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PERSONAL LIABILITY IN THE WORKPLACE |
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| Bob Gregg Boardman Law Firm 1 South Pinckney St. Fourth Floor Madison, WI 53703 Phone • (608) 257-9521 Fax • (608) 283-1709 rgregg@boardmanlawfirm.com |
by Bob Gregg | ||||||||||||||||||||||||||||||||
| Two supervisors were held personally responsible to pay $450,000 each as part of a $12 million award to a fired employee due to statements they made. The jury found that the plaintiff had been discharged in violation of FMLA rights. In addition, the jury decided there had been an intentional violation by both supervisors who had made statements that they “intended to find grounds for dismissing the employee.” Schultz v. Health & Hospice Corp. (N.D., Ill., 2002). | |||||||||||||||||||||||||||||||||
| The U.S. courts have held that managers can be personally liable for wrongs committed in the scope of their employment. Discrimination cases against Employers are increasingly accompanied by personal tort actions against individual co-workers or managers. Third parties harmed by employees are also suing managers for negligent supervision. The Equal Pay Act allows suit of managers in their personal capacity. Recently, female attorneys sued a New York law firm and its managing partners for sex discrimination in pay. More such cases are anticipated. | |||||||||||||||||||||||||||||||||
| What is Personal Liability? | |||||||||||||||||||||||||||||||||
| Personal liability means that legal damages are collected from the individual's personal bank account, retirement fund and/or sale of personal property (car, home, collectibles, etc). Though there has always been some degree of personal liability in employment situations, the general rule was organizational liability. The employer paid; individuals did not. That's changing… | |||||||||||||||||||||||||||||||||
| Usually the Employer is sued as an entity (The Employer). In a growing number of cases plaintiffs are naming both the employer as well as the individual(s) accused of actually committing the violation. In these cases the court may award damages against both the organization and the individual manager. In some cases the plaintiff can elect to collect from either, or both. | |||||||||||||||||||||||||||||||||
| Under ERISA, there is personal liability for breach of fiduciary duty. Anyone exercising discretion can be a fiduciary, including owners, clinic directors, board members, HR staff and office managers. Watch for much closer benefit plan scrutiny and more legal cases as a result of the Enron benefit plan collapse, and the Sarbanes-Oxley Act. | |||||||||||||||||||||||||||||||||
| A trial court has allowed damages to be collected personally from a manager who was responsible for payment of wages and willfully failed to follow the Fair Labor Standards Act's overtime provisions. Afanassov v. Vor Broker (N.D. Ill., 2002). | |||||||||||||||||||||||||||||||||
| Individuals, especially supervisors are now frequent targets. Companies should warn and train their supervisors in order to avoid such liability. | |||||||||||||||||||||||||||||||||
| Why Would Someone Sue You? | |||||||||||||||||||||||||||||||||
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| The Old Rules Are Changing | |||||||||||||||||||||||||||||||||
| Anti-Discrimination Laws. The vast majority of employment litigation are discrimination cases. Under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act and the Americans with Disabilities Act, only the employer has liability. The perceived individual wrongdoer cannot be sued and is not liable for any damages under these laws, even if they behaved with intentional bad will. | |||||||||||||||||||||||||||||||||
| However, the previous “protections” from personal liability are now being eclipsed by a variety of personal liability causes of action. | |||||||||||||||||||||||||||||||||
| Adding a Tort Case. Adding a tort claim (civil suit) to another form of employment case is a growing plaintiffs' practice to exceed the statutory “caps.” The most common torts appended to employment cases are invasion of privacy, defamation, assault, conspiracy to harm employment, intentional interference with employment contracts and negligent supervision. Tort actions can carry both organizational and personal liability. | |||||||||||||||||||||||||||||||||
| Workers' Compensation laws protect individuals (co-workers and supervisors) from liability for most workplace injuries. In a number of states, the definition of “injury” includes many sorts of non-physical harms arising in the workplace, including defamation, negligent harm to profession or reputation, infliction of emotional distress and other “tort” actions. Injury caused by intentional acts of the employer or co-workers may not be barred by the Workers' Compensation exclusivity provisions. | |||||||||||||||||||||||||||||||||
| Laws Which Allow Personal Liability | |||||||||||||||||||||||||||||||||
| One may name individuals personally as defendants and collect damages from them under several laws. The most common are: | |||||||||||||||||||||||||||||||||
| Equal Pay Act (sex discrimination in pay), 29 U.S. Code §201, et seq. | |||||||||||||||||||||||||||||||||
| Family and Medical Leave Act, 29 U.S. Code §2601, et seq. | |||||||||||||||||||||||||||||||||
| Civil Rights Act of 1866, 42 U.S. Code §1981 (Race Discrimination). This federal race discrimination statute is being used to challenge more workplace issues, including probationary or at-will discharge, Lauture v. International Business Machines Corp. (2nd Cir., 2000), and discrimination against leased employees, Wal-Mart Stores, Inc. v. Danco (1st Cir., 1999); cert. denied 2000). Section 1981 does not have the Title VII $300,000 liability “cap.” The sky is the limit! So, it is becoming the “preferable” law for race discrimination plaintiffs. Section 1981 defines “race” broadly, including certain ethnic and religious groups. | |||||||||||||||||||||||||||||||||
| U.S. Fair Labor Standards Act (wages and hours), 29 U.S. Code §201, et seq. | |||||||||||||||||||||||||||||||||
| Wage Claims: Individual owners, officers and stockholders may be personally liable for unpaid wages if the organization cannot pay. | |||||||||||||||||||||||||||||||||
| Safe Place Acts: Individual employers and owners of facilities may be liable for causation for having unsafe facilities (owners); for removal of safety devices or failure to report unsafe conditions (employees). | |||||||||||||||||||||||||||||||||
| Health Insurance, Portability and Accountability Act (HIPAA), 42 U.S. Code §263. Privacy of medical information. | |||||||||||||||||||||||||||||||||
| Omnibus Crime Control Act (Electronic Communication Privacy Act), 18 U.S. Code §2501, et seq. Wiretaps and improper investigation of electronic communication (includes criminal penalties as well as civil liability). | |||||||||||||||||||||||||||||||||
| Sarbanes-Oxley Act and other securities laws hold managers and support staff personally liable for breach of fiduciary or ethical duties in financial, securities and benefits issues. | |||||||||||||||||||||||||||||||||
| Federal False Claims Act allows suits of any person for “defrauding the government” (“person” can also include corporations and government entities). The law has anti-retaliation provisions allowing any employee who was fired for reporting or objecting to fraudulent practices to sue the person(s) responsible. The Act allows “triple damages” in civil suits, as well as criminal penalties. | |||||||||||||||||||||||||||||||||
| Contribution By The Wrongdoer | |||||||||||||||||||||||||||||||||
| (The Backdoor Approach to Personal Liability in Discrimination Cases) | |||||||||||||||||||||||||||||||||
| Though the federal discrimination laws, Title VII, ADA and ADEA, do not allow a plaintiff to sue an individual, some employers have tried to implead the manager who caused all the trouble. The employer seeks “contribution” meaning if the company had to pay damages, it wants to get the money back from the individual who committed the discrimination. Some employers have been successful. | |||||||||||||||||||||||||||||||||
| Not Under Federal Law. The U.S. Supreme Court in Northwest Airlines, Inc. v. Transport Workers Union 541, 451U.S. 77(1981) ruled that allowing employers to recoup damages from individual managers would defeat the purpose of the Act, which was to hold employers responsible. Employers would have less incentive to have comprehensive anti-discriminatory practices if they could pass the buck. | |||||||||||||||||||||||||||||||||
| State Laws Differ. Some states have allowed employers to sue the individual managers for contribution under their state discrimination laws (Michigan, Kentucky, Main, New York, Oklahoma). | |||||||||||||||||||||||||||||||||
| Contract To Pay. Even in States which do not recognize a general right to seek contribution in a discrimination case, the Courts might recognize a separate contract right. In deciding against allowing general contribution, the Massachusetts Court stated that a company could protect its interests “by contracting with employees for indemnification.” Then, if the employer has to pay for an employee's discriminatory acts, it can sue that employee later in a separate suit under the contract for indemnification. Thomas v. EDI Specialist, Inc. (Mass.S.Ct., 2002). If this theory catches on, we may see managers having to sign agreements for Non-competition, Confidentiality and Indemnity. | |||||||||||||||||||||||||||||||||
PROTECTING YOURSELF AND YOUR MANAGERS |
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| Good Faith. Many of the laws on personal liability require a finding of “intention” before there can be a finding against an individual. Evidence of your good faith and fair dealing can be a powerful defense. Always take extra steps to show you were not “out to get” the employee or in a “rush to judge”. Intent can either be found from overt evidence or can be inferred from a manager's preferential practices, negligent practices or failure to follow standard procedures. Honesty is a crucial part of good faith. It is important not to overlook details or fill in gaps to try to strengthen a discharge decision. Be honest about the gaps in information when making employment decisions. An honest but mistaken belief is a defense against intentionality. | |||||||||||||||||||||||||||||||||
| Training. Managers are falling into liability due to ignorance. Courts are inferring intentionality against companies for their failure to train managers on basic employment issues. Managers are making mistakes and getting named in suits due to their lack of knowledge. | |||||||||||||||||||||||||||||||||
| My Lawyer Made Me Do It! A recognized defense against an allegation of personal or corporate intentionality is “Reliance on Advice of Counsel.” This interjects another party between you and the liability. Taking the advice of another professional means that the decision was advised by the attorney and not a result of the manager's intent to do harm. This helps insulate the manager from charges of personal intentionality. This means you should get legal counsel involved well before critical employment decisions are made. Last minute or “post facto” consultations will not suffice. You need to provide full details; advice of counsel is not a protection if managers hide information or overlook things in order to get the attorney to agree with their position or “side” with them. In fact, this could be additional evidence of intentional deceptiveness. | |||||||||||||||||||||||||||||||||
| Follow Rules and Policies. If there are organization policies or procedures, they should be followed. “Short cuts” create liability and lack of documentation. Learn the state and federal laws and follow them, especially in highly technical areas such as FMLA and FLSA. Make certain that all required notices are given and time frames are followed. | |||||||||||||||||||||||||||||||||
| Document. Your proof of good faith, and just cause for decisions is worth the paper it’s documented on. A jury's finding of “pretext” or intentionality is often based on a lack of contemporaneous documentation (“after the fact” documentation looks like a cover up). [Also see the article entitled, We Have the Straw that Broke the Camel's Back, but Where is the Rest of the Camel? by Bob Gregg, Boardman Law Firm.] | |||||||||||||||||||||||||||||||||
| Monitor/Control Functions. Establish a control function to review all significant employment decisions (hire, fire, exempt status) before they are final to ensure they abide by standard procedures and possess sufficient foundation. Monitor the patterns of pay and employment decisions to assure non-discrimination over time and consistency between different managers. Require managers to follow procedures and submit proper documentation. Review personnel files to be sure inappropriate information does not creep in. | |||||||||||||||||||||||||||||||||
| Confidentiality/Professionalism. Loose talk about employment decisions becomes “evidence.” Managers' angry expressions of frustration, or “flip” sarcastic comments about poor performers often result as evidence of bad faith. Keep employment issues confidential. Stay professional and do not openly vent frustration or sarcasm about employees. | |||||||||||||||||||||||||||||||||
| Ethics Committees. Establish ethics policies, a mechanism for review of financial information, and a process for employees to safely bring their ethics concerns to the attention of the organization for an objective review. | |||||||||||||||||||||||||||||||||
| INSURANCE MAY NOT COVER YOUR PERSONAL LIABILITY |
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| Employment cases have been the fastest growing category of litigation during past decade. Employment Practices Liability (EPL) insurance policies have likewise increased in popularity to cover these risks. | |||||||||||||||||||||||||||||||||
| EPL policies generally cover the organization's liability. They may not necessarily cover individuals who are also named in a case. There is a wide range of coverage available and organizations are turning to more comprehensive policies. The most common are “Directors and Officers” policies which personally cover board members and key executives. | |||||||||||||||||||||||||||||||||
| “Directors and Officers” policies may not cover the lower level managers who are most often accused of being the “direct actors” and named in cases. | |||||||||||||||||||||||||||||||||
| “Executive Protection” policies offer personal coverage for more levels of management. | |||||||||||||||||||||||||||||||||
| “EPL-Plus” policies can cover the whole array of directors, officers, partners, stockholders and all employees. | |||||||||||||||||||||||||||||||||
| However, who is supposedly covered is just the beginning. The “coverage” listing does not guarantee that the insurance will actually work in a given situation. Insurance policies contain numerous “exclusions” or “exceptions.” | |||||||||||||||||||||||||||||||||
| For example, personal liability is often based on a finding of “intentional” actions. Many insurance policies do not cover “intentional” actions by the insured. Liability can also be based on violation of employment laws. Many insurance policies do not cover individuals for “violations of law.” These exclusions are used by insurance companies to deny coverage, leaving the person stuck with legal defense bills and paying the plaintiff's damages. | |||||||||||||||||||||||||||||||||
| Just as there are a wide variety of policies, each company may have different exclusions. The consumer must carefully review them to see if the policy will actually accomplish the protection they expect. | |||||||||||||||||||||||||||||||||
| Possible Employment Liability Policy Exclusions or Exceptions: | |||||||||||||||||||||||||||||||||
| BOB GREGG is a partner
with Boardman Law Firm of Madison, Wisconsin. He has over 30 years
of experience in the area of employment relations and has conducted
over 2,000 seminars on employment law. Bob litigates and serves as
an expert witness in employment cases. His emphasis is to help employers
identify and resolve problems before they turn into lawsuits. Copyright©2003 by Robert E. Gregg |
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| All policies have some exceptions; they vary from company to company. While some policies fully cover what others excluded, no policy had all of the above. One reviewed policy had five single-spaced pages of exceptions; others had only a few key exceptions. | |||||||||||||||||||||||||||||||||
| Some policies also have special extra coverage features such as “spousal” coverage. This provides coverage in the event a plaintiff seeks marital property in order to satisfy a judgment and tries to collect from the spouse of the person who was an officer or manager in the employment case. |
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