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Take note of the latest outsourcing trend: Employer liability for contractors’ discriminatory acts

September 21st, 2009  |  Deborah Hammonds  |  Add a Comment

>Most employers assume if they outsource their HR functions to independent contractors, so, too, will they not be held liable for their contractors’ discriminatory acts. That is simply not the case. As the Second Circuit’s recent decision in Halpert v. Manhattan Apartments, Inc., illustrates, just because you have hired an independent contractor to recruit and hire the staff for your company, it does not mean that you are off the hook for the contractor’s bad acts. Kinda scary when outsourcing HR is so commonplace in big business.

Just the facts. Michael Halpert interviewed for a position that required showing rental apartments for Manhattan Apartments, Inc. (MAI). The interview was conducted by the “apparent” hiring agent for MAI, Robert Brooks. During the interview, Brooks allegedly told Halpert that he was “too old” for the position. Not surprisingly, our applicant filed suit under the Age Discrimination in Employment Act (ADEA). The district court dismissed the case, finding that Brooks was an independent contractor, not an employee of MAI, and, the ADEA “does not apply to independent contractors.”

The Second Circuit reversed, holding that “an employer may be liable for discrimination by third parties, including independent contractors, that [it] authorizes to make hiring decisions on its behalf.” By its terms, explained the circuit court, employer liability under the ADEA is direct, not derivative: an employer may not “fail or refuse to hire… any individual…because of such individual’s age.” And, when liability for discrimination is “direct,” that prohibition applies to employers regardless of whether the employer “uses its employees to interview applicants for open positions, or whether it uses intermediaries such as independent contractors to fill that role,” explained the court. “If a company gives someone authority to interview applicants and make hiring decisions on behalf of the company, the company may be held liable if that contractor discriminates against an applicant because of the applicant’s age,” wrote the court.

Ultimately, MAI’s potential liability turned on whether Brooks was acting as the (apparent) hiring agent for the rental company when he interviewed Halpert for the position, or whether Brooks was simply hiring an employee on his own behalf. The Second Circuit observed that there were triable issues of fact precluding dismissal of the case on that issue: (1) MAI sponsored a training program for individuals hired to show the apartments and those chosen for the program would earn commissions from MAI; (2) MAI enlisted so-called “sales associates” like Brooks to interview candidates for the program; (3) the career counselor, who arranged the interview for Halpert, believed he would be interviewing for a position with the MAI, not Brooks; (4) the interview took place at the rental company’s offices; and (5) after the interview, both Brooks and another rental company associate told the counselor they were looking for someone younger.

There was also an agreement between MAI and Brooks, which set forth in great detail the rights and duties of both parties, especially with respect to Brooks’ jobs functions as a sales associate. While Brooks was to pay “his own expenses,” including “automobile, travel and entertainment expenses,” the agreement did not indicate that he was to compensate showers directly. MAI also presented affidavits from Brooks and an MAI representative asserting that Halpert, if hired, would have been compensated by Brooks, not MAI. But, MAI failed to corroborate the affidavits. In all, we are left with evidence cutting both ways.

What does all this mean? Every year we see an increase in HR outsourcing…the obvious reason being because it is “cost effective.” According to a recent survey from HR consultant Hewitt Associates, 94 percent of companies outsource at least one HR function or program. A case like Halpert serves as a warning to employers who want to outsource their recruitment and hiring functions. Employers will not be released from their obligations under federal anti-discrimination laws just because they have authorized independent contractors to make hiring decisions on their behalf. This should be taken into account when structuring any contract that outsources your HR functions. Perhaps a clause in the agreement requiring the independent contractor to buck up on its anti-discrimination training couldn’t hurt…for both parties.

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Individualized ADA assessment by checklist?

September 18th, 2009  |  Pamela Wolf  |  Add a Comment


The much-anticipated proposed regulation implementing the Americans with Disabilities Act Amendments Act of 2008 (ADAAA) is set to be published in the Federal Register the week of September 21, now that the Equal Employment Opportunity Commission (EEOC) has approved its notice of proposed rulemaking by a 2-1 vote. And it looks like the new regulation will include a checklist of impairments that always constitute a “disability” under the ADA.

The ADAAA, which took effect January 1, 2009, expands the scope of the ADA’s coverage. The new law leaves undisturbed the basic definition of “disability” as an impairment that substantially limits one or more major life activities, a record of such an impairment, or being regarded as having such an impairment, but changes the manner in which these terms are interpreted.

The federal agency says that, consistent with the ADAAA, its proposed rule emphasizes that:

  • the definition of disability – an impairment that poses a substantial limitation in a major life activity – must be construed in favor of broad coverage of individuals to the maximum extent permitted by the terms of the ADA, and should not require extensive analysis;
  • major life activities include “major bodily functions”;
  • mitigating measures, such as medications and devices that people use to reduce or eliminate the effects of an impairment, are not to be considered when determining whether someone has a disability; and
  • impairments that are episodic or in remission, such as epilepsy, cancer, and many kinds of psychiatric impairments, are disabilities if they would “substantially limit” major life activities when active.

According to the EEOC, its proposed regulation also provides a more straightforward way of demonstrating a substantial limitation in the major life activity of working, and implements the ADAAA’s new standard for determining whether someone is “regarded as” having a disability.

A new question-and-answer document (Q&A) posted on the EEOC’s website on September 17 gives a preview of what to expect in the proposed regulation. Of particular interest to employers is a list of impairments that will “consistently meet the definition of ‘disability’”:

  • deafness;
  • blindness;
  • intellectual disability;
  • partially or completely missing limbs;
  • mobility impairments requiring use of a wheelchair (a mitigating measure);
  • autism;
  • cancer;
  • cerebral palsy;
  • diabetes;
  • epilepsy;
  • multiple sclerosis;
  • muscular dystrophy;
  • major depression;
  • bipolar disorder;
  • post-traumatic stress disorder;
  • obsessive-compulsive disorder; and
  • schizophrenia.

The Q&A instructs that “the individualized assessment of whether a substantial limitation exists can be done very quickly and easily with respect to these types of impairments, and will consistently result in a finding of disability.”

But is an “individualized assessment” meaningful when it is expressly presumed that the same result will always be obtained?

This looks more like a checklist – a per se list of disabilities – than the “individualized assessment” that has always been the cornerstone of any ADA analysis. Will employers have any argument against these asserted impairments? Has the EEOC gone too far?

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Should attorneys’ ethical obligations bar them from bringing whistleblower claims?

September 16th, 2009  |  Cynthia L. Hackerott  |  Add a Comment

>Should attorneys’ ethical obligations to their clients bar in-house counsel from bringing whistleblower claims against their employers? In Van Asdale v International Game Tech (2009 U.S. App. LEXIS 18037, August 13, 2009), the Ninth Circuit Court of Appeals found that the ethical obligations of two Illinois-licensed attorneys, who claimed that a gaming machine company fired them in retaliation for raising fraud claims related to a merger, did not prohibit them from bringing federal SOX whistleblower claims. The federal appellate court ruled that the Van Asdales, a husband and wife who both worked for the company, could bring their SOX claims – even though the Illinois Supreme Court, in Balla v Gambro, Inc (145 Ill. 2d 492, December 19, 1991), has held that in-house counsel cannot bring a state law retaliatory discharge tort claim.  

In Balla, the Illinois Supreme Court held that a corporation’s general counsel, who was terminated as a result of his efforts to prevent a shipment of misbranded and/or adulterated medical devices, could not bring a retaliatory discharge claim even though his discharge was in contravention of a clearly mandated public policy. The state supreme court reasoned that extending the tort of retaliatory discharge to in-house counsel would compromise the attorney-client relationship because employers might be less willing to be forthright and candid with their in-house counsel. Moreover, allowing the claim would not promote disclosure of the misconduct because the attorney was required under the state’s rules of professional conduct to report the employer’s intention to sell the misbranded and/or adulterated medical devices; thus, the public policy of protecting the lives and property of citizens was adequately safeguarded. Finally, the court reasoned that if the tort were extended to in-house counsel, “the employer/client would be forced to pay damages to its former in-house counsel to essentially mitigate the financial harm the attorney suffered for having to abide by [the Illinois] Rules of Professional Conduct,” which was “impermissible” because attorneys may “have to forego economic gains in order to protect the integrity of the legal profession.”

Citing Balla, the company that employed the Van Asdales asserted that allowing them to maintain their SOX claim would violate the attorneys’ obligations under the Illinois Rules of Professional Conduct. Rejecting this argument, the Ninth Circuit distinguished Balla, noting that the Illinois Supreme Court explained that it “base[d its] decision as much on the nature and purpose of the tort of retaliatory discharge, as on the effect on the attorney-client relationship that extending the tort would have.” Furthermore, the Ninth Circuit concluded that “federal courts in Illinois have uniformly declined to apply Balla to claims based on federal law.”  

The company then argued that, irrespective of the specific rules applicable to Illinois-licensed attorneys, the Van Asdales should not be permitted to maintain their SOX claim because doing so would require use of attorney-client privileged information. However, the Ninth Circuit determined that such concerns did not justify barring the Van Asdales’ SOX claims because nothing in statute indicates that in-house attorneys are not protected from retaliation “even though Congress plainly considered the role attorneys might play in reporting possible securities fraud.” In addition, it was unclear to what extent their suit required disclosure of confidential information and the trial court could use equitable measures to minimize the possibility of harmful disclosures, the federal appellate court observed. 

It seems that the federal nature of the SOX claim was a key distinction here. Securities laws are exclusively under the jurisdiction of the federal government, and, as the Ninth Circuit indicated, Congress “plainly considered” when enacting SOX that attorneys would be privy to information regarding possible securities fraud. That being the case, it appears Congress determined that any adverse impact on attorney-client communications did not outweigh its goal of encouraging disclosures related to securities fraud.

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Less than half of Americans now approve of labor unions

September 14th, 2009  |  David Stephanides  |  Add a Comment

>The results of Gallup’s annual Work and Education survey find organized labor taking a significant image hit over the past year. While 66% of Americans continue to believe unions are beneficial to their own members, a slight majority now say unions hurt the nation’s economy.

More broadly, fewer than half of Americans – 48%, an all-time low – approve of labor unions, down from 59% a year ago. The 48% of Americans now approving of unions represent the first sub-50% approval since Gallup first asked the question in 1936. The previous low was 55%, found in both 1979 and 1981. That first poll found 72% of Americans approving of unions and only 20% disapproving.

Gallup attributes the downslide to the economic recession, and the aftermath of major economic interventions by the government on behalf of two of the Big Three domestic auto companies. Results were based on telephone interviews with 1,010 national adults, aged 18 and older, conducted Aug. 6-9, 2009. Gallup released its poll on September 3.

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Should the ADA certify service animals?

September 11th, 2009  |  Deborah Hammonds  |  Add a Comment

>Service animals seem to be in the news a lot lately and the stories indicate either confusion about or an unwillingness to recognize what service animals are. It’s not simply a matter of what the service animal is–be it a dog, a miniature horse, a monkey, or a parrot. The questions are about the tasks being performed and whether the animal is truly a service animal.

For instance, an Illinois public school district was sued by the parents of an autistic child after the school district banned the child’s service dog from entering the classroom. A judge granted a preliminary injunction against the school district but the child will have to start school without the dog since the judge believed it would be unfair for the dog to start without further discussion between the parties. (No date was set for the dog to enter the classroom.)

The school district argued the dog was not a service dog and not part of the student’s Individual Education Plan (IEP). The school district claimed that, because of this, the district had not been able to ascertain if the dog was necessary for the student to obtain an adequate and appropriate education. The district also argued the dog’s presence was an unfair burden to the rest of the students. Another student’s parent testified that her child had severe allergies that would prevent her from attending class if the dog were present.

In Texas, a university student claimed he needed his “doctor-ordered, therapy dog” for “emotional support,” but has run into the university’s “no-pets” policy. The university argued the student had not proven he is disabled or that his dog is a certified service dog. The student claimed to have provided the necessary documentation but–still no dog.

Then there’s always the question of whether the animal is truly a service animal. Litigation is currently pending in Canada where a dog owner has filed suit against the owners of a food store claiming they discriminated against him by not allowing him to bring his service dog into the store. The store’s owners argue that they were suspicious because the dog, a teacup Chihuahua, was not really a service animal. While the dog owner had a prescription sheet describing the dog as a service animal, the dog did not have any special harness, muzzle or markings and did not behave like a service animal. What’s more, the dog owner usually carried the dog in his arms. The dog owner claimed to suffer panic attacks and episodes of claustrophobia.

Under the Americans with Disabilities Act (ADA), employers and private businesses that serve the public are prohibited from discriminating against individuals with disabilities who use service animals trained to provide assistance.

Although these stories do not involve employer-employee relationships, employers undoubtedly share some of the same concerns. How do you recognize whether an animal is truly a service animal? Would the presence of one employee’s service animal cause problems for other employees or for the employer?

While the ADA does provide a definition for a service animal (any guide dog, signal dog, or other animal individually trained to provide assistance to an individual with a disability), the ADA does not license or certify service animals. The Department of Justice does, however, offer guidelines regarding service animals.

Would it help employers if the ADA provided more specifics regarding service animals such as what animals could be service animals or what tasks must be performed (i.e., guidance for a blind or visually impaired person, guidance for deaf individuals)? What if the ADA were amended to provide licensing or certification of service animals? Would that help employers avoid litigation in similar situations?

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