Retaliation (again), Quirky Question # 136
Quirky Question # 136:
I know you’ve written a number of analyses of retaliation claims, but our company has a new twist to this subject. One of our employees filed a Charge of Discrimination with the Equal Employment Opportunity Commission, claiming sex discrimination. In her Charge, she identified several other employees, none of whom has ever complained about any unfair treatment. One of the employees identified in the Charge recently claimed that we retaliated against her. However, she had never even complained about any unfair treatment, let alone filed a Charge. We understand that we cannot take adverse action against someone who “participates” in an investigation or who “opposes” discrimination. But, this employee did neither. She was just listed as a knowledgeable person on a Charge. I presume that the anti-retaliation do not go this far. Do they?
Roy’s Analysis:
Like your company, courts continue to grapple with the scope of the anti-retaliation provisions contained within the federal and state anti-discrimination statutes. As you may know, however, those statutory provisions are written broadly. When combined with the fundamental purposes of the statutes – prohibiting discrimination and retaliation – courts often are inclined to intepret these provisions expansively.
For example, Title VII’s anti-retaliation provision states: “It shall be an unlawful employment practice for an employer to discriminate against any of his employees or applicants . . . because [the employee/applicant] has opposed any practice made an unlawful employment practice by this subchapter, or because he has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding or hearing under this subchapter.” Sec. 2000e-3. As you reference in your question, this prohibition encompasses both an “opposition” and a “participation” component.
As you note, it does not appear that your employee who was listed as a potential “witness” in the Charge filed by her co-worker has done anything to “oppose” a discriminatory practice. Further, as you stated, she herself did not file a Charge of Discrimination, or even complain about any unfair treatment. Thus, it would appear on the facts you briefly recounted that your employee will not be able to avail herself of the “opposition” clause of the statute. [For a discussion of last year’s Supreme Court Crawford decision, which focused on the opposition clause issue, use the “View By Topic” tab on the upper-left-hand side of this page and scroll down to “Retaliation.” You will find the discussion of Crawford, along with the discussion of other retaliation contexts, in that section.]
Parsing through the other specific statutory proscriptions (“made a charge”, “testified,” or “assisted”) these provisions would not lend support to your employee that she has engaged in protected activity. The key question, therefore, is whether your employee can avail herself of the “participation” clause of the statute. As you can see from the material quoted above, that clause prohibits retaliation against a person who has “participated in any manner in an investigation, proceeding or hearing . . ..” (Emphasis added.)
Presumably, your employee will contend that by being named in her co-workers’ Charge of Discrimination, she “participated” in some manner in the investigation. Conversely, your company will presumably take the position that a passive reference to an individual in a Charge, without more, does not entitle the referenced employee to claim the protections of the anti-retaliation provision. Unfortunately for your company, as explained further below, your employee may have the more persuasive argument.
Before discussing the arguments your employee likely will advance, let me highlight a few of the factors that may strengthen or weaken your company’s position. Did your company know that this employee had been named as a witness in her co-workers’ Charge? Presumably, since the EEOC sends the Charge out to accused companies, at some point your company was (or will be) informed. If, however, the supposed adverse action (whatever it may have been) occurred before the information was provided by the EEOC to your company, your company’s position will be enhanced.
In addition, even if your company received the notification from the EEOC and was aware of the co-worker’s inclusion in the Charge, who within your company knew this fact? Often, the Charge of Discrimination is sent to the President or CEO of the affected company. From there, it typically is provided to the VP of Human Resources or some other employee with equivalent authority. If this information was not shared with the person your employee is accusing of retaliatory conduct, again your company’s position will be significantly enhanced.
The content of the Charge also may bear upon the issue of your company’s potential liability. Did the Charging Party characterize her co-worker as a “supportive” witness or a person who could “corroborate” her allegations? If so, did that cause anyone within your company any consternation? Did anyone speak with the identified employee to find out what she knew? Did anyone express any concerns about the fact that she had been listed in the Charge? Did anyone attempt to ascertain whether she had any concerns about discriminatory treatment, either toward herself or others? Did anyone at your Company express the sentiment that the Company hoped she would cooperate in defending against the Charge, or even worse, state or imply that she would suffer adverse consequences if she failed to assist the Company?
As you likely already have deduced, the identification of an employee on a Charge of Discrimination puts a company in somewhat of a quandry with respect to the issue of potential retaliation claims. In most instances, a company will want to systematically and thoroughly interview each of the individuals listed in the Charge. Yet, once those individuals have been interviewed, the employees will have to be treated carefully, especially if any of them are being subjected to any disciplinary action of any kind. Clearly, a person who has been interviewed as a result of having been named in a Charge will be deemed to have “participated” in an investigation and will protected by the participation clauses of statutory anti-retaliation provisions. And, if the employee has expressed any criticisms of the company, or accused it of discriminatory conduct, or contended that she too has suffered discrimination, the company will need to take particular care with regard to this employee if it wishes to avoid any claim of retaliatory conduct.
As you can see, there is a spectrum, reflecting the types of interaction your Company may have had with the employee identified in the Charge. At one end of the spectrum is: No Knowledge by the Decision-Makers; at the other end of the spectrum is Knowledge Coupled with Adverse Action. The closer your Company is to the former, the better; the closer you are to the latter, the more problematic.
Of course, the mere fact that somone may be listed as a knowledgeable individual on another employee’s Charge of Discrimination does not a retaliation case make. Your company would have to have taken some adverse action toward this employee after learning of her listing on the Charge – some negative change in the terms or conditions of her employment. The fact pattern described above does not address that issue at all, so I will not comment on this point other than to state that the mere fact that an employee has “opposed” a discriminatory practice or has “participated” in an investigation, proceeding or hearing does not mean the employee is forever after untouchable. A company may take appropriate disciplinary action against an employee, up to and including termination, if warranted and if not linked to the protected activity in which the employee engaged. For example, even if an employee provided inculpatory information in connection with a sexual harassment investigation, if that same employee brought a rocket propelled grenade to work the next day, he or she should be fired. I doubt that you would have much difficulty persuading the fact-finder that the discharge stemmed from the fact that the employee brought a weapon to work, and was not grounded upon the damning testimony. (On the other hand, if other employees previously had brought RPGs to work without consequence, your discharge decision would be more difficult to justify.)
A recent case out of the federal District Court in Arizona touched on some of the issues presented by your question. In EEOC v. Creative Networks LLC, No. 2:05-cv-03032 (D. Ariz. Jan. 15, 2010), the federal court grappled with the issue of whether the identification of an employee in a Charge of Discrimination, and the adverse conduct she claimed was then directed at her, was encompassed by either the opposition or participation clauses of the anti-discrimination statute. Although the Court found that the employee had not “opposed” any discriminatory conduct and therefore could not make out an opposition claim, the court found that she was protected by the “participation” clause, a conclusion that caused the Court to deny the defendant’s Motion for Summary Judgment.
As the Court noted, the EEOC argued that both that the “plain language” of Title VII’s retaliation provision broadly protects assistance or participation “in any manner” and that without protection, employers could intimidate witnesses identified in Charges of Discrimination, which could deter them from participating in investigations. The Court found these arguments persuasive.
As the District Judge observed, the Supreme Court had admonished: “We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there.” Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253-54 (1992). [I don’t know whether the Supreme Court cited to Dr. Suess for this proposition, but if not, it should have. See, Horton Hatches An Egg.] Further, the Court stated that “the explicit language of the participation clause offers broad protection to Title VII claimants.” Although the precise issue presented in the Creative Networks case had not been addressed by the Ninth Circuit, the District Court emphasized that a number of circuit courts had given the anti-retaliation provision of Title VII an expansive interpretation, citing, Hashimoto v. Dalton, 118 F.3d 671, 680 (9th Cir. 1997) (initiating complaint with EEOC counselor is protected activity);and, Jute v. Hamilton Sundstrand Corp., 420 F.3d 166, 174-75 (2d Cir. 2005) (employee named as witness in deposition but who never testifies engages in protected activity).
Moreover, as referenced above, the Creative Networks court analyzed the specific issue in the broader context of the statute as a whole and its overall purpose. Citing to last year’s Supreme Court’s Crawford decision, the court stressed, “prudent employees would have a good reason to keep quiet about Title VII offenses against themselves or against others” if an employer could punish employees who reported discrimination without remedy. Adopting a variation of this analysis, the Creative Networks court concluded: “Without the protection of Title VII, witnesses named in EEOC charges could be intimidated into not testifying or supporting a co-worker’s discrimination claims. Title VII prosecutions would be chilled because witnesses would be afraid of retaliation by their employers.”
What then are the takeaways from this analysis?
First, if an employee is named as a witness in a Charge of Discrimination, the prudent course is to assume that he or she is protected by the “participation” clause of Title VII’s anti-retaliation provision.
Second, certainly once a company makes a decision to interview those identified in a Charge of Discrimination, the persons interviewed will have “participated” in the investigation.
Third, the individuals conducting the investigative interviews should be sure to stress that the interviewees will not be retaliated against in any way.
Fourth, if the interviewee provides testimony or other information suggesting that he or she is also a victim of discriminatory conduct, a separate investigation should be conducted into those allegations.
Fifth, particularly if the interviewee provides corroborating testimony relating to the allegations of the initial Charge or provides information identifying other types of discriminatory conduct directed at herself or others, the company needs to recognize that it is not “business as usual” with regard to any potential adverse actions directed at that employee. Such actions, particularly if they are in temporal proximity to the interview, will invariably lead to a retaliation claim.
Finally, even if an employee provides critical information about a company and its discriminatory and/or retaliatory conduct, that does not mean the employee is untouchable. If the employee engages in wrongful conduct, the company can take appropriate disciplinary action. But, ensure that the company’s response is based on the wrongful conduct and not the provision of critical testimony. Be prepared to explain clearly why the explanation for the adverse job action is not merely a pretext or cover-up for discriminatory or retaliatory conduct.
Key California Employment Decisions from 2009
Top 5 Decisions by the California Supreme Court in 2009
Originally published in the Daily Journal, February 5, 2010.
By: Mandana Massoumi
The California Supreme Court decided a number of key cases in 2009 that offer a mixed bag for employers attempting to manage and prevent employment litigation. A review of these decisions is instrumental as they can significantly impact employment policies and practices.
Protecting Legal Audits and Other Attorney-Client Privileged Communications
On November 30, 2009, the California Supreme Court issued its decision in Costco Wholesale Corporation v. Superior Court, S163335, reaffirming the importance of the attorney-client privilege by holding that the privilege protects all communications with outside counsel. Specifically, the Court vacated and rejected the trial court’s ruling ordering an in camera review and redacted disclosure of the “factual” portions of the privileged communication.
In June 2000 Costco Wholesale Corporation (“Costco”) retained outside counsel to conduct an evaluation and provide legal advice regarding classification of certain manager positions as exempt from California’s overtime laws. The outside counsel conducted a fact-finding investigation which included interviewing Costco managers and thereafter prepared a 22-page opinion letter to Costco’s in-house counsel, that contained both factual and legal analysis of their findings (“Outside-Counsel letter”). In 2001, Costco reclassified its ancillary managers as non-exempt employees.
Plaintiffs filed a wage and hour class action lawsuit against Costco, alleging that it had misclassified certain manager positions, including the ancillary manager positions evaluated in the Outside-Counsel letter. A discovery dispute ensued where Plaintiffs sought production of the Outside-Counsel letter. The trial court ordered an in camera review of the Outside-Counsel letter by the discovery referee, who then ordered certain portions of the letter containing “factual” information to be produced in redacted form. Costco sought a writ. The Court of Appeal denied relief, concluding that Costco had failed to show irreparable harm.
The California Supreme Court reversed the Court of Appeal’s decision. The Court found the Outside-Counsel letter was clearly “communication made in the course of an attorney-client relationship” and any disruption of this privilege can create “irreparable harm.” It further explained that the in camera review and order for production of redacted portions of the letter were inappropriate, because when the primary purpose of the communication is for “legal advice,” the privilege attaches to the communication in its entirety.
The Costco decision underscores the importance of preserving and protecting privileged communications with counsel. It is particularly important in the context of legal audits or other legal evaluations assigned to counsel, where factual summaries are discussed as part of the legal analysis. It is equally important that counsel involved in the process are those acting in their capacity as attorneys and clearly attach privilege to all communications.
Managing Employee Leaves, While Avoiding Claims of Harassment and Punitive Damages
In Roby v. McKesson, S149752, the Supreme Court addressed two key issues: whether personnel actions taken by a supervisor can be used as evidence of harassment, and the constitutional limits of punitive damages on these types of claims.
In McKesson, Plaintiff, who suffered from panic disorder, filed a claim of wrongful termination, harassment, and discrimination against her former employer, McKesson. Plaintiff claimed her supervisor ignored her, excluded her from meetings, reprimanded her in front of co-workers and commented on her scabs and body odors – conditions related to her panic disorder. McKesson’s attendance policy imposed discipline on employees for unscheduled absences and Plaintiff was eventually terminated due to absences she attributed to her panic disorder. At trial, the jury awarded Plaintiff $3,511,000 in compensatory damages against McKesson, $500,000 against the supervisor, and punitive damages in the sum of $15,000 against McKesson and $3,000 against the supervisor.
First, the California Supreme Court reversed the Court of Appeal’s opinion and found that evidence of personnel actions (e.g. write-ups and disciplinary actions) could be introduced in support of a claim of harassment: such conduct can contribute to hostility and be an “abusive message.” The Court explained that Plaintiff’s evidence presented in support of her alleged discrimination claim (e.g. being excluded from meetings and parties, ignored by her supervisor and mocked in front of others), could also be introduced as evidence of harassment. Second, the Supreme Court found that Plaintiff’s supervisor who managed only 4 people (in a company of 20,000 employees) did not qualify as a managing agent for purposes of an award of punitive damages. The Court found that McKesson’s implementation of its attendance policy and failure to designate Plaintiff’s leave under the FMLA were not intentional and malicious. The Court found the maximum punitive damages award was a one-to-one ratio to compensatory damages, reducing the punitive damages award to $1,905,000.
The McKesson decision offers mixed results for employers. It is favorable for employers defending against employment litigation by setting more reasonable caps on awards of punitive damages. However, it makes it more challenging to defend against claims of harassment as it blurs the line between evidence Plaintiffs can introduce in support of a claim of discrimination compared to that for harassment.
Forfeiture In Incentive Compensation Plans Can Be Permissible
On November 2, 2009, the California Supreme Court issued its decision in Schachter v. Citigroup, Inc., S161385, finding Citigroup’s incentive compensation plan’s forfeiture of unvested stock did not violation California Labor Code sections 201 or 202.
Citigroup’s voluntary incentive stock compensation plan provided participating employees with shares of restricted stock in lieu of compensation. The plan specified that upon resignation or termination for cause, the unvested stock would be forfeited. Plaintiff, who voluntarily terminated his employment, brought a putative class action against Citigroup, alleging that the plan’s forfeiture provision violated Labor Code sections 201 and 202 (requiring prompt payment of all earned wages at the time of separation of employment) and constituted an unlawful conversion of wages.
The California Supreme Court affirmed the Court of Appeal’s decision which found that the specific language of the plan governed. The Citigroup plan clearly specified that the restricted stock was not earned and would not fully vest until two years later, if Plaintiff remained employed. The Court explained that per the terms of the agreement, Plaintiff’s restricted stock was not vested and not earned at the time of his termination, and all other earned wages were timely paid.
This decision is helpful in so far as it offers further clarification regarding employer’s obligations to pay under the terms of such incentive compensation plans. However, it serves as a critical reminder that such agreements must be carefully drafted to clearly set forth all conditions precedent and vesting requirements to avoid any potential liability.
The Private Attorney General Act (PAGA): An Alternative to Class Action Claims
The California Supreme Court’s decision in Arias v. Superior Court, S155965, made it easier for Plaintiffs to proceed with representative actions, by alleging such claims under the PAGA.
In Arias, Plaintiff brought claims against his employer on behalf of a putative group of other employees under California’s unfair competition law (“UCL”) (Business and Professions Code section 17200) and the PAGA (Labor Code section 2698). The UCL permits a plaintiff to assert claims on behalf of a representative group of people, but requires the same certification requirements to assert a class action lawsuit (e.g. numerosity, commonality, typicality, etc.).
The California Supreme Court found that such representative claims can also be alleged under the PAGA, without meeting the class action requirements. Rather the Court explained PAGA claims are intended to permit recovery of penalties by aggrieved employees who can act as private attorney generals for purpose of enforcing labor code regulations.
The Scope of Workplace Privacy Rights
In Hernandez v. Hillsides, Inc., S147552, the California Supreme Court offered guidance to employers seeking to monitor employees at work. The Court provided guidance to employers as they balance employee privacy rights and legitimate business needs for monitoring employees.
Hillsides learned that someone was accessing pornographic websites using Plaintiffs’ computers, after hours. In response Hillsides installed hidden surveillance cameras in Plaintiffs’ offices to monitor activity after hours. When Plaintiffs discovered the cameras, they sued for invasion of privacy and intentional and negligent infliction of emotional distress.
The trial court granted summary judgment in favor of Hillsides and the Court of Appeal overturned, finding there was an invasion of privacy. The Supreme Court noted that “while privacy expectations may be significantly diminished in the workplace, they are not lacking altogether,” and found that privacy rights can be greater in enclosed spaces, such as offices. The Court also noted Hillsides had failed to provide any notice to Plaintiffs that such surveillance might take place as none was noted in its handbook. The Court found that because there was a greater expectation of privacy and the method of intrusion was invasive, Hillsides had intruded on a zone of privacy. Nonetheless, the Court held that the claim for invasion of privacy did not survive as the surveillance was limited to one computer and after hours.
Hillsides makes clear that employers must specifically outline the possibility of surveillance or any other monitoring system in their policies to provide adequate notice to their employees. It also highlights the employer’s obligation to support any such surveillance with legitimate business reasons and to limit it in scope.
New Legislation, (Non)-Quirky Question # 135
Quirky Question # 135:]
This question is not particularly “quirky” but I’d like to know what legislation Congress currently is contemplating that bears upon employment issues. Can you provide any guidance?
Roy’s Analysis:
There are a variety of legislative initiatives being considered by Congress that could impact the employment relationship. At the present time, however, it is difficult to predict whether any of these legislative efforts will be successful. The recent Massachusetts Senate election and the resulting loss of the Democratic super-majority in the Senate may result in the delay or indefinite postponement of some of the initiatives currently underway. Moreover, the current focus on the nation’s health care debate and the polarization caused by that debate also may affect the passage of some or all of these bills, especially if the mid-term elections further alter the composition of the House and Senate. Nevertheless, there are at least ten significant bills that are being contemplated at the present time of which employers should be aware. In alphabetical order, they are described briefly below:
1) Employee Free Choice Act (EFCA): This bill has received the most attention of all the potential employment legislation and has been the subject of numerous lobbying efforts and advertising campaigns. The legislation is key to the union movement, which contributed strongly to President Obama’s election victory. Conversely, it is strongly opposed by various employer and business groups.
EFCA was introduced in the House and Senate in March 2009, approximately one year ago. There are two critical features of the legislation of which employers should be aware. First, in its current form, EFCA would eliminate the right in unionization campaigns for secret ballot elections. A union could be certified as a bargaining representative for the affected employees if a majority of the employees in the relevant bargaining unit have signed “authorization” cards. Fifty percent, plus one, would suffice to result in unionization of the bargaining unit. The principal concern that employer groups have expressed about this prospect is that undue pressure may be brought on employees to sign the authorization cards and that the union “campaign” will be over before an employer even knows it is underway.
Second, in the context of a “first contract” negotiation, if the employer and employees cannot agree within 90 days on the contract terms, those terms may be determined through binding arbitration. Again, the concern articulated by employer groups is that an arbitrator, who may or may not fully understand a business, will be empowered to impose contract terms on the employer and employees alike.
There are other features of the bill that, if passed, would affect the employer/employee relationship for those employers with unionized employees or with employees who seek to organize. Given the publicity associated with this bill from both its advocates and detractors, you can be confident that you will learn much more about it if it is resuscitated. [Note: We have been monitoring EFCA quite closely and have presented seminars on this evolving legislation. If you would like a copy of the PowerPoint materials we have generated in connection with our most recent seminar on EFCA, please send me an email with your contact information – name, company, position, address, and email. I then will forward you the referenced materials.]
2) Employee Non-Discrimination Act: This legislation was introduced in the House and Senate in August 2009. Simply summarized, if passed it would prohibit discrimination against any employee with respect to his or her terms or conditions of employment based on actual or perceived sexual orientation or gender identity.
As with so many other pieces of legislation, until the competing bills are passed by the House and Senate and reconciled, it is difficult to predict accurately the full ramifications of the potential statute. Note, however, that many states (including, for example, Minnesota) already prohibit discrimination on the basis of sexual orientation, and many companies that do business in all fifty states already have internal policies prohibiting sexual orientation discrimination. Thus, while the potential statute could create new rights in states that do not currently provide this protection, it likely will not change the way companies do business in many states throughout the U.S.
3) Fairness in Arbitration Act: This Bill, which was proposed in July 2009, would invalidate arbitration agreements in employment, consumer and franchise contracts between parties of unequal bargaining power, unless both parties voluntarily agree to use arbitration after a dispute arises. The legislation exempts collective bargaining agreements. Otherwise, however, it would have extremely broad ramifications. In my view, this proposed legislation is perhaps the most significant of all the legislation being considered, and has the potential to eviscerate well-established arbitration programs that many companies utilize to handle workplace disputes.
4) Family Friendly Workplace Act: This legislation was introduced in early 2009. It is one of the proposals currently being considered to amend the Fair Labor Standards Act (FLSA). This legislation would allow private sector employers to offer employees the option of taking “comp time” PTO rather than receive cash wages for all overtime hours worked at a rate of 1.5 hours per hour for which the overtime premium would be due. The maximum accrual of “comp time” would be 160 hours (essentially, one month’s work). There are certain prerequisites that must be met for an employee to be eligible. Of course, as with the other legislation discussed in this analysis, until the final provisions of the legislation are agreed upon and the bill is converted into a statute, the specific prerequisites will not be fully known.
5) Family Medical Leave Act (Expansion): This legislation is, as the name implies, an expansion of the existing statute, the FMLA. As proposed, the expansion would mandate leave for employees to address the effects of domestic violence. In addition, the modified FMLA would provide employees up to 24 hours of unpaid leave per year to attend school activities, or to take family members to regular dental or medical appointments.
6) ForeWARN Act: As the name of this legislation implies, it too represents an expansion of an existing statute (WARN). The proposed modification of this statute, introduced in June 2009, would amend WARN by expanding the scope of covered employers, expanding the scope of what constitutes a “plant closing,” and expanding the scope of automatically covered “mass layoffs.” Employers would be required to provide employees covered by an employment loss with 90 days advance notice. Moreover, the scope of the notice would be expanded.
7) Healthy Families Act: This legislation, introduced in May 2009, would require employers with more than 15 employees to provide workers up to 56 hours of paid sick leave annually.
8) Paycheck Fairness Act: The most recent version of this legislation was passed in the House in January 2009. This bill would amend the Fair Labor Standards Act “to provide more effective remedies to victims of discrimination in the payment of wages on the basis of sex.” Essentially, the Paycheck Fairness Act would make it more difficult for employers to defend pay discrimination claims, creating the risk of punitive damages and establishing an “opt-out” rather than an “opt-in” class for class action claims alleging differential compensation based on gender.
9) Protecting Older Workers Against Discrimination Act: This proposed legislation is a Congressional response to last year’s Supreme Court decision of Gross v. FBL Financial Services, Inc., 129 S. Ct. 2343 (2009). [To see my prior analysis of the Gross decision, use the “View By Topic” tab on the upper left-hand side of this page and go to “Age Discrimination.”] In October 2009, following the Gross decision, legislation was advanced that essentially would undo that Supreme Court decision and treat age discrimination cases in the same manner as discrimination cases under Title VII. Specifically, the legislation would reinstate the “motivating factor” standard that was previously used for age discrimination cases and repudiate the “but for” analysis adopted by the U.S. Supreme Court. (Again, keep in mind that the “motivating factor” framework still may be the governing law under state anti-discrimination statutes, regardless of the Supreme Court’s interpretation of the ADEA and regardless of whether this legislation is passed.)
10) Working Families Flexibility Act: This legislation was first introduced in December 2007, and reintroduced in March 2009. Under current law, employers have considerable flexibility to determine whether to offer flexible work arrangements and if so, what kinds. The proposed legislation would give employees the rights to request flexible work options, including changes in the number of hours the employee is required to work, the times when the employee is required to work, and the location where the employee is required to work. Employees also would have the right to seek reconsiderations of employer decisions on these issues. To the extent that employers do not comply with the requirements imposed, employees could file complaints with the Department of Labor, which could impose penalties and damages for infractions.
As the ten examples above illustrate, Congress is debating a number of pieces of legislation that could affect significantly the employer/employee relationship. Employers and employees alike should monitor these legislative proposals to determine which, if any, of these bills become law. If any (or all) of these proposals become statutes, I will provide additional details regarding the final versions of these statutory schemes.
Consumer Privacy Issues
The Federal Trade Commission’s Sears Holdings Enforcement Action – Developments in Online Behavioral Advertising, Privacy and Social Media
By: Melissa Krasnow and Peter Skrief
Companies engaged in online behavioral advertising – the practice of tracking an individual’s online activities to deliver advertising tailored to the individual’s interests – should review their privacy policies, terms of use and agreements and similar documents against their actual and contemplated online behavioral advertising practices in light of the Federal Trade Commission focus on this area.
In 2009, the FTC brought the enforcement action In the Matter of Sears Holdings Management Corporation, FTC File No. 082 3099. Sears Holdings Management Corporation (“Sears Holdings”) disseminated via the Internet a software application for consumers to install onto their computers (the “Application”) to participate in an online community. The “Privacy Statement and User License Agreement” (the “Agreement”) on the consumer registration page described the Application’s specific functions beginning at the 75th line, including how consumers could stop participating and remove the Application from their computers. The Agreement also included a reservation of right to continue to use information collected before a consumer’s “resignation.” Consumers needed to indicate through a blank checkbox next to a statement that they had read and agreed to the terms and conditions of the Agreement before installation. The Application functioned and transmitted information substantially as described in the Agreement when installed.
The FTC alleged that the following facts would be material to consumers in deciding to install the Application and the failure to disclose these facts, in light of the representations made, was a deceptive practice in violation of Section 5 of the Federal Trade Commission Act. The Application when installed would (i) monitor nearly all of the Internet behavior occurring on consumers’ computers, including (A) information exchanged between consumers and websites other than those owned, operated or affiliated with Sears Holdings, (B) information provided in secure sessions when interacting with third-party websites, shopping carts and online accounts and (C) headers of web-based email; (ii) track certain non-Internet related activities on those computers and (iii) transmit nearly all monitored information to the remote computer servers of Sears Holdings.
The FTC issued and approved a consent order in late 2009. This order is in effect for approximately 20 years. First, Sears Holdings must cease collecting any data transmitted, and destroy any information or data transmitted from a computer, by an Application installed before the order to any Sears Holdings computer server.
Second, Sears Holdings must notify affected consumers who downloaded and installed the Application on a computer in connection with the on-line community (i) that they have installed the Application on their computers (which collects and transmits to Sears Holdings and others the data described in the Agreement) and (ii) of how to uninstall the Application. Sears Holdings must provide prompt, toll-free, telephonic and electronic mail support to help affected consumers uninstall any Application. Notification must be made for two years by posting of a clear and prominent notice on the on-line community website. The order defines “clearly and prominent” with respect to text, video, audio and interactive media. For three years, Sears Holdings must notify affected consumers who complain or inquire about any Application.
Third, in connection with the advertising, promotion, offering for sale, sale or dissemination of any Application before the consumer downloading or installing it, Sears Holdings must disclose clearly and prominently, and before the display of, and on a separate screen from, any final “end user license agreement,” “privacy policy,” “terms of use” page or similar document: (i) all types of data that the Application will monitor, record, or transmit (including, without limitation, whether (A) the data may include information from the consumer’s interactions with a specific set of websites or from a broader range of Internet interaction, (B) the data may include transactions or information exchanged between the consumer and third parties in secure sessions, interactions with shopping baskets, application forms, or online accounts and (C) the information may include personal financial or health information); (ii) how the data may be used and (iii) whether the data may be used by a third party.
Fourth, Sears Holdings must obtain express consent from the consumer to the download or installation of the Application and the collection of data by having the consumer indicate assent to those processes by clicking on a button or link that is (i) not pre-selected as the default option and (ii) clearly labeled or otherwise clearly represented to convey that it will initiate those processes or by taking a substantially similar action.
Finally, Sears Holdings must (i) file with the FTC written reports regarding the manner and form of its compliance with the order and (iii) maintain and upon request make available to the FTC copies of all documents relating to compliance with the order for four years.
According to FTC Chairman Jon Leibowitz at the FTC Privacy Roundtable in December 2009, “[t]he thrust of our case was that, while the extent of tracking was described in the [Agreement], that disclosure wasn’t sufficiently clear or prominent given the extent of the information tracked, which included online bank statements, drug prescription records, video rental records, library borrowing histories, and the sender, recipient, subject, and size for web-based e-mails. So consumers didn’t consent with an adequate understanding of the deal they were making.”
This enforcement action followed the FTC’s issuance of its Staff Report on Self-Regulatory Principles for Online Behavioral Advertising in 2009, which describes the following four Principles: (i) transparency and consumer control, (ii) affirmative express consent to (or prohibition against) using sensitive data for behavioral advertising, (iii) reasonable security and limited data retention for consumer data and (iv) affirmative express consent for material changes to existing privacy promises. The first and second Principles are relevant to the enforcement action. First, every website where data is collected for behavioral advertising should provide a clear, concise, consumer-friendly, and prominent statement that (A) data about consumers’ activities online is being collected at the site for use in providing advertising about products and services tailored to individual consumers’ interests and (B) consumers can choose whether or not to have their information collected for this purpose. The website should also provide consumers with a clear, easy-to-use, and accessible method for exercising this option. Second, companies should collect sensitive data for behavioral advertising only after they obtain affirmative express consent from the consumer to receive this advertising.
Discrimination on the Basis of Color, Quirky Question # 134
My company is planning a reduction in our workforce, which largely consists of African-Americans. I understand that when a company conducts a mass layoff, it should make sure the layoff does not disproportionately affect older workers, women or men, or employees of a particular race, or else the company risks being accused of discrimination. But doesn’t the law also protect employees from discrimination based on color? If so, do we also need to worry about letting go a disproportionate number of “dark-skinned” or “light-skinned” employees? How would we even go about measuring this? I know our African-American workforce consists of a broad spectrum of skin tones.
Joel’s Analysis:
[Readers: Quirky Question # 134 was posed to my colleague Joel O’Malley. Joel’s analysis is set forth below. If you have any comments, do not hesitate to contact Joel at 612.492.6727 or at omalley.joel@dorsey.com. Additional information about Joel is available at http://www.dorsey.com/omalley_joel/. If you have any questions or comments, please send me a note at ginsburg.roy@dorsey.com. Regards, Roy]
You raise a good question about whether a “disparate impact” claim can successfully allege discrimination based on color. While intriguing in theory, I think for practical reasons such a claim could not succeed, so I do not believe that you need to agonize over your employees’ varying skin tones when planning your reduction in force. To reach my conclusion, it is best to begin with a brief summary of anti-discrimination law.
As you note in your question, anti-discrimination law prohibits discrimination against individuals in certain protected classes, based on characteristics such as age, sex, race, national origin, or color. Employees generally can assert discrimination claims under two legal theories: disparate treatment and disparate impact. Disparate treatment claims alleging race, sex, age, or national origin discrimination typically involve an employee in the protected class claiming her employer intentionally treated her less favorably than persons outside of the employee’s protected class. For example, a female employee might sue claiming her employer denied her a promotion, instead advancing a less-deserving male coworker. In such a scenario, the distinction between the allegedly disfavored plaintiff and the favored coworker is based on a clear and evident difference—the employees’ sex.
Disparate impact claims do not allege intentional discrimination, but rather encompass the type of scenario you describe here – a facially-neutral policy (e.g., a reduction in workforce based on financial or business reasons) that disproportionately affects individuals in a protected class. For example, a female employee might sue after a mass layoff claiming that the group of terminated employees included too many females, while too few female employees were spared termination.
Cases involving alleged color discrimination are relatively rare, and typically are brought under a disparate treatment theory. In color-based cases, the aggrieved employee can be – and often is – the same race, sex, age, and national origin as the allegedly favored coworkers and the allegedly discriminatory supervisor. That employee, however, claims she is, in the employer’s eyes, “too dark” or “too light” in color. The cases, while different than those involving other protected classes, are straightforward. To determine the merits of such cases, the court must, among other things, compare the relative skin tones of an individual plaintiff and a limited number of her coworkers.
As an example, in one older case, a light-skinned Pakistani employee sued his Pakistani employer, claiming darker-skinned Pakistani employees were favored. Ali v. Nat’l Bank of Pakistan, 508 F. Supp. 611 (S.D.N.Y. 1981). Another, more recent case involved a light-skinned Native-American employee claiming that her employer favored darker-skinned Native-American employees. Nettle v. Cent. Okla. Am. Indian Health Council, Inc., 2009 U.S. App. LEXIS 14470 (10th Cir. July 1, 2009) (unpublished). In yet another case, an employer defended itself against an employee claiming that light-skinned employees were favored, by arguing that it had in fact replaced the dark-skinned plaintiff with a darker-skinned worker. Brack v. Shoney’s, Inc., 249 F. Supp. 2d 938 (W.D. Tenn. 2003). The congressional discussions leading to the enactment of the anti-discrimination laws specifically noted the laws’ applicability to cases like these, expressly noting the law would apply when, for example, an employer refused to hire an African-American because her skin pigmentation was “too dark,” even if the employer was also an African-American. See Cong. Rec., Feb. 8, 1964, at H-2552-2555.
Unlike these intentional discrimination cases, there do not appear to be any published court decisions involving claims that an employer’s facially-neutral practice or policy had a disparate impact on persons of a particular color. In theory, such a claim could exist, like the previous example of a female worker suing her employer following a mass layoff. In your situation, a dark-skinned African-American employee could argue your company’s layoffs, while ostensibly based on neutral criteria, resulted in the termination of too many darker-skinned employees, while too few darker-skinned employees remained employed.
Perhaps the chasm between theory and reality with these color-based disparate impact cases stems from the practicality of enforcing a claim. First, there is the problem of classifying skin-tone. Even scientists have a difficult enough time categorizing the wide variety of skin pigmentation in the human race – first using the complicated 36-tone Von Luschan chromatic scale, then more recently using the six-tiered Fitzpatrick scale (primarily for grading sunburn risk). We cannot expect an employer to do much better. While it is relatively simple to determine whether an employee is male or female, of one race or another (though the idea of race does have its complexities), or to determine in the disparate treatment context whether a single plaintiff is darker or lighter than a few allegedly favored coworkers, categorizing large numbers of employees based on skin tone is not a “black or white” question.
Second, even if scientists (and employers) could perfect the practice of color-grading, doing so at the workplace or in the courts seems rather distasteful. In fact, despite Congress’s apparent approval of color-based discrimination claims, several courts, even in disparate treatment cases, have cautioned the judiciary to be wary of “the unsavory business of measuring skin color and determining whether the skin pigmentation of the parties is sufficiently different to form the basis of a lawsuit.” See Sere v. Bd. of Trs. of the Univ. of Ill., 628 F. Supp. 1543 (N.D. Ill. 1986); see also Franceschi v. Hyatt Corp., 782 F. Supp. 712 (D.P.R. 1992) (noting that courts have “shied away from grappling with cases that deal with subtle degrees of intra-racial discrimination”); Walker v. I.R.S., 713 F. Supp. 403 (N.D. Ga. 1989) (observing the “genuine and substantial” difficulties in comparing skin pigmentation).
An additional problem with color-based disparate impact claims is the lack of a legal demarcation instructing an employer how to test the lawfulness of a facially-neutral practice. For sex, the employer can easily determine whether men or women are disproportionately impacted. Likewise, determining race or national origin represented in the workforce may be accomplished without much difficulty. Even age – which, like color, exists in the workplace in a broad range – contains a bright-line cutoff under federal law, with individuals age 40 and older afforded protected from discrimination. In contrast, skin color does not have any clear cutoff.
Without such a cutoff, we cannot expect employers to ensure employees throughout the skin-tone spectrum are equally affected or disaffected by an employment practice. Courts in age-based disparate impact cases have declined to accept employees’ requests for a protection against such “subgroup” discrimination. For example, in EEOC v. McDonnell Douglas Corp., 191 F.3d 948 (8th Cir. 1999), employees claimed that a workforce reduction, while not disproportionately affecting employees age 40 and older, disproportionately affected employees age 55 and older. The Eighth Circuit Court of Appeals rejected this argument. The court explained that “if disparate-impact claims on behalf of [age] subgroups were cognizable . . . , the consequence would be to require an employer engaging in a [reduction in force] to attempt what might well be impossible: to achieve statistical parity among the virtually infinite number of age subgroups in its workforce.” Id. at 951. Given courts’ reluctance to allow a disparate impact claim based on an age subgroup, courts would likely also recognize the analogous difficulties with a color-based theory. Certainly the Eighth Circuit’s reasoning applies to color-based disparate impact lawsuits: it may well be impossible for an employer implementing a neutral practice or policy to achieve parity among various categories of skin tone (be they six or thirty-six distinct subgroups) in its workforce.
For all of these reasons, I am skeptical as to whether a legitimate color-based disparate impact case could ever be properly pled in court. In sum, then, continue to test for whether your company’s layoff has a disproportionate impact on employees with respect to age (forty and older), gender, race, and national origin. But there is little reason, and inherent practical difficulty, in also testing for color-based disparate impact.
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