Supreme Court Issues Decision Regarding “Cat’s Paw” Claims of Discrimination

In the recent case of Staub v Proctor Hospital, the United States Supreme Court addressed the so-called “cat’s paw” claim of discrimination under the Uniformed Services Employment and Reemployment Rights Act. In a cat’s paw case, the employee seeks to hold the employer liable for the discriminatory intent of a supervisor who was not the ultimate “decision maker” for the challenged adverse employment action. The Court’s holding in Staub now makes it easier for employees to establish liability in such cases where a biased supervisor has influenced someone else to take the adverse employment action. This case is sure to impact employers, as its holding potentially reaches beyond USERRA and into other types of federal discrimination cases.

Staub worked as an angiography technician for Proctor Hospital. He also served in the U.S. Army Reserve, and took leaves of absence from work in order to attend monthly drill. Staub’s immediate supervisor (Mulally), as well as Mulally’s supervisor (Korenchuk), were allegedly hostile towards Staub’s military obligations. Mulally issued Staub a corrective action for purportedly violating the hospital’s work rules regarding failure to remain in his work area whenever he was not working with a patient. The corrective action directed Staub to report to his supervisors when had no patients. A few months later, Korenchuk reported to the hospital’s vice president of human resources (Buck) that Staub had violated the corrective action by leaving the work area without notifying his supervisors. Buck relied on this report and, after reviewing Staub’s personnel file, made the decision to discharge Staub for failure to comply with the corrective action

Staub later sued the hospital in Federal court for wrongful discharge in violation of USERRA, claiming that his discharge was motivated by his obligations as a member of the Army Reserves. Significantly, that claim did not allege that the decision maker regarding his discharge (Buck) held a discriminatory motive. Instead, and pursuant to the cat’s paw theory, Staub claimed that supervisors Mulally and Korenchuk held discriminatory animus and that their actions influenced the discharge decision. The jury found in favor of Staub on this claim, but the Seventh Circuit Court of Appeals reversed. The Seventh Circuit held that since the decision maker conducted an albeit limited investigation of the facts, her decision to discharge Staub was not singularly influenced by the non-decision maker supervisors holding discriminatory animus. Staub then appealed to the Supreme Court, which reversed the appellate court’s decision.

Writing for the Court, Justice Scalia first noted that USERRA’s statutory language provides that an employer has violated the Act where an employee’s membership in the uniformed services is a “motivating factor” in the employer’s adverse employment action. Justice Scalia’s opinion pointed out that this language is similar to that found in another major Federal employment statute, Title VII of the Civil Rights Act of 1964 (which prohibits discrimination on the basis of race, color, religion, sex or national origin). The key issue for the Court was to define the term “motivating factor” within the context of a cat’s paw case where the decison maker was not motivated by discriminatory intent. The Court held that “if a supervisor performs an act motivated by antimilitary animus that is intended by the supervisor to cause an adverse employment action, and if that act is a proximate cause of the ultimate employment action, then the employer is liable under USERRA.” Thus, the adverse employment action must be both the intended consequence of the non-decision maker’s conduct, as well as proximately caused by that conduct. The Court noted that proximate cause requires only “some direct relation” between the supervisor’s conduct and the adverse employment action. This holding apparently rejects any rule that a decision maker’s independent investigation prior to taking the adverse action automatically precludes liability for the employer. However, the Court left open the possibility that an investigation which leads to reasons unrelated to the supervisor’s biased conduct, and which would justify the adverse employment action, would allow the employer to avoid liability.

The Supreme Court’s decision in Staub will almost certainly encourage more employees to pursue “cat’s paw” litigation. Also, because of the similarity in statutory language with respect to the requirement that unlawful discrimination be a “motivating factor” for an adverse employment action, it seems likely that this decision will be applied in Title VII as well as USERRA cases. However, while the Court’s decision has made it easier for employees to advance a cat’s paw claim, employers should keep several important things in mind. First, the employee still has the burden of proving that the non-decision maker supervisor engaged in conduct motivated by discriminatory intent. Second, whenever the employer receives information which could prompt the taking of an adverse employment action, an immediate and thorough investigation should be undertaken. A decision maker must review all the facts and interview all relevant employee witnesses in order to make an informed and proper judgment as to the proper action. Lastly, employers should make sure that all supervisors are trained with respect to equal employment opportunity and anti-harassment laws, and that the employer’s policies in these areas are up to date. These steps still provide meaningful defenses to reduce the likelihood that any adverse employment action can be challenged successfully.

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Tax Court Disqualifies Plan for Not Adopting Required Amendments

Maintaining a retirement plan‘s qualified status comes with certain administrative burdens.  For employers, few burdens are more onerous than required plan amendments. Throughout the year, employers are informed that they need to adopt a plan amendment because of recent changes to the law.  Some amendments appear to lack a purpose.  After all, what is the worst that could happen if a plan’s compensation definition does not include the transportation fringe benefit, especially where participants are not offered transportation fringe benefits?  Recently, in Christy & Swan Profit Sharing Plan v. Commissioner of Internal Revenue, T.C. Memo 2001-62 (Mar. 15, 2011), the Tax Court explained the importance of adopting all required amendments.

In Christy & Swan Profit Sharing Plan, the Tax Court retroactively revoked a one-participant plan’s qualified status because it had not adopted timely amendments to comply with recent law changes.  In particular, the plan had not been amended to include qualified transportation fringe benefits in the definition of compensation, as required by the Community Renewal Tax Relief Act of 2000.  Additionally, the plan did not amend the definition of eligible retirement plan to include annuity contracts and eligible deferred compensation plans, as required by the Economic Growth and Tax Relief Reconciliation Act of 2001.  Instead of adopting these required amendments, the plan relied on a general “declaration” stating that the plan was amended by general reference to incorporate all statutory and regulatory amendments necessary to retain qualified status.  The Internal Revenue Service (IRS) notified the plan of its deficient terms and explained the options available under the audit closing agreement program under the Employee Plans Correction Resolution Program (EPCRS).  The plan’s sole participant, however, chose not to participate in EPCRS.

The arguments for and against plan disqualification, in this case, highlight the importance of maintaining a plan document that complies with all qualification requirements.  The argument against disqualification was that the plan did not need to be amended for statutory changes that would have no effect on its operation.  In other words, the plan claimed that the amendments had no meaningful purpose.  The argument in favor of disqualification was that the plan was required to satisfy the qualification requirements in form and in operation.  The plan’s failure to amend for statutory changes must be made in the context of what might have happened, not what actually happened, i.e., the employer may offer transportation fringe benefits in the future.

In granting summary judgment in favor of the IRS, the Tax Court unequivocally resolved the dispute by stating the following: “The requirements that a plan must satisfy for qualification under section 401(a) must be strictly met.  Vague, general references in plan correspondence to such requirements are insufficient.”

The Tax Court’s ruling reminds all plan sponsors of the importance of timely adopting required amendments.

Holyoke, Mass. Landlords Face Fines for Failing to Notify Tenants about Lead Paint

(Boston, Mass. – May 9, 2011) – A property management company and four owners of rental properties in and around Holyoke, Mass., face EPA penalties of up to $16,000 per violation for violating federal lead-based paint disclosure rules at properties in West Springfield and Holyoke.

According to a complaint filed by EPA’s New England office, Atlas Property Management of Holyoke and the four affiliated property owners are charged with 27 counts of violating lead-based paint disclosure requirements between Feb. 2007 and Nov. 2009 when they rented 11 housing units at 10 properties.

Specifically, the parties are charged with failing to give tenants required lead hazard information pamphlets, failing to include lead warning statements in leases, failing to include disclosure statements regarding lead-based paint or lead-based paint hazards, and failing to provide records or reports pertaining to lead-based paint or lead-based paint hazards.

The allegations are based on documents obtained from Atlas during a Sept. 2007 EPA inspection, as well as from the company’s responses to an Aug. 2009 EPA information request.  Atlas is based in Holyoke and manages more than 250 residential rental units.

The federal lead disclosure rule, a part of the Toxic Substances Control Act, helps ensure that tenants get adequate information about the risks associated with lead paint before they sign any lease obligating them to rent the unit. Infants and young children are especially vulnerable to lead paint exposure, which can cause developmental impairment, reading and learning disabilities, impaired hearing, reduced attention span, hyperactivity and behavioral problems. Adults with high lead levels can suffer difficulties during pregnancy, high blood pressure, nerve disorders, memory problems and muscle and joint pain.

Federal law requires that property owners, property managers and real estate agents leasing or selling housing built before 1978 provide certain information to tenants and buyers, including: an EPA-approved lead hazard information pamphlet called “Protect Your Family from Lead in Your Home;” a Lead Warning Statement; statements disclosing any known lead-based paint and/or lead-based paint hazards; and copies of all available records or reports regarding lead-based paint and/or lead-based paint hazards. This information must be provided to tenants and buyers before they enter into leases or purchase and sales agreements. Property owners, property managers and real estate agents each bear responsibility for providing lead disclosure information and must keep copies of records regarding lead disclosures for at least three years.