Employment Practices Liability Issues Update EMPLOYMENT PRACTICES LIABILITY UPDATE. Required Reading Article 1. June 2014 Segment 3

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1 June 2014 Segment 3 Required Reading Article 1 EMPLOYMENT PRACTICES LIABILITY UPDATE By Catherine A. Asaro and Brandon S. Anderson For more information, go to: Employment practices liability issues can present unique challenges to employers given the personal nature of these types of claims. A comment one may perceive as harmless, another may perceive as offensive; as such, that could result in the filing of a charge alleging a violation of one of their protected rights. The filing of a charge could be the precursor to litigation. Then, with the filing of litigation comes a myriad of issues not the least of which can be the protracted costs associated in mounting a defense. How employers educate their employees on this rapidly evolving area of law is a key risk mitigation strategy for companies. Recognizing the sensitivities attendant to these types of claims and ensuring you communicate a unified message and process to address employee grievances is an important first step for all companies. The ramifications of proceeding in the absence of such a comprehensive plan could be costly both in dollars and reputation. In analyzing the number of filings over the past few years, there tend to be certain types of claims that are predominant. There are many reasons why there are greater concentrations of filings of certain claims that include the burden of proof to establish the claim and initiative programs where agencies deploy greater resources to educate the work force. In the accompanying video segment entitled," we explore some of these issues in more detail. Given the significance of some interesting developments relative to wage and hour litigation and two U.S. Supreme Court decisions interpreting Title VII of the Civil Rights Act of 1964 briefly discussed in the video segment, we address in greater detail below some of the reasons why employers should be familiar with these issues. Incorrect assumptions are often made by employers as to the classification of certain employees based on their day to day job responsibilities, most commonly, these misclassifications occur when determining if an employee is entitled to overtime, i.e., exempt versus non-exempt status under the Fair Labor Standards Act (FLSA). These types of misclassifications can result in the filing of wage and hour cases that often become class actions that are costly for employers to defend. These laws are somewhat antiquated leaving them susceptible to conflicting interpretations that result in increased litigation. The current Administration is seeking to make changes to overtime pay and employee classification, which could heavily impact labor relations. The aim of the legislation is to try and make more employees eligible for overtime pay by making them non-exempt. Those - 1 -

2 in opposition to these changes assert that if labor costs increase dramatically changing cost structures, there will need to be concessions in order to address rising costs. Another area of concern for employers pertaining to classification deals with who can be considered to be a manager," that being, who would be deemed to be in a position of authority over others. For an employer, this is important to establish because the actions of those in a supervisory position over others may be imputed to the company holding the company. If the company does not recognize this distinction they may have failed to take appropriate steps to train and educate these individuals in their roles as supervisors. When looking at an individual s day to day job responsibilities, sometimes it is not patently evident that a particular individual may, under the law, be considered a manager," Where employees are given overlapping responsibilities it can create a gray area when determining who has supervisory authority over others. In turn, this creates many challenges for employers in properly addressing employee grievances relative to discrimination and or harassment charges. In an attempt to clear some of the ambiguities on these issues, the U.S. Supreme Court issued what some may characterize as employer-friendly decisions in Vance v. Ball State University, 133S.Ct (2013) and University of Texas Southwestern Medical Center v. Nassar, 133 S.Ct (2013). These decisions are perceived by many to give employers further protection from contending with certain claims. Both decisions were made on a split 5-4 vote showing that Title VII is still a tightly debated rule. In Vance v. Ball State University, an employee at the university accused another employee of harassment. Because the employee being accused of harassment was deemed to be a mere co-worker the university was not strictly liable but only held to a negligence standard. The crux of the debate was over what qualified an employee to be a supervisor. It was decided that an employee is a supervisor when they have the ability to take some tangible employment action which may include but not be limited to hiring, firing, promoting, transferring, or disciplining employees. This is significant in that it is the first time that the Supreme Court put some definition around the term supervisor in the realm of employment discrimination and harassment litigation. In Vance, the co-worker had none of these responsibilities and as such, the university was not held to a strict liability standard. The Court held that the only way an employer would be responsible in this instance would be if they were made aware of the harassment and did not take appropriate action. That was not the case in this instance and the Court ruled in favor of the employer. In University of Texas Southwestern Medical Center v. Nassar, an employee of Middle- Eastern descent alleged that the university denied him employment because he complained of racial and religious harassment from a supervisor, and that the university took retaliatory action against him for complaining about that harassment. The question presented here was whether the alleged retaliation was a motivating factor," or was it the main reason that the university acted in that manner. In response, the university argued that regardless of any retaliatory intent, it would not have hired him. This led to the interpretation of Title VII to require employees to show that discrimination was the but for cause of the action at question. The Court gave a narrow interpretation of the statute holding retaliation claims to a stricter standard of proof. This will make it more difficult to interpret whether the retaliatory move was a result of discrimination or was it only a motivating factor. By making - 2 -

3 but-for causation a requirement for retaliation claims, employees will now be faced with greater challenges in establishing such claims. It is expected that the effect of this decision will be a decrease in the number of employee wins of these types of claims. There are many lessons for employers to learn from these decisions. At first blush, it appears that employers have scored some wins with these decisions. They may also be considered wake-up calls for employers to make certain they are appropriately documenting and handling employment liability issues. From the decision in Vance, employers would be better served to put more definition around job descriptions of their employees so they can readily identify and educate those who could be perceived to be in a supervisory role. As for the decision in Nassar, employers must be able to establish that they would have taken certain actions regardless of any impermissible motive. By making it more challenging for prospective claimants to prove their claims, there may be less filing of retaliation claims that historically have been easier to establish. Requiring claimants to meet higher burdens of proof on retaliation based claims may cut down on the filing of frivolous claims, reduce costs of defense and drive down settlement values. ABOUT BEECHER CARLSON Beecher Carlson is a large account risk management broker that delivers expertise by industry focus and product specialization. We are a team of seasoned and spirited professionals who strive to develop new and better technologies to support business requirements and drive operational excellence. By leveraging deep risk management industry expertise, we are able to help clients manage their business risks, protect and enhance their capital and fulfill their corporate mission. Through a combination of resources that include - analytics, technology and in-house actuarial services, Beecher Carlson assesses and models risk in a way that supports each client s unique operational culture and key risk differentiators. Continuously ranked by Business Insurance as one of the fastest growing insurance brokers in the U.S., Beecher Carlson has been a privately held company since 1981, and was acquired by Brown & Brown, a public company in Catherine A. Asaro is the Chief Operating Officer and a Managing Director in Beecher Carlson s Executive Liability Practice in New York. She has a Bachelor of Science degree in Business Management from St. John s University and a J.D. from New York Law School. Catherine is a member of the New York State Bar and United States District Court for the Eastern District of New York Bar. She is a former civil defense litigator who has written several articles on significant issues impacting Executive Liability coverages. Catherine can be reached at casaro@beechercarlson.com Brandon S. Anderson is a recent graduate from Rutgers University with a Bachelor of Science degree in Finance. His undergraduate studies focused on the interpretation of financial data with an eye toward helping companies add value by capitalizing on efficiencies. He has been supplementing his studies over the past year as an intern in Beecher Carlson s Executive Liability Practice where he has researched and prepared financial summaries to gauge corporate performance in various industries. Brandon served as the Vice President of Pi Kappa Phi and was an active member of the Push America Club - 3 -

4 where he coordinated projects in the community to help the disabled restore functionality in their lives which included creating walkway for individuals in wheelchairs. Brandon can be reached at as well as Disclaimer This article is intended for informational purposes only. It is not a guarantee of coverage and should not be used as a substitute for an individualized assessment of one s need for insurance or alternative risk services. Nor should it be relied upon as legal advice, which should only be rendered by a competent attorney familiar with the facts and circumstances of a particular matter Beecher Carlson Insurance Services, LLC. All Rights Reserved

5 Article 2 FIRST PRINCIPLES ENACTING THE CIVIL RIGHTS ACT AND USING THE COURTS TO CHALLENGE AND REMEDY WORKPLACE DISCRIMINATION For more information. go to: One hundred years after the Civil War, President John F. Kennedy called on Americans to fulfill the nation's promise of equal rights and equal opportunities. The President's decision to send civil rights legislation to Congress followed a decade of increasingly insistent civil rights activism inspired by the Supreme Court's rejection of the pernicious "separate but equal" doctrine in the Brown v. Board of Education decision. During the spring of 1963 Americans and the world were shocked to see civil rights demonstrators beaten, attacked by police dogs, sprayed with high pressure water hoses, arrested and jailed. The immediate backdrop of the President's action was the spectacle of the Alabama National Guard being sent to carry out the unequivocal order of a federal district court to admit two black students to the University of Alabama. In June the President addressed the nation to say: The events in Birmingham and elsewhere have so increased the cries for equality that no city or State or legislative body can prudently choose to ignore them.... We face, therefore a moral crisis as a country and as a people. It cannot be met by repressive police action. It cannot be left to increased demonstrations in the streets. It cannot be quieted by token moves or talk. It is time to act in the Congress, in your State and local legislative body and, above all, in all of our daily lives....next week I shall ask the Congress of the United States to act, to make a commitment it has not fully made in this century to the proposition that race has no place in American life or law. The proposed legislation, which was the first major civil rights legislation since the post-civil War Reconstruction era, seemed shaped principally to deal with the remaining vestiges of Jim Crow and segregation, and to that end it addressed discrimination in voting, public accommodations, and education, as well as employment. Title VII's prohibitions of discrimination in employment had their roots in the Unemployment Relief Act of 1933, which provided "[t]hat in employing citizens for the purpose of this Act no discrimination shall be made on account of race, color, or creed." The administrations of Presidents Roosevelt, Truman, Eisenhower, and Kennedy all created Fair Employment Practices Committees to investigate complaints of discrimination against businesses with federal contracts. President Kennedy's proposed legislation in 1963 simply continued the long-standing practice of attempting to eradicate discrimination by those doing business with the federal government through voluntary compliance, without any enforcement mechanisms. The employment provisions underwent significant revisions in the cataclysmic months after President Kennedy first sent the bill to Congress. On August 28, 1963, 250,000 demonstrators marched on Washington, where they and the nation were electrified by Dr. Martin Luther King Jr.'s "I Have a Dream" speech. Afterwards, President Kennedy met with march leaders to discourage them from trying to strengthen Title VII and other portions of the bill because he feared that doing so would kill necessary Republican support. Two weeks later several children were killed when a black church was bombed in Birmingham, Required Reading Article 2: First Principles Enacting the Civil Rights Act and Using the Courts to Challenge and Remedy Workplace Discrimination - 5 -

6 Alabama. Supporters of the Civil Rights Bill responded by strengthening key provisions, especially the employment measure. The amendments applied Title VII to all employers with more than 15 employees, and created the EEOC and gave it cease and desist authority. Members of Congress opposed to federal government regulation of private enterprise felt betrayed by these developments. President Kennedy worked to achieve a compromise that left EEOC as the enforcement agency but took away its cease and desist powers. The bill was sent to the Rules Committee the day before President Kennedy was assassinated. Five days after the assassination, President Johnson addressed a joint session of Congress to say: "We have talked long enough in this country about civil rights. It is time to write the next chapter and to write it in the books of law....no eulogy could more eloquently honor President Kennedy's memory than the earliest possible passage of the civil rights bill for which he fought so long." Passage of the bill became a priority for Congress and was backed by public opinion; a December Newsweek poll showed that 62 percent of people supported civil rights; a National Opinion Research Center survey showed 83 percent in favor of equal employment opportunity. After extensive debate and lobbying efforts by outside groups and the White House, Title VII was passed in June 1964 by strong bipartisan majorities in both houses, and signed into law by President Johnson on July 2, Once enacted, with its simple prohibitions of discrimination in employment decisions "because of" an "individual's race, color, religion, sex, or national origin" and of "limit[ing], segregat[ing], or classify[ing]" employees or applicants in any way that would deprive them of employment opportunities or adversely affect their status "because of" their "race, color, religion, sex, or national origin," thousands of people began to file charges with the newly created EEOC and then to make their way into court. Once challenges to the Civil Rights Act's constitutionality were resolved, and questions about various procedural aspects of the statute were answered, questions about the proof necessary to establish a Title VII violation soon began to occupy the courts. McDonnell Douglas Corp. v. Green and Griggs v. Duke Power Co. authorized two different methods of proving discrimination disparate treatment and disparate impact and one or the other is still invoked in most discrimination cases involving circumstantial evidence. These proof paradigms have proved adaptable to challenges to all types of employment actions from a failure to hire or promote to termination and to claims of discrimination on all bases enumerated in Title VII race, color, religion, national origin and sex. The McDonnell Douglas Court also confirmed that individuals are entitled to a de novo trial of their discrimination claims, regardless of the conclusions or actions of the EEOC, thereby assuring the primacy of the private attorneys general in the enforcement of Title VII. The courts also dealt early on with special rules for proving and conducting trials in cases challenging broad systemic patterns of discrimination, such as the challenge to the discriminatory operation of the seniority system in Teamsters v. United States. Required Reading Article 2: First Principles Enacting the Civil Rights Act and Using the Courts to Challenge and Remedy Workplace Discrimination - 6 -