Divided Supreme Court: Does a Charge by Any Other Name Still Smell As Sweet?

On Wednesday, a divided Supreme Court ruled that the ADEA requirement for filing a Charge with the EEOC at least 60 days before initiating an ADEA lawsuit can be satisfied by the mere filing of an intake questionnaire and affidavit with the EEOC even when the EEOC never created a Charge form, never notified or served a Charge or other document with the Charging Party’s allegations to the employer and the plaintiff never signed or filed an actual Charge form with the EEOC. Federal Express Corp. v. Holowecki, No. 06-1322 (2/27/08).

The ADEA – at 29 U.S.C. § 626(d) – provides that “[n]o civil action may be commenced by an individual under this section until 60 days after a charge alleging unlawful discrimination has been filed with the” EEOC. The ADEA also requires the charge to be filed by the employee within so many days of the unlawful employment practice. Once the Charge has been filed, the ADEA requires the EEOC to “promptly notify all persons named in such charge as prospective defendants in the action and shall promptly seek to eliminate any alleged unlawful practice by informal methods of conciliation, conference, and persuasion." 29 U. S. C. §626(d). However, the ADEA does not define “charge.”

In this case, the plaintiff employee completed and submitted an Intake Questionnaire to the EEOC on December 11, 2001, along with a signed affidavit setting forth her allegations in more detail. The EEOC did not promptly process the Intake Questionnaire, prepare a formal Charge form or notify the employer of the plaintiff’s allegations or serve it with a Charge. Nonetheless, the plaintiff -- along with several other employees – filed her ADEA lawsuit on April 30, 2002. Only then did the EEOC prepare, file and serve a Charge on the employer. The trial court dismissed the plaintiff’s claims on the grounds that her Intake Questionnaire was not a “charge” as required by the ADEA. The Second Circuit Court of Appeals reversed and, recognizing a conflict among the various Circuits on this issue, the Supreme Court affirmed the appellate court.

The Court found that the EEOC regulatory definition of Charge was scattered among several regulations and was vague. For instance, “one of the regulations, 29 CFR §1626.3 . . . says: "charge shall mean a statement filed with the Commission by or on behalf of an aggrieved person which alleges that the named prospective defendant has engaged in or is about to engage in actions in violation of the Act." Another regulation – § 1626.8(a) indicates that a "charge should contain": (1)-(2) the names, addresses, and telephone numbers of the Charging Party and the Respondent; (3) a statement of facts describing the alleged discriminatory act; (4) the number of employees of the charged employer; and (5) a statement indicating whether the charging party has initiated state proceedings. Yet another regulation -- §1626.8(b) – limits the prior requirements “by stating that a charge is ‘sufficient’ if it meets the requirements of §1626.6--i.e., if it is ‘in writing and ... name[s] the prospective respondent and ... generally allege[s] the discriminatory act(s).’" The EEOC asserted on its own behalf that the regulations governed only the filing of a Charge and did not define Charge itself or what it must contain. While the EEOC asserted that the plaintiff’s document satisfied the requirement of a Charge, not all documents necessarily would or should do so. In particular, the EEOC expressed concern with interpreting all documents as Charges if they contain the name of an employer and allegations of discrimination because some employees merely want information from the EEOC and do not want their employer to be notified of the allegations.

While the Court recognized the EEOC’s deficiencies in administering the ADEA, it still deferred to the EEOC’s greater familiarity with the statute. The Court concluded “In addition to the information required by the regulations, i.e., an allegation and the name of the charged party, if a filing is to be deemed a charge it must be reasonably construed as a request for the agency to take remedial action to protect the employee's rights or otherwise settle a dispute between the employer and the employee.”

The Court refused to condition “charge” on being served on the employer and giving the employer the chance to conciliate or mediate the allegations before the employee gained the right to file an ADEA lawsuit. “The statute requires the aggrieved individual to file a charge before filing a lawsuit; it does not condition the individual's right to sue upon the agency taking any action.” Moreover, it would be impractical and unfair to the employee to condition a “charge” on the EEOC taking action after the employee has done everything he or she is required to do by the statute when the employee has no control over the EEOC.

Applying this new standard to the facts of the lawsuit, the Court found that the plaintiff’s Intake Questionnaire by itself did not satisfy the new test because, although it provided most of the necessary information, it did not request the EEOC to remedy the alleged discrimination. However, the affidavit which was attached to the Intake Questionnaire ended with the sentence: "[p]lease force Federal Express to end their age discrimination plan so we can finish out our careers absent the unfairness and hostile work environment created within their application of Best Practice/High-Velocity Culture Change." Taken together, the Court construed the Intake Questionnaire and attached affidavit as satisfying the “charge” requirement. The Court did so even though the plaintiff had specifically requested the EEOC to keep the affidavit confidential until formal proceedings were commenced because the plaintiff had also authorized the EEOC in the Intake Questionnaire to notify her employer.

Even though the Court deferred to the EEOC’s administration of the plaintiff’s claim, it also found that the EEOC gave “short shrift” to the employer’s interests as set forth in the ADEA because it was given no notice of the employee’s Charge before she filed suit. “The court that hears the merits of this litigation can attempt to remedy this deficiency by staying the proceedings to allow an opportunity for conciliation and settlement. True, that remedy would be imperfect. Once the adversary process has begun a dispute may be in a more rigid cast than if conciliation had been attempted at the outset.” Of course, that is an understatement since any employer faced with a lawsuit knows that it is much easier to resolve the dispute at the agency stage than after the employee’s attorney had taken control and has expended significant sums in preparing the lawsuit. The Court also encouraged the EEOC to improve its regulations to avoid similar miscommunications in the future.

Employers may find little consolation in the dissent:

“Today the Court decides that a “charge” of age discrimination under the Age Discrimination in Employment Act of 1967 (ADEA) is whatever the Equal Employment Opportunity Commission (EEOC) says it is. The filing at issue in this case did not state that it was a charge and did not include a charge form; to the contrary, it included a form that expressly stated it was for the purpose of ‘precharge’ counseling. What is more, the EEOC did not assign it a charge number, notify the employer of the complainant’s allegations, or commence enforcement proceedings. Notwithstanding these facts, the Court concludes, counterintuitively, that respondent’s filing is a charge because it manifests an intent for the EEOC to take ‘some action.’”

Insomniacs can read the full decision (and dissent by Justices Thomas and Scalia) at http://www.supremecourtus.gov/opinions/07pdf/06-1322.pdf.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Unanimous Supreme Court Punts Question of Admissibility of “Me-Too” Evidence to Trial Courts.

Yesterday, an unusually unanimous Supreme Court finally ruled in a case involving whether “me-too” evidence (i.e., testimony by a plaintiff’s co-workers that they also felt discriminated against) is admissible in an employment discrimination lawsuit. However, rather than establish clear rules about the relevance of this problematic evidence, the Court punted the entire question back to trial courts to rule how they see fit in their own discretion. Sprint/United Management Co. v. Mendelsohn, No. 06-1221 (2/26/08).

The particular case involved an age discrimination plaintiff who lost her job in a company-wide reduction in force. The plaintiff sought to buttress her case by introducing “me-too” testimony by other former employees who had lost their jobs in the same RIF that they too believed they had lost their jobs because of age discrimination even though they had different supervisors and decisionmakers. The plaintiff’s hope is that the jury will be more likely to attribute a decision to age discrimination if more employees make the same argument. However, in a mere two sentences, the trial court excluded the “me-too” evidence – presumably on the grounds (asserted by the defendant employer) that it was unfairly prejudicial to the employer and the witnesses were not sufficiently similarly- situated to the plaintiff to make their testimony particularly relevant or material. In other words, whether or not these employees were discriminated against by their supervisors was not relevant to whether the plaintiff’s supervisor discriminated against her in selecting her for the RIF. The court of appeals reversed on the grounds that it assumed that the trial court had made a per se rule that such “me-too” evidence is always inadmissible. While the appellate court agreed about the propriety of such a per se exclusionary rule in the run-of-the-mill discriminatory treatment case (i.e., discipline, termination for cause, etc.), the appellate court believed that in a company-wide RIF, the excluded testimony would be relevant to show that age discrimination pervaded the company to such an extent that it was more likely than not that many supervisors (not just the plaintiff’s supervisor) were influenced to use age as a factor in laying off employees. Following such an argument, such pervasive discrimination could have influenced the plaintiff’s supervisor to select her for the RIF on account of her age.

The Supreme Court reversed on the grounds that the appellate court should not have second-guessed the trial court’s discretion in making evidentiary rulings by assuming the basis for the trial court’s decision. Rather, the appellate court should have remanded the matter back to the trial court for further explanation before concluding that it had abused its discretion in excluding the evidence. The Court established no guidance for the trial court (or attorneys) as to the potential relevance of “me-too” testimony. Writing for an unusually unanimous Supreme Court, Justice Thomas concluded:

“We conclude that such evidence is neither per se admissible nor per se inadmissible. . . . . . We note that, had the District Court applied a per se rule excluding the evidence, the Court of Appeals would have been correct to conclude that it had abused its discretion. Relevance and prejudice under Rules 401 [making relevant evidence admissible] and 403 [excluding evidence that is unfairly prejudicial] are determined in the context of the facts and arguments in a particular case, and thus are generally not amenable to broad per se rules. . .. . The question whether evidence of discrimination by other supervisors is relevant in an individual ADEA case is fact based and depends on many factors, including how closely related the evidence is to the plai ntiff's circumstances and theory of the case. Applying Rule 403 to determine if evidence is prejudicial also requires a fact-intensive, context-specific inquiry.” (emphasis added).

With this in mind, employers should always remember that it is possible that disgruntled former employees may return to haunt them in a lawsuit brought by a former co-worker and that plaintiffs’ attorneys are more likely to seek discovery about these disgruntled co-workers in order to introduce possible “me-too” testimony. While courts may exclude such testimony on the grounds that it would unfairly influence the jury and shed little light on the ultimate question in the case (i.e., the legality of the plaintiff’s treatment), the trial court alternatively could find it relevant to the plaintiff’s theory of the case.

Insomniacs can read the full decision at http://www.supremecourtus.gov/opinions/07pdf/06-1221.pdf.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Supreme Court: Individual Participants Can Sue for Breaches of Fiduciary Duty in 401(k) Accounts.

Last week, the Supreme Court issued a much anticipated decision involving the right of an individual benefit plan participant (i.e., an employee) to sue the plan administrator (i.e., the plaintiff’s employer) for breaches of fiduciary duty involving the participant’s individual defined contribution plan – (i.e., 401(k) account). LaRue v. DeWolff, Boberg & Associates, Inc., No. 06-856 (2/20/08). In that case, the plaintiff employee alleged that the failure of the employer to follow the plaintiff’s investment instructions “depleted” (or caused a loss in) his 401(k) account of approximately $150,000 and that this failure constituted a breach of fiduciary duty under ERISA. The Supreme Court agreed that ERISA would govern the plaintiff’s claim and could provide him with a remedy if he were to ultimately prevail at trial.

In Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134 (1985), the Court had previously indicated that § 502(a)(2) of ERISA does not provide a remedy for individual injuries apart from injuries to the benefit plan, although the statute authorized recovery for breaches of fiduciary duties which impair the value of plan assets in a participant’s individual account. However, the Russell case involved a disability plan -- defined benefit plan – which was typical at the time – and LaRue raised questions about a defined contribution plan. The Russell plaintiff also eventually received her full contractual benefits under the benefit plan and sought through her lawsuit only consequential damages for the delay in processing her claim. When faced with a defined benefit plan, the participants are promised a fixed benefit. Remedying any breach of fiduciary duty involving a defined benefit plan will not affect an individual’s entitlement to the fixed benefit since the remedy to the plan will benefit all participants equally. However, in a defined contribution plan, breaches of fiduciary duties could reduce an individual’s benefits without threatening the solvency of the entire plan. As observed by the Court:

“Russell’s emphasis on protecting the “entire plan” from fiduciary misconduct reflects the former landscape of employee benefit plans. That landscape has changed. Defined contribution plans dominate the retirement plan scene today. In contrast, when ERISA was enacted, and when Russell was decided, ‘the [defined benefit] plan was the norm of American pension practice.’ . . . Unlike the defined contribution plan in this case, the disability plan at issue in Russell did not have individual accounts; it paid a fixed benefit based on a percentage of the employee’s salary. “

“For defined contribution plans, however, fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive. Whether a fiduciary breach diminishes plan assets payable to all participants and beneficiaries, or only to persons tied to particular individual accounts, it creates the kind of harms that concerned the draftsmen of §409. Consequently, our references to the “entire plan” in Russell, which accurately reflect the operation of §409 in the defined benefit context, are beside the point in the defined contribution context.”

“We therefore hold that although §502(a)(2) does not provide a remedy for individual injuries distinct from plan injuries, that provision does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account.”

Insomniacs may read the decision in full at: http://www.supremecourtus.gov/opinions/07pdf/06-856.pdf.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Franklin County Court of Appeals Reads Geographic Restriction Out of Non-Compete Agreement.

Late last month, the Franklin County Court of Appeals reversed a trial court and enforced a non-competition agreement against a hair stylist who did not solicit, but did continue to serve, customers of her former employer – outside the geographic scope of the non-competition clause. Penzone, Inc. v. Koster, 2008-Ohio-327. The court also extended the term of the non-compete by the amount of time which the stylist had continued to serve customers who sought her out at her new salon.

In that case, the stylist was hired directly from beauty school and worked for Penzone’s for 11 years until her resignation in 2006. When she was hired and when she was subsequently promoted, she signed a non-competition clause which prohibited her for eight months from serving any current or former customers of Penzone’s whom she had personally served during her employment “without regard to where those customers or the Employee's post-employment competition may be situated.” The agreement also contained a nine-mile geographic scope against competing against Penzone’s after her employment.

The stylist set up shop in Pickerington -- outside the nine-mile geographic radius of the non-competition agreement. Although she denied soliciting any former Penzone customers, about 95 former customers sought her out. (She had previously served about 200 customers each year). Approximately six months later, Penzone’s filed suit, alleging a breach of the non-competition agreement and theft of trade secrets. After discovery and a hearing, the trial court denied injunctive relief to Penzone’s and the salon appealed.

The contract term at issue is neither a non-solicitation clause nor a pure non-compete clause. Because the stylist’s new shop was outside the agreement’s nine-mile radius (which the court found to be reasonable), she could continue to work as a hair stylist in competition with Penzone’s as early as the day after her resignation. Non-solicitation clauses are typically not subject to a geographic limitation, but there was no evidence that the stylist had solicited any former Penzone clients. However, even though she did not solicit former Penzone customers, she did serve almost 95 of them -- in violation of the clear terms of the agreement – but outside the nine-mile geographic limitation on competition. According the agreement, there was no geographic limitation of any kind on this restriction to serve former clients, but there was a temporal restriction of only eight months. Apparently confused, the trial court found this restriction to be unreasonable (since she was required to screen her appointments as they arrived) and/or treated it as a non-solicitation clause which she had not violated.

The Court of Appeals seemed to be oblivious to the real issue in the case. While, on one hand, it paid lip service to the fact that the nine-mile restriction on competition was reasonable on its face, on the other hand, it provided absolutely no analysis as to why it was reasonable to prohibit the stylist from serving customers outside that nine-mile radius. For instance, the court noted that the “agreement allows Penzone a time period and a distance restriction to allow Penzone to retain clients as loyal Penzone customers.” (emphasis added).

What’s troublesome about the court’s decision is that the clause at issue is more akin to a non-compete clause than a non-solicitation clause because its violation does not depend on the employee misusing the employer’s customer information against its financial interest. Rather, the employee can violate the agreement by passively serving whatever customer comes through her door. “[W]hen faced with a covenant not to compete that imposes restraints that exceed what is necessary to protect the employer's legitimate business interests, the courts are empowered to modify the terms to create a reasonable covenant between the parties.” Nonetheless, there was no finding by the Court of Appeals that it was reasonable to restrict the hairstylist from serving customers beyond the nine-mile radius of the non-compete clause. There was not even a discussion by the court of its intent to enforce the agreement as written despite any reasonableness requirement.

Rather, the Court focused on a lack of harm to the public because the agreement did not materially affect the availability of hairstylists in the area. Moreover, the court found the potential harm to the stylist was minimal in light of the short eight-month restriction. Finally, the court found that Penzone’s invested significant sums in developing and promoting relationships between its stylists and its customers. While it could not be quantified how long any of the lost customers would have remained with Penzone’s or how many services they would have purchased from Penzone’s if they had not followed the stylist to Pickerington, the court was satisfied that Penzone’s had shown irreparable harm.

So, your happiness with this decision will depend on whether you are an employer which is considering enforcement of a non-compete clause against a former employee with a loyal customer base or whether you are an employer which is considering whether it can accept new, unsolicited customers from a competitor after hiring a new employee from that same competitor. Employers who hire employees subject to such a non-compete clause will need to take extraordinary steps for the duration of the non-competition period to ensure that unsolicited customers were never served by the new employee during his or her prior employment.

Insomniacs may read the decision in full at: http://www.sconet.state.oh.us/rod/docs/pdf/10/2008/2008-ohio-327.pdf.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit: Employers Can Now Be Liable for Off-Duty, Off-Site Retaliation by Co-Workers.

Yesterday, in Hawkins v. Anheuser-Busch, Inc., No., 07-3235 (6th Cir. 2/19/08), a unanimous Sixth Circuit Court reinstated the co-worker retaliation claims of one plaintiff and affirmed the denial of a similar claims by a non-complaining witness to the harassment. This case is significant because it is the first time the Sixth Circuit has recognized an employer's liability for retaliation by a co-worker. In addition, even though the most significant retaliatory acts took place after working hours and off the company's property, the employer was faulted for not conducting a more thorough investigation.

In Hawkins, four women complained of sexual harassment by the same nefarious serial sexual harasser, who then allegedly retaliated against one of them and a witness by, among other things, slashing their tires at their home and in the company parking lot, scratching their cars, threatening to kill them, setting the car on fire of one of the women, and, burning down the home of the non-complaining witness. After the first sexual harassment complaint in 1993, the defendant employers fired the harasser, but he was reinstated following a union grievance arbitration. Apparently thinking that it would never be rid of the harasser following that arbitration, the employer failed to take significant action when they continued to receive complaints from female employees about the harasser’s lewd comments and touching. Rather, the employer generally responded by transferring the women to other production lines. After receiving additional complaints about more harassment and violent retaliation, the employer in July 2003 again fired the harasser, who lost his union grievance in arbitration. The following month, the harasser killed his girlfriend and committed suicide.

The Court noted that it had never previously recognized a claim for co-worker retaliation under Title VII. Indeed, the District Court had dismissed the retaliation claims on summary judgment on that basis. However, the Court recognized that a majority of the federal circuit courts to have addressed the issue determined that “Title VII protects against co-worker retaliatory harassment that is known to but not restrained by the employer.” Therefore, an employer can be liable for co-worker retaliation” if its response manifests indifference or unreasonableness in light of the facts the employer knew or should have known.”

In particular, the Sixth Circuit held that “an employer will be liable for the co-worker’s actions if:
(1) the co-worker’s retaliatory conduct is sufficiently severe so as to dissuade a reasonable worker from making or support a charge of discrimination;
(2) supervisors or members of management have actual or constructive knowledge of the co-worker’s retaliatory behavior; AND
(3) supervisors or members of management have condoned, tolerated, or encouraged the acts of retaliation, or have responded to the plaintiff’s complaints so inadequately that the response manifests indifference or unreasonableness under the circumstances."

The Court had no difficulty in finding liability in one case. In that situation, the employer never conducted an investigation because the retaliation (i.e., torching the victim’s car in driveway of her home) took place off company property and after working hours, but the employer nonetheless suspected the allegation of violence was true. The woman’s manager even told the Licking County Prosecutor's Office during the police investigation that the harasser had insinuated to him that he started the fire and that he was personally afraid of him and would not participate in the investigation. Another senior member of management had heard rumors that the harasser set the fire and that the victim believed the fire was set by the harasser. More importantly, the harasser had admitted to three co-workers that he set the fire. Although the employer was unaware of the admissions, this evidence created an inference “that [the harasser’s] threatening behavior and violent acts of retaliation were common knowledge to both coworkers and supervisors . . . and might have been substantiated by a more complete investigation.” “The [employer] never bothered to investigate the incident, monitor [the harasser], or create a safe environment for harassment complaints. A jury could find that, given what management knew about the fire, the [employer] had an obligation to investigate the incident.” This is one of the only cases by a federal court to fault an employer for not conducting a more complete investigation.

The Court affirmed the dismissal of the retaliation claim by the non-complaining witness even though the harasser had poured gasoline down her basement and set fire to her house after he was fired. The Court found the employer’s response to her concerns of retaliation were sufficient: The employer fired the harasser, coordinated with law enforcement to have the harasser monitored, hired a security guard to follow him and offered the victim the protection of a security guard – which she refused.

Insomniacs may read the decision in full at: http://www.ca6.uscourts.gov/opinions.pdf/08a0081p-06.pdf.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.