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.

U.S. Supreme Court Expands Right To Claim Retaliation

The U.S. Supreme Court recently expanded an employee’s ability to meaningfully litigate retaliation claims against employers in two (2) significant opinions.  First, on January 24, 2011, the Court unanimously held that the anti-retaliation provisions of Title VII of the Civil Rights Act of 1964 (“Title VII”) protects third parties.  Thompson v. North American Stainless, LP, 131 S.Ct. 863 (2011) (terminated employee may bring retaliation claim arising out of his fiancée’s prior complaint of gender discrimination to the Equal Employment Opportunity Commission (“EEOC”)).  This landmark decision opened the floodgates to potential retaliation claims by third–parties under Title VII by failing to provide employers with a bright-line rule regarding the types of relationships and factual scenarios which are protected under Title VII’s anti-retaliation provision.

In that case, Eric Thompson and his fiancée, Miriam Regalado, were both employed by North American Stainless (“NAS”).  Thompson and Regalado met at NAS, began dating and ultimately became engaged to marry.  Their relationship was known to the company.  In February, 2003, the EEOC provided notice to NAS that Regalado had filed a charge of gender discrimination against NAS.  Approximately three weeks later, NAS dismissed Thompson.  Thereafter, Thompson filed a charge with the EEOC alleging that he was terminated in retaliation for his fiancée’s prior charge of gender discrimination.

The district court ruled in favor of NAS on the grounds that Title VII does not permit third-party retaliation claims.  Thompson appealed.  The Sixth Circuit Court of Appeals affirmed, holding that Thompson did not engage in any activity protected by Title VII and, therefore, he was not within the class of persons who had standing to bring a retaliation claim under Title VII.  The Supreme Court unanimously disagreed, reasoning that Thompson was not an “accidental victim of the retaliation-collateral damage” and concluded that Thompson’s interests were well within the “zone of interests” that Title VII is intended to protect.  The Court did not articulate a basis for determining when a potential third-party claimant’s interests qualified for Title VII protection.  Rather, the Court declined “to identify a fixed class of relationships for which third-party reprisals are unlawful.”

The Supreme Court issued a second decision in 2011 that expanded the ability of a claimant to bring a retaliation claim.  The Fair Labor Standards Act (“FLSA”) provides that it shall be unlawful “to discharge or in any other manner discriminate against any employee because such employee has filed any complaint . . . . under or related to this chapter . . . .” (emphasis added)  In Kasten v. Saint-Gobain Performance Plastics Corp., 2011 WL 977061 (2011), the Court held that the anti-retaliation provisions of the FLSA protect both oral and written complaints pertaining to alleged violations of the FLSA.  Similar to the decision in Thompson, the Kasten holding expands legal protections to employees asserting retaliation claims and puts employers in a quandary by not defining precisely what types of oral statements constitute the filing of a complaint that later may support a retaliation claim.

Kevin Kasten, a former factory worker in a Saint-Gobain plant, filed an action against his employer alleging that he was terminated after making an oral complaint to company officials pertaining to the location of the time clocks in the factory.  The trial court granted summary judgment to Saint-Gobain, and the Seventh Circuit Court of Appeals affirmed, holding that the FLSA’s anti-retaliation provisions did not protect (or extend to) oral complaints.  The U.S. Supreme Court, however, concluded that FLSA retaliation claims could be premised upon oral complaints and dealt a significant blow to employers when it held that if a “reasonable, objective person would have understood the employee to have put the employer on notice that the employee is asserting statutory rights under the Act,” then the oral comment is deemed to be a “complaint” that is “filed” and, therefore, protected activity under the FLSA.  Significantly, and similar to its holding in Thompson v. North American Stainless,  the Supreme Court again failed to provide any definitive parameters pertaining to the manner in which oral complaints should be “filed” or with whom they must be “filed.”

The ramifications of the Thompson and Kasten decisions for employers are far reaching.  Retaliation claims already comprise a significant portion of all federal employment discrimination claims.  The Supreme Court’s 2011 expansion of retaliation claims to allow both oral complaints under the FLSA and complaints by individuals other than the uniquely affected person will undoubtedly tee up years of litigation that will test, on a case-by-case basis, the limits of the expanded protections provided by these recent Supreme Court decisions.

Accordingly, prudent employers must cautiously analyze the relationships between fellow employees in order to recognize the potential ramifications of all dismissal and disciplinary decisions to determine if the employer’s action could spawn a retaliation claim because the disciplined or terminated employee’s relative (or fiancé) previously complained about some protected workplace event that preceded the contemplated discipline or dismissal.  Additionally, in response to Kasten, employers should train supervisors to adequately document and respond to oral complaints and, perhaps more importantly, how to differentiate (assuming that is even possible) between an employee who is simply grousing without intending to make a formal complaint and an employee who is genuinely attempting to lodge a complaint with his or her employer.  Ultimately, the U.S. Supreme Court’s decisions in 2011 remind employers of the age-old advice to “document, document, document” so that employers are prepared to defend their personnel decisions should a claim arise.

Walmart to Pay $440,000 to Settle EEOC Suit for Harassment of Latinos

Mexican-American Subjected Other Hispanic Employees to Ethnic Slurs at Fresno Sam’s Club, Federal Agency Charged

FRESNO, Calif. – Sam’s Club, the wholesale chain store owned and operated by Walmart, will pay $440,000 and furnish other relief to settle a national origin harassment lawsuit filed by the U.S. Equal Employment Opportunity Commission (EEOC), the agency announced today.

The EEOC contends that at least nine employees of Mexican descent at the Sam’s Club in Fresno, along with one who was married to a Mexican, endured ethnic slurs and derogatory remarks by a fellow co-worker who is Mexican-American. Since late 2005, the victims were barraged with near-daily insults about Mexicans such as “f—-n’ wetbacks,” and references to Mexicans only being good for cleaning the harasser’s home, according to the EEOC. The harasser even threatened to report three of the victims to immigration authorities despite their legal status. The victims and harasser – all female – worked in the demonstration department, serving food samples to customers.

The victims complained about the hostile work environment to management as early as April 2006 to no avail. Instead, the complaints only intensified the harassment and led to intimidation, said the EEOC. Another employee also began deriding a victim for her inability to speak English. It was not until after an official EEOC charge of discrimination was filed in October 2006 that Sam’s Club finally discharged the harasser in December 2006.

In May 2009, the EEOC filed its lawsuit in U.S. District Court, Eastern District of California (EEOC v. Walmart Stores, Inc. dba Sam’s Club, et al., Case No. 09-CV-00804), claiming that the harassment, and Walmart’s failure to appropriately address it, were in direct violation of Title VII of the Civil Rights Act of 1964. Aside from the monetary relief, the parties entered into a three-year consent decree which requires Walmart to comply with the following at its Sam’s Club locations in Fresno and/or Bakersfield, Calif.:

  • review and make available its policies against and complaint procedures for national origin discrimination, harassment and retaliation;
  • provide training to non-management employees in the Fresno location regarding anti-discrimination laws, including national origin discrimination and harassment;
  • provide separate training to management employees in the Fresno and Bakersfield locations which will including training on how to receive, investigate, or report to designated officials complaints of national origin discrimination, harassment and retaliation;
  • set up a record-keeping procedure for the Fresno location that provides for the centralized tracking system for such complaints;
  • report the handling of such complaints and compliance with the decree to the EEOC; and
  • provide neutral references for the victims upon inquiry.

“We commend Walmart for taking the issues of national origin harassment seriously and implementing preventative measures,” said Anna Y. Park, regional attorney for the EEOC’s Los Angeles District Office, which includes Fresno in its jurisdiction. “A work environment that is free of harassment ensures a more productive and vibrant workplace for all.”

Melissa Barrios, director of the EEOC’s Fresno Local Office, added, “National origin discrimination remains a serious problem in this region, and it is important to remember that harassment can manifest even within the same ethnic group. Employers failing to take immediate action send a message that such behavior is tolerated, giving license for others to do the same.”

According to company information, Walmart Stores, Inc. is an Arkansas-based international retailer, operating more than 8,300 stores worldwide, including Sam’s Club warehouses.

EEOC Sues HD Dimension Corp. To Enforce Conciliation Agreement

Tech Company Failed to Comply With Terms Settling Race and Age Bias Charge, Federal Agency Says

NEWARK, N.J. – A Newark, N.J., information technology training and service company violated a settlement agreement stemming from an age and race discrimination charge when it failed to complete payments that were a condition of the agreement, the U.S. Equal Employment Opportunity Commission (EEOC) charged in a lawsuit announced today.

According to the EEOC, HD Dimension Corp. entered into a conciliation agreement to resolve a discrimination charge and agreed to pay $32,500 to an applicant who, the EEOC found, had been discriminated against because of her age and race. The agreement also required various injunctive provisions including training for HD Dimension employees and management and training for third-party companies who did recruitment for HD Dimension. From October 2009 through February 2010, the company made monthly payments toward satisfying the conciliation agreement, but stopped after paying only $17,500 of the agreed-upon $32,500. HD Dimension never complied with any of the injunctive relief.

The EEOC filed suit in U.S. District Court for the District of New Jersey to enforce the agreement after HD Dimension failed to make any payments for 12 months. The EEOC filed suit after first attempting to reach a pre-litigation settlement through its conciliation process.

The conduct alleged in the original discrimination charge violates Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination based on race, color, religion, sex (including sexual harassment or pregnancy) or national origin and protects employees who complain about such offenses from retaliation. The alleged conduct also violates the Age Discrimination in Employment Act (ADEA), which prohibits discrimination in the workplace based on age.

“When the EEOC enters into conciliation agreements with companies, the process does not end there,” said Charles F. Coleman, Jr., a trial attorney in the EEOC’s New York office. “We continue to monitor these agreements to ensure that they are carried out and, in this case, it was not, so we had to take forthright action.”

Judy Keenan, the EEOC’s acting regional attorney in the New York office, said, “The EEOC will absolutely enforce the conciliation agreements it reaches, even if that means filing a lawsuit. The objective of this suit is to obtain full relief under the conciliation agreement and place others on notice that the EEOC will not tolerate this behavior.”

International Profit Associates to Pay $8 Million for Sexual Harassment of Eighty-Two Women

First Checks Being Mailed Under Decree Ending One of Longest-Running Sexual Harassment Cases in EEOC History

CHICAGO – The U.S. Equal Employment Opportunity Commission (EEOC) has announced that checks are now being distributed pursuant to an $8 million consent decree entered by federal district judge Joan Gottschall in what is believed to be one of the longest-running sexual harassment cases in EEOC history. Defendant International Profit Associates (IPA), the employer responsible for the sexual harassment of its female employees, is a telemarketer of small business consulting packages, located in Buffalo Grove, Illinois.

The decree provides for payment and distribution of the full $8 million in installments over three years. IPA made initial payments totaling $2.5 million into a professionally administered settlement fund on March 7, 2011, and checks are now being mailed to 82 women who were the victims of the harassment. The decree also provides for wide-ranging injunctive relief against IPA. The company’s compliance with the decree will be overseen by two court-appointed monitors.

“”All employees are entitled to a workplace that is free of sexual harassment,” said EEOC General Counsel P. David Lopez. “Unfortunately, there is a continuing need for law enforcement in this area, and this consent decree makes an important contribution to our mission to eradicate sexual harassment with its strong injunctive relief provisions and the relief provided to the individual women.”

The case (EEOC v. International Profit Associates, N.D. Ill. No. 01-CV-4427), was filed in federal court in Chicago on June 12, 2001 under Title VII of the Civil Rights Act of 1964. The amount of the payments being made today varies with the severity of the harassment suffered by each of the victims, with the highest payments being $70,000 and the average payment being in the range of $30,000. When the final installment payments are made and distributed, the average of all payments per victim will be approximately $100,000 per person.

According to the EEOC, IPA had a pattern or practice of sexually harassing its female employees, and the court made a formal finding to that effect, upon IPA’s concession, on June 14, 2010, prior to trial. The EEOC had alleged that the harassment involved a systemic pattern of sexual assaults and propositions, inappropriate touching, and crude sexual comments. EEOC had also contended that the highest ranking officers of IPA not only fostered a pattern and practice of sexual harassment but personally engaged in the harassment themselves.

There were extended delays in the more than nine year course of the litigation, as IPA filed numerous motions which the EEOC described as frivolous. These included a series of unsuccessful motions for sanctions by which IPA asked the court to punish EEOC in connection with the agency’s pursuit of the case. Trial of the case began on July 6, 2010. On the first day, in the middle of jury selection, IPA advised the EEOC and the court that it was willing to meet EEOC’s demands.

The balance remaining due on the $8 million decree is being personally guaranteed by the principal founder, owner, and chief executive of IPA He has, in addition, secured his personal guaranty by signing mortgages on certain of his personal real estate interests.

John Hendrickson, EEOC regional attorney in Chicago, said, “We are convinced that the $8 million consent decree in this case—yielding more dollars per person that either our Mitsubishi or Dial sexual harassment cases—is an excellent result, but we cannot find anything positive to say about the fact that an employer strung out a piece of civil rights litigation in the federal courts for almost 10 years.”

“But whatever the employer’s strategy,” Hendrickson continued, “the EEOC never waivered. We were determined to pursue a just result which provided appropriate relief for the victims of IPA’s discrimination and served the public interest no matter how long it took. We were not going to go away. IPA’s obstruction and delay never really figured in our expectations in the case, and that will continue to be true, just as it is in all of our cases.”

Diane Smason, the EEOC supervisory trial attorney responsible for the case, said “The claims in this case were based on allegations of absolutely egregious sexual harassment. We wanted the relief provided for in the consent decree to be appropriate in that context. We also wanted the relief to reflect the fact that the court itself made a specific finding that IPA had engaged in a pattern or practice of discrimination. The decree and the fact that that sizeable checks are going out to the victims of IPA’s discrimination are signal achievements. It’s going to be a better day for all the women covered by the decree.”

The consent decree includes injunctions against sexual harassment and retaliation, and measures designed to promote the eradication of harassment and accountability on the part of managers. It requires that IPA pay for two monitors who will review its policies and practices with respect to sexual harassment, assess its compliance with the training, prevention, and other measures being imposed, accept complaints of sexual harassment from employees, and report to the EEOC and the court. IPA must also report regularly to the EEOC on its handling of sexual harassment complaints. In the event IPA fails to measure up to the legal standards memorialized in the decree EEOC is authorized to return to court to seek additional court enforcement.

In addition to Hendrickson and Smason, the case was litigated by Chicago trial attorneys Jeanne Szromba and Ann Henry, with trial attorney Aaron de Camp joining the team prior to the scheduled trial.

EEOC Obtains $451,000 Jury Verdict Against Boh Brothers Construction Co. For Male-On-Male Sexual Harassment

Ironworker Abused on I-10 Project, Federal Agency Charged

NEW ORLEANS – A federal jury has awarded a former employee of Boh Bros. Construction Co., L.L.C. $451,000 to settle a sexual harassment lawsuit filed by the U.S. Equal Employment Opportunity Commission (EEOC), the agency announced today.

Following a two-and-a-half-day trial, the jury awarded Kerry Woods damages for the sexual harassment claim against the major construction firm, including $250,000 in punitive damages and $200,000 for emotional distress.

The EEOC’s lawsuit charged that a superintendent harassed and taunted Woods, who worked for the company as an ironworker, by engaging in verbal abuse and taunting gestures of a sexual nature, and by exposing himself. The harassment took place on the I-10 Twin Span project over Lake Pontchartrain between Slidell and New Orleans, La. The EEOC presented evidence at trial that Woods’s supervisor harassed him because he thought he was feminine and did not conform to the supervisor’s gender stereotypes of a typical “rough ironworker.”

The EEOC’s lawsuit further claimed that the company retaliated against Woods after he reported the superintendent’s harassment. Woods was transferred to another location, where he was paid less, and then “laid off,” supposedly because there was less work available at the new location.

Sexual harassment and retaliation for complaining about it violate Title VII of the Civil Rights Act of 1964. The EEOC filed suit in U.S. District Court for the Eastern District of Louisiana (EEOC v. Boh Brothers Construction Company, LLC (Civil Action No. 09-6460) after first attempting to reach a pre-litigation settlement through its conciliation process.

“All workers, male and female, are entitled to earn a living free from harassment based on sex or sex stereotypes,” said EEOC General Counsel P. David Lopez. “The jury’s verdict signals to employers the importance of having robust sexual harassment policies and training in place, including in predominantly male workplaces.”

The EEOC established that Boh Brothers had no policy that defined or specifically prohibited sexual harassment. The superintendent testified that before this lawsuit, he had never received training on sexual harassment.

“The jury’s verdict in this case vindicates the public interest and will benefit Boh Brothers’ employees,” said Jim Sacher, the EEOC’s regional attorney for the Houston District Office, which oversees all litigation in Louisiana. “This case demonstrates the failure of this company to prevent and properly respond to a serious matter for the construction industry: male-on-male sexual harassment by a supervisor and under isolated working conditions.”

Woods said of the verdict, “I am so grateful that the EEOC worked so hard for me, and that the jury paid so much attention to the evidence. I knew it wasn’t right that the company should be able to treat people this way. No one should have to put up with that kind of abuse day after day.” Woods testified during trial that he had pursued this case for so many years to see justice done.

This case is the third sexual harassment trial victory for the EEOC this year. The other two were EEOC v. Mid-American Specialties, in which a Memphis jury returned a verdict of $1.5 million, and EEOC v. Paul’s Big M, in which a Syracuse jury awarded $1.25 million.

New Orleans-based Boh Brothers is a major construction contractor that operates in the New Orleans and Gulf South areas. According to company information, Boh Brothers employs more than 1,500 people on many projects, including publicly funded post-Katrina rebuilding, repair and expansion projects.

The EEOC was represented by trial attorneys Gregory T. Juge and Tanya L. Goldman.

Fifth Circuit Rejects USERRA Hostile Work Environment Claims by Group of Continental Airlines Pilots

On March 22, 2011, the U.S. Court of Appeals for the Fifth Circuit issued its decision in Carder v. Continental Airlines, Inc., ruling that there is no cause of action for hostile work environment or harassment under the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), which prohibits discrimination against employees who serve in the uniformed services.  The Fifth Circuit is the first court of appeals to expressly address this issue.

Facts

Continental was sued by a group of its pilots who were also members of the Air National Guard and the Reserves. The pilots alleged that the airline had violated USERRA by subjecting them to a hostile work environment and harassment because of their military service obligations. For example, they complained that Continental managers made derisive comments to them such as:

  • “If you guys take more than three or four days a month in military leave, you’re just taking advantage of the system.”
  • “I used to be guard guy, so I know the scams you guys are running.”
  • It’s getting really difficult to hire you military guys because you’re taking so much military leave.”
  • “You need to choose between CAL and the Navy.”

The Fifth Circuit:

  • Refused to recognize a hostile work environment or harassment claim under USERRA because USERRA does not expressly provide for such claims and the language in USERRA is very different from that in other non-discrimination laws, such as Title VII of the Civil Rights Act of 1964 (Title VII) and the Americans With Disabilities Act (ADA), where hostile work environment and harassment claims have been recognized.
  • Reasoned that Title VII and the ADA prohibit discrimination against historically disadvantaged minorities with respect to the “terms, conditions, or privileges of employment.” In contrast, USERRA does not speak in terms of “conditions” of employment, but uses the more narrow language “any benefit of employment.”  Also, there is no indication that Congress considered members of the uniformed services to be a historically disadvantaged minority that needed special protection.
  • Concluded that if a service member suffers harassment to such a degree that it makes the workplace intolerable or otherwise adversely affects a benefit of employment, then the service member will have a claim against his/her employer for constructive discharge or other claim based on discrimination. Therefore, recognition of a hostile work environment or harassment claim under USERRA is unnecessary.

What This Means for Employers

  • The Fifth Circuit’s decision only has controlling effect in the states within the court’s jurisdiction – Texas, Louisiana, and Mississippi.  Federal district courts in other states, e.g., Alabama and Tennessee, contrary to the Fifth Circuit, have recognized hostile work environment claims under USERRA. These lower court decisions will continue to govern in that state until the appellate court with jurisdiction over the state or the U.S. Supreme Court issues a different ruling. Employers should be familiar with the law in their own state on this issue.
  • The Fifth Circuit’s ruling does not mean that employers have a free pass to engage in harassment of employees who serve in the military or to ignore complaints by employees of harassment because of their military service. Rather, employers must be as vigilant in preventing harassment against service members and as quick in addressing claims of harassment by service members as they are with respect to claims of harassment by female, minority, disabled or other historically disadvantaged minority employees.
  • Many employers include military service or a generic assumption of all “prohibited” factors into their harassment policies. As a result, the employer’s existing policy may continue to impose some obligations on the employers and its employees or provide grounds for discipline, unless the policy is amended by the employer.
  • The failure of an employer to prevent or promptly address hostile work environment or harassment complaints by a service member could result in employer liability for constructive discharge or other claim of discrimination under USERRA.

Racial Discrimination and the Hostile Work Environment: Employers May Be Responsible for the Actions of Their Customers and Vendors

All employers know that they must protect their employees from a hostile work environment based upon discrimination and harassment by other employees. A recent federal appeals court decision, however, clarified the steps that employers should take when their customers and vendors discriminate against or harass company employees.

In Chaney v. Plainfield Healthcare Center, the United States Court of Appeals for the Seventh Circuit held that a nursing home, by catering to a resident’s preference for white nurses, had created a hostile work environment for its employees based upon race. This Seventh Circuit decision reversed the trial court’s summary judgment ruling in the nursing home’s favor, ultimately remanding the case for a trial.

Understanding the Issues

In the Chaney case, the resident told the nursing home’s managers that she only wanted white nurses to care for her. Plainfield Healthcare Center acknowledged that it maintained a policy of complying with its residents’ racial preferences. The nursing home also argued that it expected employees to respect these preferences because it otherwise risked violating state and federal laws that grant residents the right to choose providers, as well as the right to privacy and bodily autonomy.

Chaney, an African American nurse’s aide, followed Plainfield’s policy, even though the prejudiced resident continued to appear on her assignment sheet. Chaney reluctantly refrained from assisting the resident, even when she was in the best position to help. However, after Chaney had worked for Plainfield for just three months, the nursing home fired her for alleged misconduct on the job.

Chaney then brought a race discrimination claim against the nursing home, alleging that Plainfield allowed a hostile workplace to exist in violation of Title VII of the Civil Rights Act of 1964. The federal appeals court had “no trouble” ruling that a reasonable person would find the nursing home’s work environment hostile or abusive. The court found that the nursing home fostered a racially charged environment through its assignment sheet, which daily reminded Chaney and her coworkers that certain residents preferred not to receive care from African American nursing assistants. Unlike her white counterparts, Chaney was restricted regarding the rooms she could enter, the care that she could provide and the patients she could assist.

The appellate court ruled that “a company’s desire to cater to the perceived racial preferences of its customers is not a defense under Title VII for treating employees differently based on race.” The court rejected Plainfield’s argument that laws designed to protect residents’ choices and autonomy justified its conduct, holding that residents’ privacy interests did not excuse the nursing home’s disparate treatment of its employees based upon race. Furthermore, the court suggested that Plainfield could have insisted that the racially biased resident employ a white nursing aide at her own expense.

The nursing home also argued that by preventing its African American nurses from treating the prejudiced resident, it was protecting those nurses from harassment, and that it could not simply discharge the resident to avoid exposing its employees to racial hostility. But the court noted that Plainfield had a range of other options, such as warning all residents of the facility’s non-discrimination policy prior to admission, securing written consent to the non-discrimination policy and attempting to reform the behavior of the racially biased resident after admission. The court further noted that the facility could have assigned staff based on race-neutral criteria that minimized the risk of conflict.

Notably, the court also suggested that Plainfield could have advised its employees that the resident was racially prejudiced, and informed them that they could ask the nursing home for protection from this and any other prejudiced residents. That way, the court explained, the nursing home would have allowed all employees to work in a race-neutral, non-harassing environment as the law requires, rather than imposing an unwanted, race-conscious work limitation on its African American employees.

Protective Steps for Employers

The Chaney case offers several lessons that employers should bear in mind. For starters, ensure that your discrimination and harassment policy clearly states that employees have the right to work in an environment free of hostility based on any legally protected class, even if that hostility is generated by customers, vendors or other non-employees. You should also consider informing customers and vendors of your non-discrimination policies where appropriate. If customers or vendors express a preference to deal only with certain employees—to the exclusion of others who belong to a legally protected class—then you should not tacitly cooperate. Instead, theChaney decision suggests that you should remind these third parties of your non-discrimination policy, warn employees that the customer or vendor is prejudiced, protect those employees from any hostility created by the customer or vendor, and help ensure that your employees have an easy way to communicate any hostile work environment to management.

Ultimately, you must measure the benefit of doing business with a prejudiced customer or vendor against the risk that your employees will suffer a hostile work environment, possibly leading to expensive discrimination or harassment claims. The Chaneydecision suggests that employers don’t necessarily have to choose one over the other, but that they are required to take steps to protect their employees from racial prejudice.

Federal Court Refuses To Toss Out EEOC Claim That Chrysler Retaliated Against Employees

Hostile Warnings of Discipline and Termination After Complaint of Sex Discrimination Are Enough for Case to Go Forward, Judge Says

MILWAUKEE – Automobile giant Chrysler Group, LLC’s effort to have an U.S. Equal Employment Opportunity Commission (EEOC) claim of unlawful retaliation thrown out of court has failed, the agency announced today. The EEOC has received a February 17, 2011 Decision and Order from District Judge William F. Callahan, Jr., denying Chrysler’s motion for summary judgment. The judge held that the EEOC’s claims of retaliation on behalf of two women employed in the company’s national parts distribution center in Milwaukee should go forward. (EEOC v. Chrysler Group, LLC, E.D.Wis. No. 08-C-1067, Decision & Order, 2/17/2011, D.J. Callahan.)

The claims were brought by the EEOC under Title VII of the Civil Rights Act of 1964 in a lawsuit filed in December 2009. According to the EEOC, one of the women was taken off what the court described as a “coveted position” driving a power sweeper and assigned to more physically demanding work “picking” parts to satisfy a “hot order” in the “back order area” of the warehouse. The EEOC said that when the woman and a coworker complained that a male employee with less seniority should have been assigned to that job, they were accused of “disrupting the workforce” subjected to verbal harassment and threatened with discipline up to and including termination.

Chrysler urged the court to summarily reject EEOC’s claims because the women were neither discharged nor suffered any other tangible loss such as a loss of pay, benefits, or position. According to Chrysler, “the alleged verbal harassment and intimidation is simply not the kind of actionable harm which Title VII contemplates.”

The court rejected that line of reasoning. “An adverse employment action [necessary to sustain a claim for retaliation] need not be tangible,” Judge Callahan wrote. The court then reviewed the circumstances surrounding the statements to the women, finding that “the manner in which [the manager] delivered his message to each woman matters. If he were screaming and pounding his fists on the table while threatening termination, as [the women] testified, this scenario paints a much more hostile and intimidating atmosphere than if [the manager] delivered his message in a normal tone of voice, as he contends he did.”

Because of this controversy, the court concluded, the trial should go forward to determine whether Chrysler’s behavior “would have dissuaded a reasonable worker from making a charge of discrimination.”

The EEOC’s regional attorney in Chicago, John Hendrickson, said, “This is an important decision. It is a firm reminder that the concept of retaliation under the federal employment discrimination laws is a common-sense one. The Supreme Court has said that if an employer responds to a discrimination complaint in a way which would dissuade a reasonable worker from filing a charge, that’s retaliation. The EEOC will move swiftly to stem such actions.”

In addition to Hendrickson, the case is being litigated by Supervisory Trial Attorney Gregory Gochanour and Trial Attorneys Bradley Fiorito and Grayson Walker, all of EEOC’s Chicago District Office. The EEOC’s Chicago District Office is responsible for processing charges of discrimination, administrative enforcement, and the conduct of agency litigation in Illinois, Wisconsin, Minnesota, Iowa, and North and South Dakota, with Area Offices in Milwaukee and Minneapolis.

Third Party Retaliation Claims under Title VII, the Discovery Rule under the NJLAD, and the Self-Critical Analysis Privilege under the FLSA

Employers conducting business in the New Jersey / New York markets should take note of several recent employment-related decisions. In Thompson v. North American Stainless, LP, 2011 U.S. LEXIS 913 (Jan. 24, 2011), the United States Supreme Court ruled that an employee who claimed he was fired because his fiancée filed a sex discrimination charge against their mutual employer could pursue a retaliation claim under Title VII of the Civil Rights of 1964. In Henry v. New Jersey Department of Human Services, 2010 N.J. LEXIS 1260 (Dec. 10, 2010), the New Jersey Supreme Court held that a terminated employee should have the opportunity to avail herself of the “discovery rule” and demonstrate that she acted reasonably in pursuing her discrimination claim in order to avoid a dismissal on statute of limitations grounds. In Craig v. Rite Aid Corporation, 2010 U.S. Dist. LEXIS 137773 (M.D. Pa. Dec. 29, 2010), discussed in the HR Tip of the Month, the Middle District of Pennsylvania declined to recognize the “self-critical analysis” privilege to protect a company’s voluntary internal assessment of its compliance with the Fair Labor Standards Act (FLSA), labor laws and existing bargaining agreements.

Thompson v. North American Stainless, LP

Eric Thompson and his fiancée were both employed by North American Stainless (NAS). Three weeks after being notified by the Equal Employment Opportunity Commission (EEOC) that Thompson’s fiancée had filed a charge of discrimination, NAS fired him. Thompson then filed a charge with the EEOC and later filed suit in federal court claiming that NAS fired him in order to retaliate against his fiancée.

The district court granted summary judgment to NAS, holding that Title VII did not permit third party retaliation claims. An en banc panel of the Sixth Circuit affirmed, concluding that because Thompson did not engage in any statutorily protected conduct, he was not included in the class of persons for whom Congress created a retaliation cause of action. The United States Supreme Court granted certiorari, and in an 8-0 decision, reversed the appellate panel.

The Court considered two questions: first, whether NAS’s firing of Thompson constituted unlawful retaliation; and second, did Title VII grant him a cause of action. The Court had little difficulty answering the first question in the affirmative, finding that if the facts alleged by Thompson were true, then his termination violated Title VII. Relying on past precedent, Justice Scalia, writing for the Court, observed that Title VII’s anti-retaliation provision, unlike the substantive provision, was not limited to discriminatory acts that affected the terms and conditions of employment. Rather, it prohibited any employer action that might dissuade a reasonable worker from making or supporting a charge of discrimination. The Court thought it obvious that a reasonable worker might be dissuaded from engaging in protected activity if she knew that her fiancé would be fired.

Regarding the second question, the Court addressed whether “aggrieved” under Title VII should be construed in a matter consistent with Article III standing, which requires only injury in fact caused by the defendant and remediable by the court. Justice Scalia concluded that “aggrieved” must be construed more narrowly. He also rejected the position advanced by NAS – that a “person aggrieved” refers only to the employee who engaged in protected activity. The Court adopted the “zone of interests” test, holding that “aggrieved” under Title VII enabled a suit by any plaintiff with an interest “‘arguably [sought] to be protected by the statutes.’” Applying that test, the Court concluded that Thompson fell within the zone of interests protected by Title VII, as (i) he was an employee of NAS, (ii) the purpose of Title VII was to protect employees from unlawful actions, and (iii) he was not an accidental victim of retaliation (but rather injuring him was NAS’s way of punishing his fiancée).

Henry v. New Jersey Department of Human Services

In April 2004, Lula Henry (Henry), who held a Master’s degree, was hired by Trenton State Psychiatric Hospital at an entry-level nursing position. In late Spring/early Summer 2004, Henry developed initial concerns that racial discrimination explained why she was hired at an entry level position, though her concerns were uncorroborated by any firm evidence. In late Summer 2004, Henry questioned her classification and requested reclassification; in response she remained assigned to her entry-level position. In November 2004, Henry resigned from Trenton State in order to take a position with another entity.

In the Spring of 2006, Henry was informed by a union representative that a Nigerian nurse had contested the placement of a less qualified Caucasian nurse and that there were widespread claims of racism at Trenton State. Henry also learned that a Caucasian nurse with similar credentials to hers was immediately hired into a higher job classification, contrary to what she was told about her placement. Henry claimed that prior to learning this information she had no factual basis to substantiate her earlier suspicions of race-based discrimination.

On July 24, 2007, Henry filed a complaint alleging racial discrimination in defendants’ hiring practice and retaliation in violation of the New Jersey Law Against Discrimination (NJLAD). Defendants moved for summary judgment based on the two-year statute of limitations applicable to NJLAD claims. The trial judge granted the motion, determining that Henry’s action accrued in 2004 and was not tolled by the discovery rule. The Appellate Division affirmed, and the Supreme Court granted certification. At issue was the impact of the “discovery rule” on NJLAD claims. That rule “delays the accrual of the action until the plaintiff ‘discovers, or by exercise of reasonable diligence and intelligence should have discovered, facts which form the basis of a cause of action.’”

Henry argued that her NJLAD claims did not accrue until 2006 because that is when she had some measure of corroboration of her concerns. Defendants argued that the discovery rule should not apply to NJLAD cases, but that even if it did, the rule would not be appropriate under the facts of this particular case.

The Court explained that the discovery rule is a well-established equitable doctrine that is applied when the statute of limitations would cause unnecessary harm without advancing its purpose. However, the Court did not find that there was an equitable basis on which to extend the statute of limitations on Henry’s retaliation claim, because that claim must have accrued at or before the date of her resignation in November 2004. As a result, the Court affirmed the Appellate Division’s dismissal of the retaliation claim.

The Court reached a different result on Henry’s discrimination claim. Noting its approval of the use of the discovery rule in LAD cases “when and where appropriate,” the Court held that this case might present such a circumstance. Henry had initial concerns in 2004 about her hiring and classification, but the reason she was given in response had nothing to do with racial discrimination. That, according to the Court, may have led her not to pursue the issue, thereby requiring the tolling of her cause of action. The Court held Henry was entitled to assert that she did not have reasonable suspicion of racial discrimination, even by the exercise of reasonable diligence, until 2006 when, among other things, she learned that less qualified Caucasian nurses were hired into advanced positions and she was told by her union representative about other claims of racial discrimination. Under these circumstances, the Court decided that Henry should get a hearing at which she could show that she acted reasonably in pursuing her claim of discrimination.

High Court Extends Retaliation Protection to Employee’s Family Members

On January 24, 2011 the Supreme Court reversed the Sixth Circuit in Thompson v. North American Stainless, LP and extended Title VII retaliation protection to family members of employees who engage in protected activities. The plaintiff in Thompson was fired within a matter of weeks after his employer received notice that his fiancée had filed a sex discrimination complaint with the EEOC. Mr. Thompson brought suit against the employer in Federal District Court claiming that he was fired in retaliation for his fiancée’s EEOC charge. The District Court dismissed the case on summary judgment on grounds that Title VII’s anti-retaliation provision does not cover “third party retaliation” claims. The District Court relied on well-established precedent requiring that a retaliation plaintiff first show that he or she engaged in protected activity. Since Mr. Thompson had not engaged in protected activity, the District Court concluded he was unable to establish a critical element of a retaliation claim. The Court of Appeals for the Sixth Circuit affirmed.

In a surprising decision, the United States Supreme Court unanimously reversed and held that while Mr. Thompson did not personally engage in a protected activity, he experienced the type of harm that Title VII’s anti-retaliation provision seeks to prevent. The Court fell back on its earlier reasoning in Burlington Northern and Santa Fe Railroad Company v. White, 548 U.S. 53 (2006), where it noted that Title VII’s anti-retaliation provision “must be construed to cover a broad range of employer conduct,” and held that the seminal test for retaliation is whether the employer’s action “might have dissuaded a reasonable employee from engaging in the protected activity.” Applying this logic, the Court concluded that a reasonable employee might be dissuaded from engaging in protected activity “if she knew her fiancée would be fired.” Although the Court stopped short of identifying a fixed class of relationships that will give rise to a retaliation claim, it attempted to narrow the reach of its decision by noting, “we expect that firing a close family member will almost always meet the Burlington standard, and inflicting a milder reprisal on a mere acquaintance will almost never do so…”

Despite the Court’s attempt to narrow its ruling, employers should be aware that the practical effect of Thompson is the creation of a new class of plaintiffs who will have standing to maintain a retaliation claim based on the protected activity of family members.

U.S. Supreme Court Expands Scope Of Individuals Who Can Bring Retaliation Claims

2010 marked the first year that retaliation claims under federal law became the most frequently filed charge with the Equal Employment Opportunity Commission (“EEOC”). On January 24, 2011, the U.S. Supreme Court issued a decision that may add to the number of retaliation claims by holding that individuals have a right to file a Title VII claim for “association” retaliation.

Association retaliation occurs when an employee is subject to a material adverse employment action (e.g.a termination, a pay cut, etc.) because of a relationship with another employee who engages in a protected activity (e.g., filing his or her own discrimination claim against the employer). However, the employee making the retaliation claim does not need to have engaged in protected conduct. It is sufficient that someone related to or associated with that employee did so. By recognizing association retaliation, this week’s Supreme Court decision expands the population of individuals who are capable of bringing a retaliation claim.

The Case

In Thompson v. North American Stainless, L.P., the employee, Thompson, and his fiancée, Regalado, both worked for North American Stainless (“NAS”). Regalado filed a sex discrimination charge against NAS with the EEOC. Three weeks later, NAS terminated Thompson. Thompson then filed his own charge against NAS with the EEOC, alleging that NAS fired him to retaliate against Regalado for her filing a charge with the EEOC. The trial court dismissed Thompson’s lawsuit on the grounds that third-party retaliation claims are not permitted.

The Supreme Court considered two questions: (1) Did NAS’s firing of Thompson constitute unlawful retaliation; and (2) if so, does Title VII grant Thompson a cause of action?

  1. Did NAS’s firing of Thompson constitute unlawful retaliation?

The Court found that NAS’s conduct was unlawful retaliation against Regalado, who had filed the discrimination charge. In Burlington Northern v. White, the Court held that Title VII’s anti-retaliation provision must be construed to cover a broad range of employer conduct and prohibits any employer action that would dissuade a reasonable worker from making or supporting a charge of discrimination. The Court found that a reasonable worker might be dissuaded from engaging in protected activity if she knew that her fiancé would be fired.

The bigger issue facing employers is how close the relationship must be between the two employees. In this case, the employees were engaged to be married. However, employees may date one another, become “best friends,” hang out casually, or attend the same church: would those relationships be considered “association”? The Court declined to delineate a line defining the closeness of the relationship between two employees that might fall within the boundary of association retaliation; instead, the Court found that the precise scope of retaliation claims that can be brought depends upon the particular circumstances.

  1. Does Title VII grant Thompson a cause of action?

The Supreme Court also found that Thompson could sue NAS for its alleged violation of his co-employee/fiancée’s rights under Title VII. Under Title VII, an employee has standing to sue for a retaliation violation if the employee claims to be aggrieved. The Court noted that this standard is broader than that applied to an employee who is discriminated against. Consequently, the Court determined that an employee is aggrieved under Title VII where he or she falls within the “zone of interests” sought to be protected by Title VII. The Court determined that a plaintiff would fall within the “zone of interests” unless the plaintiff’s interests were so marginally related to or inconsistent with Title VII that it could not be reasonably assumed Congress meant for the plaintiff to be protected. The Court cited to a previous decision where residents of an apartment complex could sue the owner for his racial discrimination against prospective tenants under the Fair Housing Act.Trafficante v. Metropolitan Life Ins. Co., 409 U.S. 205 (1972). Those tenants were “aggrieved” by the owner’s discrimination against others and would fall under the “zone of interests” sought to be protected under federal law.

The Court found Thompson’s interest fell within the “zone of interests” standard for two reasons: (1) he was an employee of NAS, and Title VII is intended to protect employees from their employer’s unlawful actions; and (2) accepting Thompson’s facts as alleged, he was not an accidental victim of the retaliation, but a means by which the employer could harm Regalado, the employee who filed the EEOC charge. The Court reasoned that hurting Thompson was the unlawful act by which NAS punished Regalado for her allegation of discrimination against NAS.

Takeaways

  • Employers can expect the number of retaliation claims to continue to grow. Thompson adds another potential claim to an adversely affected employee’s arsenal.  Even so, an employer still has its retaliation defenses available. For example, an employer will still defeat a retaliation claim where it can show it would have made the same decision for legitimate, non-discriminatory reasons (requiring the employee to rebut by showing the employer’s reason was a pretext) or that it was unaware of the protected activity when it took the adverse employment action. The Court did not consider argument on the employer’s defenses in Thompson because it was legally required to assume that Thompson’s allegations were factually correct.
  • The concurrence to the Thompson decision noted that as part of the EEOC Compliance Manual the EEOC has interpreted Title VII to forbid an employer from retaliating against a worker who engaged in protected activity by inflicting reprisals on a relative or other associated individual. Although the Manual does not define who is a relative or associated individual, it provides examples of spouses and children. In an odd twist, theThompson decision may cause the EEOC to look harder at association actions or cast a wider net on the relationships it will pursue.
  • Employers will need to pay closer attention to situations where they are aware of relationships. The degree of the relationship that can result in a retaliation claim still is unclear. Close family relationships and engagements between employees will be covered. “Best friend” status and non-family relationships still are questionable.

The Supreme Court’s decision should prompt employers to review their anti-retaliation policies and practices, and to ensure that they include anti-retaliation as an important component in their regular training.

U.S. Supreme Court Allows Lawsuit By Employee Who Claimed He Was Fired In Retaliation For His Fiancée’s Discrimination Complaint

On January 24, 2011, the United States Supreme Court held in Thompson v. North American Stainless, LP that an employee who claimed he was fired in retaliation for his fiancée’s discrimination complaint could pursue a claim against their mutual employer under Title VII of the Civil Rights Act.

In 2003, both Eric Thompson and his fiancée, Miriam Regalado, were employed by North American Stainless, LP (“NAS”). In February 2003, the Equal Employment Opportunity Commission (“EEOC”) notified NAS that Regalado had filed a Charge against the Company alleging sex discrimination. Three weeks later, NAS fired Thompson. Thompson then filed suit, alleging that he was terminated in retaliation for his fiancée’s EEOC Complaint.

In a unanimous decision, the Supreme Court held that Thompson could pursue his Title VII retaliation claim against NAS. The Court first determined that the alleged conduct was prohibited by Title VII. In doing so, the Court explained that Title VII’s anti-retaliation provision has been interpreted broadly, and prohibits any act that would “have dissuaded a reasonable worker from making or supporting a charge of discrimination.” Applying that rule, the Court held that a reasonable employee would be dissuaded from making a protected complaint if she knew that her fiancé would be fired as a result. Thus, the conduct alleged by Thompson, if true, would constitute unlawful “retaliation” under Title VII. However, the Court declined to say how closely related the plaintiff would have be to the complaining employee for an adverse action to be considered retaliation, leaving some uncertainty as to how broadly this rule will be applied in the future.

Having found that the alleged conduct was unlawful, the Court then went on to find that Thompson had standing to sue under Title VII. Title VII gives only “aggrieved” individuals standing to sue. The Court held that an employee is “aggrieved” within the meaning of Title VII if he or she falls “within the ‘zone of interests’ sought to be protected” by Title VII. This means that an individual has standing to sue if Title VII “arguably sought” to protect that person’s rights, but not if the individual has interests that are only “marginally related to or inconsistent” with the purposes of the law. Under this test, standing to sue is not limited to the specific employee who engaged in protected activity, but is not so broad as to, for example, allow a “shareholder . . . to sue a company for firing a valuable employee for racially discriminatory reasons.”

Applying this test, the Court found that Thompson had standing to pursue his own retaliation claim against NAS. Thompson fell within the “zone of interests” protected by Title VII because “the purpose of Title VII is to protect employees from their employers’ wrongful actions,” such as retaliation. Thus, because Thompson alleged that his termination constituted unlawful retaliation, he therefore had standing to pursue his claim.

This case expands employers’ potential liability under Title VII, as it places the employer at risk whenever a terminated employee has a relationship with another employee who has previously filed a complaint. Employers should exercise caution when terminating an individual whose spouse or family member will remain an employee of the Company. This case also serves to remind employers to carefully document the reasons for employee terminations, so that the terminated employee cannot later claim that he or she was terminated in retaliation for another employee’s protected activity, or for any other unlawful reason.

EEOC Alleges That The Use Of Credit Histories To Make Employment Decisions May Have A Disparate Impact On Minorities

The new year is a good time for employers to review their hiring practices to ensure that they are job-related and justified by business necessity. Indeed, even seemingly neutral hiring criteria may inadvertently have an adverse effect on a protected group of people. Recently, the use of credit histories to make hiring decisions has come under fire because it allegedly has a disparate impact on certain minority job applicants. On December 22, 2010, the Equal Employment Opportunity Commission‘s Cleveland Field Office filed suit against Kaplan Higher Education Corp. in the U.S. District Court for the Northern District of Ohio (Civil Action No. 1:10-cv-02882) alleging that Kaplan engaged in a pattern or practice of unlawful discrimination by refusing to hire a class of black applicants nationwide based on their credit history. Kaplan contends that it conducts background checks on all applicants, regardless of race, and that the use of credit reports is a necessary component of its background checks into applicants who would be dealing with financial matters, such as financial aid, if hired. The EEOC alleges that this practice violates Title VII of the Civil Rights Act of 1964 because it has a discriminatory impact on applicants due to their race and it is neither job-related nor justified by a business necessity.

Although it is legal for employers to review the credit history of applicants, employers should use the practice with caution, especially in light of this recent lawsuit. If credit histories are used to evaluate applicants, policies and procedures should be in place to ensure that the use is relevant and fair. Employers should also determine whether there is a sound business reason to obtain such information because, if it is not directly job related, it could be considered discriminatory. Indeed, running credit reports on all applicants, regardless of position, can have the effect of discriminating against protected classes, as alleged in the Kaplan lawsuit. Moreover, employers should be aware that credit checks are not always accurate indicators of a person’s qualification for a particular job or a valid predictor of job performance. On the other hand, an employer may be subject to allegations of negligent hiring if it does not run a credit report on an applicant who will work in a position that requires the handling of money or assets, makes fiduciary decisions, or has access to private financial data.

Several states, including Hawaii, Washington, Oregon, and Illinois have banned or severely limited the use of credit reports in hiring. Other states, including Connecticut, Georgia, Maine, Maryland, Michigan, Missouri, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, South Carolina, Vermont, and Wisconsin have proposed similar legislation. The California Legislature passed legislation limiting the use of credit reports in hiring, but it was vetoed by the Governor in 2008 and 2009.

Due to the increased scrutiny of the use of credit history as a hiring criteria, employers who use them should ensure that they are directly related to the job and necessary for business purposes. Employers should also review other hiring practices to ensure that they do not screen out groups of people, even if they do so unintentionally.