An employer’s attempt to explain its side of a dispute in a collective action alleging that it improperly classified “fit models” as independent contractors came close to crossing the line into inappropriate communications found a court in Agerbrink v. Model Service LLC dba MSA Models. Although the court declined to enjoin the company’s chief operating officer (COO) or the employer itself from discussing the litigation with putative class members, it did concluded that a corrective notice was required and placed limited restrictions on future communications to address any harm caused by an email and to protect against future harm.
The plaintiff filed a collective action alleging that the employer violated her FLSA rights and those of other “fit models” by misclassifying them as independent contractors. At a pretrial conference, she raised concerns about an email sent by the COO to members of the putative class. The plaintiff contended that the email contained statements that were misleading, coercive, and likely to chill participation and confuse potential opt-in plaintiffs.
Employer’s relationship with models. Of critical concern to the court was the business relationship between the employer, a modeling agency, and the models. Was the communication from the agency to the models inherently coercive? Here, the court observed that the potential opt-in plaintiffs may be inclined to defer to the defendants because of the nature of their relationship. The models not only were economically dependent on the agency, but also looked to it for “guidance.” As a result, the fact that the models relied on the employer for “professional advice” made it less likely they would question information they received from a senior executive and, therefore, more likely they would be misled by misrepresentations or omissions in the email.
Moreover, the court found the email’s depiction of independent contractors versus employees as one-sided by casting independent contractors in a more positive light. However, it concluded that the statements did not come across as a “statement of law,” nor did they suggest a legal test used by courts in deciding employee status. Thus, while the description of independent contractors and employees was selective, it was not so misleading as to require correction.
Tax status. The court was also troubled by the implications of the email that any change in tax status would be negative. The defendants were correct that the lawsuit had “foreseeable outcomes that could well impact the tax status and resulting tax obligations of the models.” But, the court found the email’s discussion of tax status misleading in its one-sided presentation of the tax benefits and responsibilities of independent contractors and employees. The email suggested that independent contractors paid fewer taxes because they may deduct “substantial legitimate business expenses” and have “no income withholding for taxes,” whereas employees “are limited in what employment business expenses they can deduct” and “have federal, state and city taxes and social security withheld from their pay.” However, the email did not mention that independent contractors are still liable for income tax, but pay taxes directly rather than having them withheld from earnings.
The potential for this omission to mislead was compounded because the models looked to the employer for “professional advice.” Because the email cataloged specific differences between the tax liabilities of employees and independent contractors, the court pointed out that the putative class members would have no reason to question its accuracy. Given the parties’ relationship, the court found this aspect of the email both coercive and misleading.
Employer’s interest in litigation. The court also disagreed with the defendants’ argument that the employer was not obligated to disclose its interests in putative class members’ non-engagement in the lawsuit, or that the email’s acknowledgement that the employer was defending the lawsuit clearly meant that it was being sued and that its interests were adverse to the plaintiff’s and putative class members. In light of their ongoing business relationship, the models may presume that their interests are aligned with the employer’s, and therefore may not question the email’s “advice.” Thus, the court found that the email’s failure to explicitly acknowledge the defendants’ specific adverse interests had the potential to mislead by omission.
Corrective measures. Still, while the court found that the email had the potential to mislead, it determined that its task was to tailor “the narrowest possible relief” which would protect the respective parties. As a result, the court ordered a corrective notice and a limited restriction on future communications; however, it declined to enjoin the COO or the employer from discussing the litigation with the putative class members.
You’ve noticed it: A new supervisor comes in and heads roll—and often, it’s the older heads. It’s not surprising in itself, because often a business chooses to bring in new management in order to make changes. But how many times do the changes made by new management result in litigation? Regardless of the outcome, employers must defend such lawsuits, a time-consuming and expensive proposition.
Consider the apparently ham-handed behavior of the new supervisors in the cases below:
Insubordinate shoulder shrug. Take, for example, a 56-year old truck driver with a 20-year unblemished work history. His new supervisor fired him on the spot for insubordination because, during a routine morning meeting where the supervisor asked employees whether they were having any problems with their trucks, the driver, whose mouth was full of coffee, shrugged his shoulders to indicate he was not. Present at the meeting for the first time were two newly hired younger employers, one of whom—the 19-year-old with no feeder-truck driving experience—took over the fired employee’s duties.
Also notable was the fact the company’s written policy for non-serious offenses, which required prior notice in the form of a warning or written write-up, was not followed. Although the district court had granted the employer summary judgment on the employee’s age discrimination claim, finding no fact issues as to pretext, the Fifth Circuit reversed and remanded in an unpublished opinion (Salazar v. Cargill Meat Solutions Corp., 5th Cir., October 8, 2015, unpublished).
Meeting the metrics isn’t enough. Or what about a manufacturing supervisor in her 50s, who had previously met expectations in her performance reviews, but whose new manager began giving her performance reviews where she met all objective, metrics-based goals, but said she did not “meet expectations?” Meanwhile, the reviews he gave to three other younger supervisors were that they had not met their objective goals but did meet his expectations. Did his actions reflect age bias, or was he legitimately addressing other aspects of the job such as leadership, knowledgeability, and accountability?
By the way, those negative performance evaluations kept her from receiving salary increases or performance bonuses. He also put her on a PIP; none of the younger supervisors, though they continued to not meet metrics-based goals, were placed on a PIP. She eventually got a new manager and was able to successfully complete the PIP and get a salary increase. She sued anyway, and the federal district court in Puerto Rico allowed her age discrimination and retaliation claims to go to a jury (Colon v. Medtronic, Inc., D. P.R., August 27, 2015).
Disparate discipline. Then there was the case of the discharged 56-year-old radiology technologist who during 20 years had incurred only one disciplinary discussion and had become the Lead CT Technologist. After a new supervisor’s arrival, however, she received 26 employee discussions, two verbal warnings, two written warnings, and three 90-day action plans over the next two years. She was ultimately terminated “for continued occurrences of failure to satisfactorily perform the responsibilities of her position.” Her replacement was 32 years old.
But she presented evidence that her replacement was not disciplined for similar “incidents.” Specifically, she identified four times in a two-month period where her supervisor counseled her eventual replacement for patient-care and work-performance errors, but which did not result in formal discipline; she contrasted that to evidence that she was placed on a 90-day action plan after four incidents over a three-month period. Noting that the hospital made no attempt to distinguish the replacement’s substantially identical conduct or the supervisor’s disparately imposed discipline, the court pointed out that the hospital relied on this action plan as the foundation for the employee’s later discipline and ultimate termination. It also noted that the new supervisor told her she was “too old to cry.” and allowed her age discrimination claims to proceed to a jury (Sampson v. Sisters of Mercy of Willard, Ohio, N.D. Ohio, June 29, 2015).
Lesson for managers
In order to minimize the risks, employers might want to consider proactive litigation avoidance training for new managers, especially in the area of age discrimination. A word to the wise, in advance, might have made new managers more aware of these potential pitfalls:
- If you’re going to raise standards, raise them for everyone. If new management has been brought in—or promoted from within—to raise performance standards, fine. Just make sure that the standards are raised objectively for all performers, not just for a select few who have been singled out for harsher treatment, particularly if they are performing the same job as younger counterparts.
- If you’re going to crack down, crack down on everyone’s violations. This is a corollary to Number 1: Tightening up discipline can be an appropriate goal in a workplace that has become too lax. If you tolerate behavior in a 25-year-old because you think it’s funny, but you write-up the same behavior in a 55-year-old because it’s not funny anymore, you’re asking for trouble.
- Follow procedures. When the policy says progressive discipline, follow it. New managers shouldn’t get to make up new disciplinary procedures or skirt the old ones—at least not without clear guidance from HR and, if necessary, employment counsel.
- Don’t be cruel. New managers sometimes feel the need to prove themselves. Perhaps that was a factor in some of the “gotcha” moments from the cases above. For example: Firing someone for insubordination on the spot because he didn’t verbally answer? Having decidedly different and apparently subjective expectations for an older manager that appeared to be a moving target? After apparently unprecedented “piling on” with disciplinary action, telling an older worker she was “too old to cry?” Each of these examples suggests an inexperienced or frustrated supervisor who was not carefully considering the possible repercussions of his or her actions. Those are actions you want your clients to avoid.
Small/mid-sized employers in some states face higher risk of employment charges than national average
U.S.-based companies have at least an 11.7 percent chance of being named in an employment discrimination charge, according to a study of employment practices litigation by global specialist insurer Hiscox. But businesses in New Mexico, District of Columbia, Nevada, Alabama, and California face a substantially higher risk of being sued by their employees when compared to the national average.
The 2015 Hiscox Guide to Employee Lawsuits uncovers the impact of employee charges and litigation on small- and medium-sized businesses and organizations with less than 500 employees, including defense costs and settlements. The report was compiled using the latest data on employment discrimination charge activity from the EEOC and its state counterparts across the United States.
High-risk states. Companies based in New Mexico face the greatest risk nationwide, according to the study, with a 66-percent higher chance of facing an employee charge than the national average. Employers are also at a high risk of employee charges in the jurisdictions listed below, along with the risk of litigation higher than the national average:
- District of Columbia (65 percent)
- Nevada (47 percent)
- Alabama (41 percent)
- California (40 percent)
- Mississippi (39 percent)
- Delaware (35 percent)
- Illinois (34 percent)
- Arkansas (22 percent)
- Tennessee (20 percent)
Variance between states. As to why there is so much variance in the level of risk among states, Hiscox pointed out that many of the higher-risk states identified in the survey have state laws that go beyond federal guidelines, which means additional obligations and risks for employers. Hiscox warned that it’s important for corporations, especially those operating in several states, to keep track of developments and related exposures.
Costs of defending litigation. A representative study of 446 closed claims for small and mid-sized businesses (under 500 employees) showed that one in five will face employment charges, with an average cost to defend of $125,000, including expenses such as attorney’s fees and settlement costs, according to Hiscox. For those with insurance coverage, the average deductible cost was only $35,000, compared to the $90,000 balance paid out by their insurance company. While most employment matters do not end up in court, when they do, the median judgment for cases that go to trial is about $200,000. One in four cases resulted in a judgment of $500,000 or more, according to Hiscox.
“Prevention is the best defense against lawsuits,” remarked Bertrand Spunberg, Practice Leader—Executive Risks at Hiscox USA. “Simple preventative and mitigation measures such as having written hiring procedures, an up-to-date employee handbook and proper training for employees on workplace discrimination and harassment are essential to minimizing risk and protecting your business.”
Region 6 of the National Labor Relations Board received a complaint October 13 alleging that the United Electrical, Radio and Machine Workers of America (UE) violated Section 8(b)(4)(i)(B) of the National Labor Relations Act, a provision prohibiting labor unions from encouraging workers to take part in boycotts during the course of their work duties, commonly known as “secondary boycotts.”
The union’s conduct forming the basis of the complaint stems from an August resolution endorsing the anti-Israel Boycott, Divestment and Sanctions (BDS) movement. The resolution, which opponents would argue is based on a false representation of the Israel-Palestinian conflict, blames the conflict on the creation of the Jewish State and “… urges the union at all levels to become engaged in BDS …” The UE says it is the first U.S. national union to endorse the movement. UAW Local 2865, which represents graduate employees of the University of California, lent its endorsement in 2014.
Attorneys for the charging party, David Abrams and Nitsana Darshan-Leitner of the Shurat HaDin Israel – Law Center, explain that the BDS movement “makes no attempt to boycott countries or entities which hang homosexuals, torture political opposition, or deny voting rights to their citizenry… Instead the BDS movement remains focused on Israel exclusively,” with prominent supporters having “admitted that their goal is to put an end to the Jewish State.”
“Filing a charge against the UE over its secondary boycott policy is a new tactic to combat the anti-Semitic BDS movement and its supporters,” said Darshan-Leitner. “It is a violation of American labor law for the union to encourage its members to cease doing business with Israelis and Israeli companies. The UE needs to decide whether it wants to be a discriminatory hate group targeting Jewish companies or a respected union representing the best interests of its members. We are insisting the NLRB take immediate action against the UE. We intend to force the UE to abandon its unlawful policies.”
By Lorene D. Park, J.D.
Making secret recordings at work to help prove that supervisors or coworkers were harassing or discriminating against an employee may seem like a clever way to avoid a he-said-she-said standoff in court, but plaintiffs who rely on such recordings to prove unlawful activity sometimes find that the tactic backfires. In the end, it is often a jury that decides whether the individual doing the recording was a clever plaintiff or a bad employee.
A “double-edged sword.” Secretly recording conversations with supervisors is a “double-edged sword,” explained the Tenth Circuit recently to an unsuccessful plaintiff, who failed to convince a jury that Spirit AeroSystems discriminated based on age when it did not hire her. Spirit had acquired the Boeing facility where she worked and it hired 85 percent of Boeing employees—but not the plaintiff, who was not recommended by her managers despite positive performance reviews. To help prove her discrimination case under the ADEA, the plaintiff used a recording she had secretly made at a meeting with her supervisor and a higher-level manager who made the recommendations to Spirit. The manager had asked if the plaintiff was “thinking of retirement” and whether she was “old enough.”
The plaintiff’s plan to use the secret recording as evidence of discrimination backfired. In what the appeals court called an “interesting turn of events,” Spirit used the recording to prove that she lacked teamwork, which was the proffered reason for why she was not hired. Apparently, the jury was swayed by Spirit’s argument. Refusing to disturb the verdict, the Tenth Circuit found no error in admitting the evidence and further concluded that any error was harmless because the plaintiff was allowed to explain why she made the recordings and to tell the jury that she had done nothing illegal (Housely v. Spirit AeroSystems, Inc.).
Taking the bitter with the sweet. As the Tenth Circuit aptly pointed out, secretly recording coworkers or supervisors may or may not work as intended in a subsequent suit, and employees often have to “take the bitter with the sweet.” Recordings seem to work best when an employee’s own behavior is not at issue. For example, the Seventh Circuit recently found that substantial evidence supported the NLRB’s conclusion that a car dealership and its corporate owner, in meetings that were secretly recorded by a dealership employee, addressed efforts to unionize by threatening workers with demotion and blacklisting, implying that unionization efforts would be futile and workers who did not support the union would receive wage increases. The recording thus helped the employees prove a violation of the NLRA (AutoNation, Inc. v. NLRB).
In another case, a Costco employee’s behavior was squarely at issue, because he was fired for secretly taping interactions with coworkers and customers. Filing suit for retaliatory discharge, he claimed the recordings constituted protected investigative activity. A federal court in Connecticut declined to decide if an employee is ever privileged to secretly record at work, but here, there was certainly no privilege. When Costco confronted the employee, he did not claim he made the recordings as evidence for his ADA suit; he gave no justification at all. Thus, it was not retaliatory for Costco to fire him under its policy against such recordings. Moreover, the scope of his recordings exceeded the purpose of his suit—recordings of customers had no possible relevance and though he recorded all interactions with coworkers, he did not claim he was harassed by all coworkers. Plus, his recordings of phone conversations violated criminal law, and some could be actionable as violations of privacy (Marini v. Costco Wholesale Corp.).
From the employer’s perspective. Some employers have zero-tolerance policies precluding the use (or even the presence) of recording devices in the workplace. This could come in handy if, during discovery in an employee’s lawsuit, it comes to light that the employee is made secret recordings. The employer could use it as after-acquired evidence of a terminable offense that could lead to a reduction in damages for lost wages. Possibly, as in the Spirit AeroSystems case, the employer could use the fact that the employee made secret recordings as evidence that the employee exhibited the trait for which he or she was fired—such as not being a team player.
Note, however, that in cases where an employer has fired an employee for violating such a policy, employers may face their own double-edged sword in relying on the policy violation as a legitimate reason for the termination. For one thing, the contents of the recording could suggest ulterior motives. For example, if the recording captures a supervisor harassing an employee or discussing unlawful reasons for the termination, the comments could suggest the termination over the policy violation was pretextual.
More importantly, employers must ensure that a policy against recording is enforced consistently. In one case, the Sixth Circuit found that a “zero tolerance” policy prohibiting cameras and recording devices on plant premises was a legitimate reason for refusing to rehire a former employee who the employer learned made secret recordings of a supervisor. However, there were questions of fact on whether this reason was pretextual because other employees were not disciplined for using similar devices (Sharp v. Aker Plant Services Group, Inc.). Thus, as is often the case in employment law cases, an employer’s consistency is key.