits of some of section 51(b) s neighbors, specifically California Civil Code sections 51.7 and After years of uncertainty regarding these issues, Stamps addressed both of them, holding that the Unruh Civil Rights Act consists solely of section 51 and that sections 51.7 and 52.1 may be the basis for employment-related claims. These issues came to a head when Robert Stamps brought employmentrelated claims against his former employer and former supervisor based on, among other things, sections 51.7 and 52.1, which are also known as the Ralph Civil Rights Act and Tom Bane Civil Rights Act, respectively. Section 51.7 provides, in pertinent part, that All persons within the jurisdiction of this state have the right to be free from any violence, or intimidation by threat of violence, committed against their persons or property because of their race, color, religion, ancestry, national origin, political affiliation, sex, sexual orientation, age, disability, or position in a labor dispute. Section 52.1 prohibits interference by threats, intimidation, or coercion, or attempted interference by threats, intimidation, or coercion, with the exercise or enjoyment by any individual or individuals of rights secured by the Constitution or laws of the United States, or of the rights secured by the Constitution or laws of this state. following an on-the-job injury that resulted in the amputation of several of his toes. Stamps, an African American, alleged that he was subjected to retaliation, violence, and intimidation by threats of violence. He also alleged that his former supervisor verbally harassed him with racist remarks, yelled at him in an intimidating manner, threatened physical violence, and generally placed him in unsafe working situations without proper equipment or training, all because of his race. Stamps former employer and supervisor challenged Stamps complaint, arguing that Stamps attempt to sue based on sections 51.7 and 52.1 failed because sections 51.7 and 52.1 are part of the Unruh Civil Rights Act, which the California Supreme Court held in Rojo does not apply to employment cases. The trial court Stamps sued after allegedly being discharged from his job as a mine worker (continued on page 6) Amendments to California Labor Code by Assembly Bill 1093 Assembly Bill 1093 took effect on January 1, 2006 and resulted in two significant amendments to the California Labor Code. The first amendment makes it easier for employers to pay final wages to employees. The second amendment resolves a conflict between federal and state law concerning the computer professional exemption to overtime laws. Depositing Final Wages Into Accounts of Resigning or Terminated Employees AB 1093 harmonized an employer s ability to directly deposit wages into an employee s bank account with the employer s obligation to promptly pay all wages owed to employees who have resigned or been terminated. Section 213 of the Labor Code previously gave an employer the ability to directly deposit an employee s wages into his or her bank account. The employer simply needed the employee s voluntary authorization to do so. Oddly, that authorization automatically and immediately terminated if the employee quit or was terminated. In such situations, the employer could not directly deposit the employee s final paycheck into his or her bank ac- (continued on page 7) 5

6 California Laws Prohibiting Discriminatory Violence and Intimidation continued from page 5 In a sense, Stamps offers something for employees and employers alike. For employees it offers the right to bring employmentrelated claims for violations of sections 51.7 and For employers, it offers the consolation that Rojo s rule, to the effect that employment-related claims cannot be brought under the Unruh Civil Rights Act, remains intact. agreed and ruled in favor of the former employer and supervisor, and the issues were brought before the Court of Appeal by way of a writ petition. The Court of Appeal ruled in favor of Stamps. In reaching its decision, the Court of Appeal reviewed the statutory language, legislative history, and case law relevant to the issue of the relationship between sections 51.7, 52.1, and the Unruh Civil Rights Act. The court concluded that, although the courts generally have done a poor job of describing the various components of the Unruh [Civil Rights] Act, there is no support for the notion that sections 51.7 and 52.1 are part of the Unruh Civil Rights Act. In fact, the Stamps court held that the Unruh Civil Rights Act consists solely of section 51. From here, the court went on to analyze the Rojo decision and found that it had nothing to do with sections 51.7 and Thus, the Stamps court held that Rojo does not bar employment-related claims based on sections 51.7 and Finally, the Stamps court considered whether the language or legislative history of sections 51.7 and 52.1 might bar employment-related claims based thereon. In this regard, the court concluded that: [N]othing in either the language of sections 51.7 and 52.1 or in their history expresses a legislative intent to exclude employment discrimination or other employment cases from their ambit. On the contrary, given the need for employees to be protected from the conduct condemned by the Ralph Civil Rights Act of 1976 and the Tom Bane Civil Rights Act, [such] limitations would do serious disservice to the effectiveness of this legislation. Accordingly, the Court of Appeal granted Stamps petition for a writ of mandate and ordered the trial court to allow Stamps to proceed with his claim for violations of sections 51.7 and In a sense, Stamps offers something for employees and employers alike. For employees it offers the right to bring employment-related claims for violations of sections 51.7 and For employers, it offers the consolation that Rojo s rule, to the effect that employment-related claims cannot be brought under the Unruh Civil Rights Act, remains intact. Stamps also introduces clarity to an area of the law that was anything but clear, and that should be a benefit to all going forward. Douglas H. Riegelhuth San Francisco Office 6

7 Employment Law Review Amendments to California Labor Code by Assembly Bill 1093 continued from page 5 count even if that was what he or she preferred. AB 1093 amended Section 213 to allow an employer to direct deposit final wages into an employee s account. The employee s authorization to do so remains intact after his or her resignation or termination. However, the employer must still comply with the other provisions of the California Labor Code concerning the payment of final wages. Specifically, the employer must still immediately pay all wages owed, including accrued but unused vacation, to a terminated employee under Section 201 and must still pay such wages to a quitting employee within 72 hours of his or her resignation under Section 202. Exempt Computer Software Professionals May Be Paid an Annual Salary A computer software professional must be compensated on a salary basis, i.e., the employee must receive an annual salary, in order to be considered an exempt employee under the federal Fair Labor Standards Act. In contrast, prior California law required that the professional receive a specific hourly rate in order qualify as an exempt employee. The contradiction between salary and hourly pay confused many employers. AB 1093 resolved the confusion by amending Section of the Labor Code to make it clear that the computer professional may be paid either a specific minimum hourly rate or the annualized full-time salary equivalent of that rate. Accordingly, California employers may now specifically characterize the compensation of their computer professionals as an annual salary. AB 1093 also clarifies an ambiguity resulting from the California Wage Orders as it pertains to computer professionals. The Wage Orders profes- sional exemption allowed employers to classify professional employees as exempt if, among other things, the employees received a minimum annual salary of $28,080. Many employers paid that salary to their computer professionals and classified them as exempt under the FLSA s salary basis requirement. AB 1093 now makes it clear that, under California law, the professional must receive, in any week that he or she works, the equivalent of the minimum specified hourly rate under Section for every hour worked. The hourly rate for 2006 is $47.81, the annualized equivalent of which is $99, Accordingly, employers can no longer rely on the professional exemption, without more, to classify their computer professionals as exempt. Importantly, the class of employees covered by Section is limited. In order to fall within that exemp- (continued on page 8) Would You Like to Receive Future Issues of Employment Law Review by ? We would be happy to send Employment Law Review to you as an Adobe Acrobat file. Please provide your and any mailing address updates below, and send the information to Rex Fontenot by mail, phone, fax or . Rex T. Fontenot Reed Smith LLP 355 South Grand Avenue Suite 2900 Los Angeles, CA Phone: Fax: rfontenot@reedsmith.com Name Company Title Address City State Zip/Postal Code Phone 7

8 Amendments to California Labor Code by Assembly Bill 1093 continued from page 7 Employers attempting to classify their computer professionals as exempt under Section or under the professional exemption of the Wage Orders should carefully review each employee s compensation and actual duties performed in order to ensure that they are complying with the applicable provisions of the Labor Code or California Wage Orders. tion, certain other requirements of the statute must also be met, specifically, the following: The employee must spend more than 50 percent of his or her time on work that is intellectual or creative, and which requires the exercise of discretion and independent judgment; The employee must also spend more than 50 percent of his or her time performing duties that consist of one or more of the following: Application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional application; Design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; and/or Documentation, testing, creation or modification of computer programs related to the design of software or hardware for computers operating systems; and The employee must be highly skilled and proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming and software engineering. Employers attempting to classify their computer professionals as exempt under Section or under the professional exemption of the Wage Orders should carefully review each employee s compensation and actual duties performed in order to ensure that they are complying with the applicable provisions of the Labor Code or California Wage Orders. Hardy R. Murphy Los Angeles Office 8

9 Employment Law Review Employment Alert: Final UK Age Discrimination Regulations The final draft of the Employment Equality (Age) Regulations 2006 was published by the UK Government on 9 March. The legislation will come into effect on 1 October 2006 when it will become unlawful to discriminate against someone in the UK on the grounds of his or her age. The legislation will apply to all employers, regardless of size, and affects people of all ages. Types of Discrimination There will be five types of unlawful discrimination, which are as follows: Direct Discrimination, which occurs where a person is treated less favourably than another on the grounds of that person s actual or perceived age, unless that treatment can be justified as a proportionate means of achieving a legitimate aim. Indirect Discrimination will occur when a criterion or practice is applied which puts a person of a particular age group at a disadvantage and a person of that age group suffers a disadvantage, unless it can be shown that that criterion or practice is a proportionate means of achieving a legitimate aim. Victimisation occurs when a person is treated less favourably because they have sought to rely on their rights under the regulations or have assisted another person to rely on those rights. Harassment, which occurs when conduct relating to a person s age has the purpose or effect of violating that person s dignity or creating an offensive environment for that person. It will also be unlawful to treat somebody less favourably for failing to carry out instructions to discriminate against a third person on the grounds of age or for complaining about receipt of such instructions. Justification Unlike other discrimination legislation in the UK, it will be possible to defend a claim of both direct and indirect age discrimination on the grounds that the treatment is objectively justified. In order to justify such discrimination, an employer will have to show that the treatment or criterion is a proportionate means of achieving a legitimate aim. Previous drafts of the regulations included a number of examples of justification. However, these have been removed from the final draft and the notes accompanying the regulations give no guidance on what may or may not constitute justification. Although further guidance is to be expected on this point, the Government A Significant Relaxation of French Redundancy Laws clearly intends that the courts and tribunals will work out what constitutes lawful justification based on an assessment on the facts of individual cases. It should be noted, however, that previous guidance on this subject has made it clear that it will be very difficult to justify direct discrimination on the grounds of age. Extent of Application The regulations will apply to all aspects of the employment relationship and to contract workers and office holders (i.e., non-executive directors). The regulations also apply to partnerships and limited liability partnerships, and it should be noted that the default retirement age (see below) of 65 does not apply to partnerships, meaning that partners or members who are forced to retire at a certain age may claim that this is unlawful (continued on page 10) Two recent decisions of the French Cour de Cassation (France s highest Civil Court) have made significant inroads towards liberalizing French redundancy law. Up until now, French law (both Labour Code and French case law) provided that redundancies can only be lawful where an employer is able to demonstrate that they resulted from economic difficulties that existed at the time when the proposed redundancies were notified to employees. However, in two separate decisions of the Cour de Cassation (both announced on 11 January 2006), it was decided that redundancies will be lawful if an employer is able to show that they were necessary, in order to prevent economic difficulties arising in the future. These decisions allow employers to respond to economic changes and reorganise their businesses to prevent financial difficulties from becoming a reality. When combined with a piece of French legislation passed in 2005, requiring employers to be increasingly forward-looking in the management of their work force, these decisions give increased flexibility to those currently doing business in France and those seeking to do so. Séverine Martel Paris Office 9

10 Employment Alert: Final UK Age Discrimination Regulations continued from page 9 It should be noted that the previous draft of the regulations included an exception for workrelated invalidity benefit schemes (i.e., company sick pay arrangements and permanent health insurance). This has been removed. discrimination on the grounds of their age. Exceptions As far as recruitment is concerned, there are a couple of notable exceptions when it may be legitimate to discriminate on the grounds of age. The first is when there is a genuine occupational requirement for someone to be of a particular age or perceived age for a particular position. It is unlikely that there will be many instances when this will be the case, however. The other concerns job applicants who are older than the employer s retirement age (or 65), or who would reach the employer s retirement age (or 65) within six months of the date of the application. Such applicants are excluded from protection against discrimination (i.e., the employer may refuse to employ them on the grounds of their age). There are a number of other specific exceptions under the Regulations, the principal ones being as follows: An exception for positive action, which allows an employer to provide access for people of a particular age or age group to facilities or training, or to encourage them to take advantage of opportunities to do particular work if such actions prevent or compensate for disadvantages that such persons would otherwise suffer linked to their age. An exception for retirement, which allows employers to dismiss, on the grounds of retirement, employees who are over the age of 65 or, if the employer has objectively justified it, the employer s lower normal retirement age. The regulations also remove the upper age limit of 65 for unfair dismissal claims and provide that retirement is to be the sixth fair reason for dismissal. An exception for the provision of benefits based on length of service. Essentially, all length of service criteria for benefits are excepted unless the disadvantaged employee has more than five years service. In that case, the employer must show that the length of service requirement fulfils a business need of the undertaking, and the regulations give, as examples, the encouragement of loyalty or motivation or rewarding the experience of some or all workers. This makes it easier than anticipated to justify such practices. An exception for the provision of enhanced redundancy payments to employees, which means that it will not be unlawful to provide enhanced redundancy payments that are calculated on the basis of age and/or length of service. An exception for the provision of life assurance cover to workers who have retired early on the grounds of ill health. This is intended to allow employers to end life assurance cover for employees who have continued to benefit from such cover after early retirement on ill-health grounds when they reach the age at which they would otherwise have retired. It should be noted that the previous draft of the regulations included an exception for work-related invalidity benefit schemes (i.e., company sick pay arrangements and permanent health insurance). This has been removed. Duty to Consider Procedure The regulations also include a mechanism whereby employees may request 10

11 Employment Law Review that their employer does not force them to retire. If an employer fails to comply with the procedural requirements for dealing with retirement dismissals (and requests by employees that they be allowed to continue to work), then such a dismissal will be deemed to be automatically unfair and, on top of any compensation for unfair dismissal, tribunals may award additional compensation of between four to eight weeks pay. Nevertheless, employers will not have to give reasons for refusing to allow an employee to continue to work and it is therefore likely that many employers will adopt a blanket policy of refusing to allow employees to continue to work beyond 65 (or their employer s lower, justified, retirement age). The regulations set out transitional provisions that will apply to employees who are scheduled to retire before 1 April Pensions The regulations allow most age and length of service criteria in occupational pension schemes to continue unchanged. The oversight in the previous draft of the regulations relating to contributions to personal pension schemes has also been addressed. Employers will be able to continue to apply different contribution rates to employees personal pension schemes on the basis of age. Further guidance will be provided in due course concerning the implications of these regulations as far as employers pension arrangements are concerned. Redundancy Pay The regulations remove the lower and upper age limits for qualification for redundancy payments (currently 18 and 65). However, the current age bands for calculating statutory redundancy pay will continue to apply. Enforcement Employees will be able to enforce their rights under the regulations in the Employment Tribunal. There will be a three-month time limit within which claims must be brought, although the tribunals may exercise discretion to extend that time limit in certain circumstances. Awards for successful claims for unlawful age discrimination will result in uncapped awards of compensation for loss suffered and will include awards for injury to feelings. Conclusions These Regulations are one of the most important pieces of employment legislation to be introduced in this country since sex and race discrimination legislation was introduced in the 1970s. It will require a significant cultural shift by employers and their employees if claims are to be successfully avoided. Employers should therefore take urgent action now to ensure that terms and conditions of employment, employment practices, policies and procedures are compliant with the requirements of the regulations. They should also take steps to train managers and employees on what will and will not be acceptable behaviour under the regulations. As with other forms of unlawful discrimination, employers will be vicariously liable for their employees unlawful acts, unless they can demonstrate that they have taken reasonable steps to make it clear that such behaviour is not acceptable. It should also be noted that employees themselves may be personally liable for unlawful discrimination on the grounds of age. Mark T. Hunt London Office A German Perspective: The Impact of the Newly Elected Grand Coalition on Labour Matters Germany elected a new parliament on September 18, But neither the left- nor the right-wing parties could assemble sufficient votes for a majority of the parliament seats. After long and strenuous negotiations, which resulted in a coalition agreement (Agreement) dated November 11, 2005, the two biggest parties, the conservative union of CDU & CSU (Christian Democratic Party and Christian Social Party) and the socialist party SPD (Social Democratic Party), agreed on a grand coalition between the two biggest forces in Germany. What will be the impact of this new political situation on employment matters in Germany? Labour law reform and development dominate the Agreement. Some of the important aspects where change is proposed are as follows: Reforming Unfair Dismissal Protection Among the measures discussed for reforming unfair dismissal protection is prolonging the qualifying period from six months (as it is now) to 24 months before employees are entitled to unfair dismissal protection. (continued on page 13, bottom) 11

12 New TUPE Regulations Published The Transfer of Undertakings (Protection of Employment) Regulations 1981 is being updated and replaced by new regulations. These regulations are a piece of UK legislation that operate in asset purchases so as to transfer from the seller to the purchaser, the contracts of employment of those employees who work with the assets being purchased. The Transfer of Undertakings (Protection of Employment) Regulations 1981 is being updated and replaced by new regulations. These regulations are a piece of UK legislation that operate in asset purchases so as to transfer from the seller to the purchaser, the contracts of employment of those employees who work with the assets being purchased. The final version of the updated regulations (the imaginatively titled, Transfer of Undertakings (Protection of Employment) Regulations 2006 (the Regulations )) has now been published and it is intended that the Regulations will apply to any transfers which take place after 6 April The most significant changes in the Regulations include: The Regulations will apply to service provision changes, which include contracting-out, contracting-in and re-tendering activities where there is an organised grouping of employees whose principal purpose is to carry out the relevant activities. This effectively means that the Regulations will apply in most outsourcing situations. The transferor will be required to notify the transferee of all employee liability information at least two weeks before the transfer. Such information includes the identity, age, and terms and conditions for each employee. The transferor must also inform the transferee of all disciplinary proceedings, grievances and court or tribunal proceedings brought by an employee within the past two years, and those which it has reasonable grounds to believe an employee might bring. The transferee must be informed of any collective agreement which will transfer. Failure to comply with this requirement will result in an award against the transferor of not less than 500 per employee. This duty to notify will apply to transfers which take place after 19 April Changes to terms and conditions for reasons related to a transfer governed by the Regulations, but not for the transfer itself, will be permitted where there is an economic, technical or organisational reason entailing changes to the workforce. Previously, any change to terms and conditions that was connected to a transfer was void. For certain types of insolvency, the transferee will not be liable for statutory redundancy, statutory notice and other statutory payments to employees. The transferor and transferee will be jointly and severally liable for the transferor failing to comply with the obligation to provide information, and failing to consult with trade union or employee representatives. Thomas Ince London Office 12

13 Employment Law Review Workplace Harassment is Costly Business Why Business Owners Need to Worry About Workplace Harassment You are a business owner and you have employees. You also now have potential liability under federal and/or state law for a variety of forms of workplace harassment. You may think, This can t happen to me. Well, it can. According to the latest statistics maintained by the United States Equal Employment Opportunity Commission ( EEOC ), more than 50,000 charges of sexual harassment were filed between 2002 and More important, it is not just sexual harassment charges that you need to worry about. Your employees are capable of creating a hostile work environment based on sex, race, disability, national origin or religion unless you set the right tone and consistently condemn any form of harassment. more than 20,000 federal employees, 19 percent of men and 44 percent of women believed they had been sexually harassed at work.* Race and national origin harassment charges are on the rise as well and the EEOC is taking those charges seriously. In 2004 alone, the EEOC reports that it sued 30 employers for race harassment and more than 20 employers for national origin harassment. In one case involving harassment in the construction industry, the EEOC brought suit because Mexican construction workers were subjected to vile discriminatory language on a daily basis (including the constant use of profanity combined with the term wetback ), were prohibited from using the cleaner ground floor restrooms and the elevators to carry heavy loads, and were required to bring their own drinking water to the construction site instead of obtaining drinking water from the supervisor s trailer. The case was resolved through a consent decree in which the employer was required to pay a total of $600,000 to 10 claimants and $150,000 to other workers of Mexican national origin who had previously worked on the project and were subjected to harassment or retaliation. (continued on page 14) The numbers are staggering and growing and the cost is staggering as well. In the year 2003 alone, employees in the United States filed with the EEOC 13,566 charges of sexual harassment, 4,906 charges of gender harassment, 6,180 charges of racial harassment and 2,365 charges of national origin harassment. More important, from 1985 to 2000, the percentage of harassment charges filed as compared with all EEOC charges filed rose from zero to 18.8 percent, and these numbers represent the cases that employees were willing to report. The number of unreported incidents of workplace harassment is even larger. In a survey conducted by the Association of Female Executives, 59 percent of women surveyed reported that they felt they had been sexually harassed or knew someone who had been sexually harassed. In 1995, the U.S. Merit Systems Protection Board reported on a survey that it conducted in 1994, in which it found that, of A German Perspective continued from page 11 Implementation of the EU-Working Time Directive The Government has extended the time for the EU-Working Time Directive to be implemented by a year. It was originally scheduled to be implemented by 1 January Draft legislation, currently being considered by the Government, provides that retail stores should be open on no more than four Sundays per year. Improving Conditions for the Self-Employed The Government is considering provisions to encourage more people to become self-employed, including increasing the level of turnover at which accounting duties are triggered from 350,000 to 500,000? Reduction of Social Insurance Ccontributions The Government intends to reduce social insurance contributions to keep them at a level below 40 percent of gross income. Increasing Retirement Age A large amount of debate has been caused by the Secretary of State for Employment s statement that the retirement age should increased from 65 to 67. Employers are particularly concerned that they will be forced to continue to employ older individuals and will lose the ability to plan retirements and successions. Oliver Heeder Munich Office 13

14 Workplace Harassment is Costly Business continued from page 13 Workplace harassment creates disruption in the workplace, lowers morale and productivity, causes emotional injuries that lead to greater absenteeism and higher health care costs, and results in a substantial loss of management time in investigating and handling harassment complaints and defending EEOC charges and lawsuits. In another case, the EEOC obtained $100,000 for a truck driver/crane operator whose parents were from Puerto Rico and who was regularly called names such as taco, burrito, and enchilada by a coworker. Despite complaints to the general manager, the company did nothing to investigate or remedy the complaints until the EEOC conducted an onsite investigation of the employee s discrimination charge. In the aftermath of September 11, 2001 and since the commencement of the war in Iraq, the EEOC has litigated a number of cases involving harassment against employees of Middle Eastern national origin. In one case, Afghani workers at two automobile dealerships in California were called terrorists, camel jockeys, and referred to as the bin Laden gang. A manager frequently announced his dislike of Muslims and Afghans, and implied that all Muslims should be killed. When some of the Afghani employees complained about the harassment, they were discharged. The EEOC filed a lawsuit that resulted in a consent decree requiring the employer to pay a total of $550,000 to seven individuals. In another case, an Egyptian manager at the Manhattan showroom of a high-scale cabinet designer was subjected to increased harassment following 9/11, with a coworker calling her Mrs. Osama bin Laden and Mrs. Taliban, and was eventually discharged on a trumped-up charge. Ultimately, she received $162,000 in compensatory damages. Why should you worry about workplace harassment? Because it costs business owners millions of dollars each year. The cost of defending charges, settling cases and paying off judgments is just part of the cost, albeit a significant part. Recently, the EEOC brought a class action lawsuit against Cracker Barrel alleging that Cracker Barrel had subjected a class of female employees to unwelcome and offensive sexual comments and touching from male co-workers and managers. The lawsuit also alleged that African-American employees experienced racially charged language in the workplace and were assigned to work in the smoking sections of restaurants. On March 10, 2006, the EEOC announced that it settled that lawsuit for $2 million. In another case brought by the EEOC, a jury awarded a $1.34 million verdict to four class action plaintiffs in a sexual harassment and retaliation lawsuit against Associated Security. In that suit, the EEOC alleged that the company had failed to take steps to stop the harassment, despite complaints to the company s co-owner. In addition to providing compensatory and back-pay damages to each of the plaintiffs, the jury assessed in excess of $1 million in punitive damages against the company. These are the cases that make big headlines, but harassment charges affect employers of all sizes. The true cost, however, is incalculable. Workplace harassment creates disruption in the workplace, lowers morale and productivity, causes emotional injuries that lead to greater absenteeism and higher health care costs, and results in a substantial loss of management time in investigating and handling harassment complaints and defending EEOC charges and lawsuits. In addition, harassment charges create negative publicity for the business. In short, workplace harassment is costly business. What should you do? Develop and adopt a strong anti-harassment policy and distribute a copy to each employee. Have each employee sign a 14

15 Employment Law Review statement acknowledging that he or she has read the policy, understands it and agrees to abide by it. Go over the policy with your employees at least annually and get an updated acknowledgement form. You should also develop an internal complaint procedure and publish that procedure as part of your policy. Set the right tone in the workplace with your actions and make sure that your supervisors understand the seriousness of the issue and the consequences to them if they fail to abide by or enforce the policy. In addition, make sure that the person responsible for receiving harassment complaints is properly trained to handle the complaint or has access to a qualified attorney or human resources professional who can advise or assist in handling the complaint. Most important, if you receive a complaint, conduct an immediate, thorough and balanced investigation of the complaint, and take appropriate remedial action if merited by the results of the investigation. By taking these simple steps and being consistent, you can improve workplace morale and save significant costs. Betty S.W. Graumlich Lee Ann Anderson Richmond Office * Sexual Harassment in the Federal Workplace, Trends, Progress, Continuing Challenges, A Report to the President and the Congress of the United States by the U.S. Merit Systems Protection Board (1995), p. 14. Recent Reed Smith Publications To obtain a copy of any of these resources, please contact Sue Kosmach at or skosmach@reedsmith.com. Bulletin EPA Publishes the Final All Appropriate Inquiries Rule (by Todd O. Maiden) Bulletin U.S. Supreme Court Clarifies Competitive Injury Requirement for Price Discrimination Claims in Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc. (by P. Gavin Eastgate) Bulletin U.S. Supreme Court Preserves Jurisdictional Parity Between National Banks and State-Chartered Institutions (by Roy W. Arnold, David J. Bird, Lyle D. Washowich) Bulletin Workplace Smoking Now Prohibited in New Jersey (by Robert H. Bernstein) Bulletin New Jersey and Pennsylvania Adopt Data Security Breach Laws (by Jonathan L. Levin, Barbara S. Mishkin, Leonard A. Bernstein) Bulletin Pennsylvania Legislative Alert: Governor Signs Legislation Amending Act 600 (by Joseph C. Rudolf, Scott E. Blissman, Joel S. Barras) Bulletin DOL Limits Fiduciary Exposure for Financial Advisers to Plan Participants (by Donald J. Myers, Michael B. Richman) Bulletin Commonwealth Court Issues Decision Interpreting Scope of Sunshine Act s Personnel Exemption (by Joseph C. Rudolf, Scott E. Blissman, Joel S. Barras) Bulletin Pennsylvania Amends Provisions of Business Corporation Law Relating to Removal of Directors and Control Transactions (by Robert K. Morris, Arlie R. Nogay) Bulletin New Jersey Court Imposes Legal Duty Upon Employers To Investigate and Report Employees Who Access Child Pornography on Work Computers (by Ravi Sattiraju, Terry D. Johnson) Bulletin Those Who Market to Children or Provide Media Access for Children s Ads Have an Opportunity to Provide Comments Now and Later This Spring (by John P. Feldman, Douglas J. Wood) Bulletin LLC Fees May Be Totally Refundable; Protective Refund Claims Should Be Filed (by Brian W. Toman) Bulletin Avoiding Pitfalls in Drafting and Negotiating Letters of Intent (by Carol Lee) Available Newsletters: The Critical Path (construction): Winter 2006; Government Contracts, Grants & Trade Federal Forecaster (recent trends and compliance issues related to government contracts and grants): Winter 2006; Health Law Monitor (health care industry): Fall 2005; Legal Bytes (technology issues): March 2006; Export, Customs & Trade Sentinel (export and compliance issues): Winter 2006; Material Matters (financial services): Winter 2006; PrivilEdge Update (attorney-client privilege): February 2006; Product Liability Update (products liability): April 2006; Sidebar (commercial litigation): Spring

16 Protection and Remedies for NJ Whistleblowers Enhanced Through Recent Statutory Amendments The new amendments to CEPA also require rather than permit civil courts to impose additional legal and equitable relief beyond that available to prevailing plaintiffs in common tort actions, to the fullest extent possible and appropriate once a statutory violation is found. In January 2006, former Governor Richard J. Codey signed legislation that both further broadened the protective scope and considerably enhanced the penalty provisions of New Jersey s whistleblower statute, the Conscientious Employee Protection Act ( CEPA ). Placed into effect immediately, the recent legislative amendments expand the provisions of the statute to afford protection to employees who disclose, threaten to disclose, report, testify concerning, or refuse to engage in their employer s fraudulent or deceptive conduct toward, for example, shareholders and investors, and to encourage employees to report internal corporate wrongdoing, such as accounting irregularities. In addition, as amended, the legislation now requires civil courts to impose various, additional remedial measures for proved CEPA violations; increases the maximum fines courts can levy for such violations; and removes the statutory cap on punitive damages for CEPA claims previously in existence. Previously, CEPA prohibited an employer from taking retaliatory action against any employee who: (1) discloses or threatens to disclose to a supervisor or public body any activity, policy or practice of the employer that the employee reasonably believes is unlawful; (2) provides information to, or testifies before, any public body conducting an investigation, hearing or inquiry into any employer s perceived violation of law; or (3) objects to or refuses to participate in any activity, policy or practice that is illegal, fraudulent or contrary to a clear mandate of public policy concerning the public health, safety or welfare, or protection of the environment. Under the recent legislative amendments, CEPA now also expressly prohibits employers from retaliating against employees who object to, refuse to participate in, reveal or threaten to reveal to any public authority any unlawful activity, policy or practice of the employer related to Enron-like conduct such as the deception of, a misrepresentation to, or a fraudulent scheme involving any shareholder, investor, client, patient, customer, employee, former employee, retiree or pensioner of the employer or any governmental entity. The new amendments to CEPA also require rather than permit civil courts to impose additional legal and equitable relief beyond that available to prevailing plaintiffs in common tort actions, to the fullest extent possible and appropriate once a statutory violation is found. First, the amendments require the court to enjoin and restrain the employer from any violation of the statute continuing at the time the court issues its order. Second, if the whistleblower s employment was previously terminated or altered (through demotion or otherwise) by the employer, the amendments mandate the entry of an order reinstating the employee to the same, or comparable, position held prior to the retaliatory action with full fringe benefits and seniority rights. Further, the legislation as amended now provides for an award of back pay for all lost remuneration, as well as the reimbursement of reasonable costs and attorneys fees to the prevailing whistleblower. Moreover, in addition to the increased mandatory remedies, the statutory amendments drastically increase the maximum civil fines a court or jury may impose on employers who retaliate against whistleblowers raising the potential maximum fine for first-time CEPA offenders from $1,000 to $10,000 and increasing the 16

17 Employment Law Review potential fine for repeat CEPA offenders from $5,000 to $20,000. Finally, the recent legislative enactment also amended the New Jersey Punitive Damages Act (the PDA ) to specifically exclude CEPA awards from its scope. Under the PDA as previously enacted, punitive damages awards in CEPA cases were limited to the greater of $350,000 or five times the compensatory damages award. With the recent legislative amendments, the previous cap on punitive damages for prevailing whistleblowers no longer exists and the risk of enhanced punitive damages awards is further strengthened by statutory language which directs courts and juries determining a punitive damages award following a proved CEPA violation to consider not only the amount of compensatory damages awarded, but also the amount of all damages caused to shareholders, investors, clients, patients, customers, employees, former employees, retirees or pensioners of the employer, or to governmental entities or the public, by the activities, policies or practices of the employer which the employee disclosed, threatened to disclose, provided testimony regarding, objected to, or refused to participate in. Obviously, this substantial enhancement of potential punitive damages which may be awarded when Enron-like internal misconduct occurs is aimed to serve as an increased deterrent to such unlawful activities. Arguably, the new protections afforded by the legislative amendments which are aimed to protect individuals blowing the whistle for Enronlike activities were already implicit in the prior statutory language. Nevertheless, by amending the statute, the New Jersey Legislature made it unequivocally clear that individuals who object to, disclose or threaten to disclose, or otherwise cooperate with public investigations into an employer s internal fraud or misconduct (such as the overstating of revenues or the underreporting of liabilities), are fully protected by New Jersey s law. As a result, employers may see a rise in claims under the statute particularly given the enhanced penalties which may be awarded. Prudent employers are, therefore, cautioned not only to ensure that they have taken appropriate measures to protect against Enron-like activities, but also that they promulgate policies establishing procedures for reporting and promptly investigating employee concerns, as well as distribute, on an annual basis as required under the statute, current notices summarizing the employee protections under the statute. Sherri A. Affrunti and Terry D. Johnson Princeton Office NJ Court Imposes Duty Upon Employers to Report Employees Accessing Child Porn on Work Computers continued from page 1 any information that an employee has used a work computer to view or pornography, it should take immediate action to ascertain whether child pornography or other laws have been broken. Employers should perform a thorough investigation and implement effective controls (i.e., terminating internet access) during the pendancy of the investigation. After the investigation is complete, the employer should then immediately notify law enforcement officials if they have reason to believe that any violation of law has occurred. This decision is significant because the court imposed a duty upon employers to ensure that their employees illegal conduct at work does not cause injury to third parties. Moreover, although presently limited to the context of child pornography, the new duty announced by the court may eventually be expanded to impose liability upon employers when their employees use work computers for other criminal activities, such as the illegal purchase or sale of drugs or weapons, financial scams and other criminal conduct. Doe v. XYC Corp. also demonstrates the importance of having and enforcing written internet and usage policies. Such policies should clearly state that all Internet/ usage must have a business-related purpose, and that the employer reserves the right to review and report the internet activity of employees, including messages sent or received via work computers. Employers should also have the requisite information system technology in place to monitor and filter employee activity on the internet. Finally, all internet and policies should admonish employees that they are subject to discipline, up to and including termination, if they violate these policies. This matter has been appealed to the New Jersey Supreme Court, and should be carefully monitored as it has far-reaching implications for employers. Ravi Sattiraju Terry D. Johnson Princeton Office 17

18 NJ District Court Rules Against Airline in Passenger-Removal Litigation In recent years, airlines have been increasingly required to ensure passengers safety while simultaneously protecting their civil rights. This balance often requires airline personnel to make quick decisions based upon limited information, without the opportunity to consult with counsel. In recent years, airlines have been increasingly required to ensure passengers safety while simultaneously protecting their civil rights. This balance often requires airline personnel to make quick decisions based upon limited information, without the opportunity to consult with counsel. The recent decision of Dasrath v. Continental Airlines, cv (D.N.J. 2006) is a good example of the numerous issues that airlines face when addressing passenger removal issues. Factual Background Plaintiff Michael Dasrath, is a U.S. citizen born in Guyana. He is described in the Opinion as having a dark complexion. Plaintiff was removed from a Continental flight, with two other men, Edgardo Cureg and Saraleesan Nadarajah, who are described by the Opinion as having a dark complexion, before it departed from Newark Airport in December Prior to boarding the plane, a passenger in the waiting area complained to a gate agent that Messrs. Cureg and Nadarajah were acting suspiciously. However, they had been searched with a hand-held metal detector before they boarded the plane, and nothing unusual was found. Upon boarding the plane, Plaintiff and Mr. Cureg both took their assigned seats in First Class, along with several white passengers. Dr. Nadarajah was seated in the Coach Section and Continental contended that Dr. Nadarajah bent down and reached under a first class seat before proceeding to his assigned seat in the Coach Section. After the passengers boarded, a Continental flight attendant observed Dr. Nadarajah repeatedly getting out of his seat to retrieve his luggage, and then placed a bag in an overhead bin at the front of that Coach Section before returning to his seat near the rear of the plane. The flight captain, Werner Hamp, was notified of the situation after another flight attendant reported Dr. Nadarajah s suspicious behavior. Captain Hamp decided to further investigate after personally observing Dr. Nadarajah act suspiciously. When Captain Hamp announced that the flight would be delayed, Dr. Nadarajah walked from the rear of the plane to First Class and began speaking with Mr. Cureg. Plaintiff asserted that he never moved from his assigned seat or spoke to either Mr. Cureg or Dr. Nadarajah. However, Continental alleged that Plaintiff changed seats and began talking with Mr. Cureg and Dr. Nadarajah. Captain Hamp began questioning the passenger who complained about Mr. Cureg and Dr. Nadarajah before they boarded the flight. Plaintiff stated that while talking to Captain Hamp, the complaining passenger pointed toward Plaintiff and stated that those brown skin men are behaving suspiciously. Continental disputes Plaintiff s allegation that the passenger used the phrase brown skin men, but agrees that the passenger pointed toward Plaintiff while talking to Captain Hamp. Captain Hamp then exited the plane and discussed the situation with security personnel, and checked the flight information on Mr. Cureg, Dr. Nadarajah and Plaintiff. Captain Hamp was informed that Plaintiff was a non-revenue passenger who was married to a Continental employee and was not traveling with Mr. Cureg or Dr. Nadarajah. Captain Hamp declined to have the men re-screened 18

19 Employment Law Review with their carry-on luggage, but rather ordered that all three men (including Plaintiff) be removed from the plane. Legal Standard Plaintiff subsequently filed suit against Continental Airlines, alleging claims under 42 U.S.C. 1981; Title VI of the Civil Rights Act of 1964, 42 U.S.C. 2000d; and the New Jersey Law against Discrimination (the NJLAD ), N.J.S.A. 10:5.1 et seq. Judge Debevoise noted that to establish a case of unlawful discrimination under Section 1981, a plaintiff must show: (1) plaintiff s membership in a racial minority; (2) an intent to discriminate on the basis of race by the defendant; and (3) discrimination concerning one or more of the activities enumerated in 1981, including the right to make and enforce contracts. Pryor v. Nat l Collegiate Athletic Ass n, 288 F.3d 548, 569 (3d Cir. 2002). Under Title VI, a plaintiff must demonstrate (1) membership in a minority; (2) intentional discrimination; and (3) receipt of federal funds by the defendant. 42 U.S.C. 2000d. Under the NJLAD, a plaintiff must show that (1) defendant operates a place of public accommodation; (2) the plaintiff is a member of a protected class; and (3) he or she was denied equal treatment on the basis of his or her membership in a protected class. N.J.S.A. 10:5-12(f) The court further noted that to generally survive summary judgment in a claim for unlawful discrimination, be it under 1981, Title VI or the NJLAD, a plaintiff is required to establish a prima facie case of discrimination. Then the burden shifts to the defendant to articulate a legitimate, non-discriminatory reason for the alleged discriminatory conduct. Should the defendant offer such a reason, the plaintiff will survive summary judgment by submitting evidence that defendant s justification is merely a pretext. See McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973). Furthermore, the McDonnell Douglas burden-shifting analysis must be applied in the context of a federal statute that addresses vital public concerns. Under the Federal Aviation Act, 49 U.S.C (b), an air carrier may refuse to transport a passenger or property the carrier decides is or might be inimical to safety. Id. Such a refusal cannot give rise to a claim for damages under either federal or state law unless the carrier s decision was arbitrary and capricious. Williams v. Trans World Airlines, 509 F.2d 942, 948 (2d Cir. 1975). That Act gives airline personnel broad, but not absolute, discretion to remove passengers for safety reasons. Al-Qudhai een v. America West Airlines, Inc., 267 F.Supp.2d 841, 846 (S.D.Ohio 2003). The test of whether or not the airline properly exercised its power [under Section 44902] to refuse passage to an applicant or ticket-holder rests upon the facts and circumstances of the case as known to the airline at the time it formed its opinion and made its decision and whether or not the opinion and decision were rational and reasonable and not capricious or arbitrary in the light of those facts and circumstances. Williams, 509 F.2d at 948. Analysis Judge Debevoise noted that the only disputed issue was whether Captain Hamp ejected Plaintiff because of his race. The court noted that it was reasonable for Captain Hamp to remove Dr. Nadarajah (in light of his suspicious behavior) and Mr. Cureg because he and Dr. Nadarajah appeared to know each other. Plaintiff, however, argued that he neither engaged in suspicious activity nor had any contact with anyone engaged in suspicious activity (which had been the justification for removing Mr. Cureg and Dr. Nadarajah). Plaintiff further contended that he did not speak with Mr. Cureg or Dr. Nadarajah, or get out of his seat, after boarding the plane. Therefore, viewing the facts in the light most favorable to Plaintiff, the court held that the only facts that might justify Captain Hamp s decision to remove Plaintiff were (1) his proximity to Mr. Cureg and Dr. Nadarajah; and (2) the passenger s statement to Captain Hamp that those brown skin men are acting suspicious. The court noted that several white passengers were also seated in first class in proximity to Mr. Cureg and Dr. Nadarajah, but were not removed or even investigated. The court thus concluded that proximity could not justify Captain Hamp s decision to remove Plaintiff. The court noted that the passenger s alleged statement regarding skin color could be interpreted in two different ways. First, the passenger may have only been referring to Mr. Cureg and Dr. Nadarajah, in which case, Captain Hamp presumed, based on skin color, that Plaintiff was somehow involved with Mr. Cureg and Dr. Nadarajah. The court held that because skin (continued on page 20) 19

20 NJ District Court Rules Against Airline continued from page 19 color was not a reasonable basis by which Captain Hamp could base his decision to remove Plaintiff, the passenger s statement, as interpreted in this manner, could not justify Captain Hamp s decision to remove Plaintiff. Alternatively, the passenger may have intended to refer to all three passengers. The court held that given the complaining passenger s brown skin men characterization, a reasonable person in Captain Hamp s position would have had doubts about the basis for linking the three men and suspected that the passenger presumed them to be together simply because they were of similar complexion, especially after learning that Plaintiff was not traveling with the other two men. The court thus concluded that this interpretation of the passenger s statement could not justify Captain Hamp s decision to remove Plaintiff. The court concluded (viewing the evidence in the light most favorable to Plaintiff) that Plaintiff did not engage in any suspicious behavior, and there were no facts that reasonably connected him with Mr. Cureg and Dr. Nadarajah. As such, a jury could find Captain Hamp s decision to remove Plaintiff from the plane to be arbitrary and capricious. As such, Continental s motion for summary judgment was denied. The court also denied Continental s motion to dismiss Plaintiff s compensatory damages claim given his assertions that he felt embarrassed and humiliated by Defendant s conduct. The court granted Continental s summary judgment motion on Plaintiff s injunctive relief claim because he could not demonstrate irreparable harm if he was not granted injunctive relief. The court also considered Continental s consent decree with the Department of Transportation that it would cease and desist from all future acts of discrimination pertaining to this matter, and Plaintiff s acknowledgement that he flew with Continental more than 100 times since December 2001 without incident. This case demonstrates the challenges in addressing passenger removal issues where airlines often have to make quick decisions with limited information. While it is impossible to eliminate all potential challenges to removal decisions, airlines should implement programs to train flight personnel on the civil rights issues that may arise when addressing passenger removal issues. Stephanie Wilson Ravi Sattiraju Princeton Office CONTRIBUTORS TO THIS ISSUE Sherri A. Affrunti Princeton saffrunti@reedsmith.com Lee Ann Anderson Richmond laanderson@reedsmith.com Joel S. Barras Philadelphia jbarras@reedsmith.com Betty S.W. Graumlich Richmond bgraumlich@reedsmith.com Oliver Heeder Munich oheeder@reedsmith.com Mark T. Hunt London mhunt@reedsmith.com Thomas Ince London tince@reedsmith.com Terry D. Johnson Princeton tdjohnson@reedsmith.com Séverine Martel Paris smartel@reedsmith.com Hardy R. Murphy Los Angeles hmurphy@reedsmith.com Douglas H. Riegelhuth San Francisco driegelhuth@reedsmith.com Ravi Sattiraju Princeton rsattiraju@reedsmith.com Stephanie Wilson Princeton swilson@reedsmith.com Employment Law Review is published by Reed Smith to keep clients and friends informed of developments in employment, labor and benefits law. It is not intended to provide legal advice to be used in a specific fact situation. The editor of Employment Law Review is Scott Blissman ( ), resident in the firm s Philadelphia office. 20 Quality Matters.SM Reed Smith refers to Reed Smith LLP, a limited liability partnership formed in the state of Delaware. Reed Smith LLP 2006.