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Ann E. Employee v. You: Personal Liability and the HR Professional

Whether you work in human resources, or simply read the newspaper, it’s easy to recognize the frequency with which employers get sued. In 2004, the EEOC recovered $251.7 million on behalf of complainants for the over 85,000 charges it resolved. In addition, the EEOC collected $168.3 million for the cases that the EEOC was involved in litigating. Court records indicate that twenty-five percent, or one-quarter, of all the litigation matters in federal court are employment-related disputes, and even more cases alleging discriminatory acts in employment are brought in the state courts.

The frequency of employment claims means that many employees are feeling mistreated in the workplace. And for every complaint alleged in the workplace there are managers and others who carried out those actions. Do you have any responsibility in hiring, discipline, granting leaves of absence, salary and benefits? As you are going through your daily business, do you think about how your actions may subject you to liability? Honestly, in the heat of a workplace investigation, or disciplinary action, do you really have time to sit back and ask yourself, “could what I’m doing land me in court?” Yet, a disturbing trend in employment litigation is the increased prevalence of suing individual supervisory employees in their personal capacity, including Human Resource professionals and/or company officials. You may ask: How can that be? Why is it necessary? Or more importantly – How can I avoid it?

In an effort to decrease the risk of individual HR professionals being named personally in employment lawsuits brought by disgruntled employees, this article informs you of the types of issues affecting HR professionals’ personal legal liability, helps to prepare you and your colleagues to stay out of court, and guides you in thinking through HR practices before they become the subject of a legal matter.

Section I: Why is this an issue? Reasons why individual managers are sued personally.

HR professionals and individual supervisory employees may be sued in their individual capacity for several reasons, determined based on the employment actions at issue and litigation strategy employed. The first and most obvious reason is when the HR professional or supervisory employee is accused of engaging in unlawful conduct. For example, the HR manager who denied leave to an eligible pregnant employee requesting Family Medical Leave in an effort to force her to resign, or a small business owner who altered time sheets to avoid overtime payment in violation of the Fair Labor Standards Act. As obvious as these violations are to most, such illegal behavior still exists and subjects these individuals to legal liability. Other examples of violations may have occurred unintentionally, but nonetheless are illegal. For example, a manager who deducts exempt employees’ pay for time out of work during a day, thus treating the exempt workers as hourly, nonexempt workers. Unintentional violations do not excuse wrongful behavior, but it may play to the defense in the case. Nonetheless, the individual is still involved in defending a lawsuit based at least in part on his or her workplace decisions.

Other reasons individual employees get sued are not as predictable. Sometimes the messenger of the bad news, such as a layoff, termination, denial of leave benefits, gets targeted as the “wrong doer” when he or she was not, in fact, the decision maker but is considered an agent of the decision maker. For this reason it is important for those who implement adverse employment decisions to not simply follow orders. As noted in Susan Pulliam’s article, “How Following Orders Can Harm Your Career,”, October 3, 2003, “[i]n a recent speech to Wall Street executives, James Comey, the U.S. Attorney prosecuting the [Worldcom accounting fraud] case, said that ‘just following orders’ is not an excuse for breaking the law.” If you are delivering employment communications that could lead to employee complaints, you must be fully aware of the rationale and justify all decisions before delivering potentially adverse information. Where this becomes problematic is in situations where the actor lacks intent to discriminate but his or her actions result in unlawful discrimination. Courts find that no intent is necessary for liability as an aider and abettor. “The conduct prescribed is simply conduct that assists others in their performance of prohibited acts and when conduct being assisted is patently discriminatory, one need not have intent to be considered an aider and abettor.” (Civil Rights Comm'n v. Travelers Ins., 759 P.2d 1358 (Colo. 1988)).

Beyond the actual events that transpired in the work environment, plaintiffs’ lawyers may have strategic and tactical reasons for including individual supervisory employees in the lawsuit. Scott Fredericksen’s SHRM Legal Report “Personal Liability of Human Resource Professionals in Employment Litigation” points to one of the “perceived tactical advantages” of suing individual managers as exerting greater pressure on the company to settle the case and avoid publicity and embarrassment. In addition, plaintiffs’ counsel may hope to create sufficient conflict between the employer and the manager to complicate the defense and necessitate separate counsel for the individual managers.

A further strategic reason for suing individuals along with the organization is the potential to create more opportunity for discovery and evidence. For example, if there is a question as to the agency relationship between the accused and the employer, then by suing the individual accused of wrong-doing separately, the plaintiff is more assured to collect all evidence. On the other hand, if they only sued the employer and the accused was an independent contractor, the employer may not have access to all relevant evidence. Also the addition of individual plaintiffs may ensure the continuation of a case where the employer alone may be able to successfully avoid litigation. Moreover, the motivation may be monetary. While we typically think of the employer as having the “deep pockets,” if you add individual plaintiffs to the lawsuit and can recover separately for their wrongdoings, you may possibly recover more on the lawsuit.

These tactics may also backfire for plaintiffs. Individual plaintiffs settle less often than corporate defendants, leaving less opportunity for the plaintiff to reap financial rewards before trial. Also, dealing with multiple defendants and defense attorneys decreases the efficiency and increases the cost associated with the lawsuit. Jury research also indicates that juries tend to be more sympathetic to an individual defendant than a corporate defendant and are less likely to assess damages against an individual. (“Personal Liability of Human Resource Professionals in Employment Litigation”)

Some might question why this is important, given that the organization has legal counsel to defend them. It is important to recognize that while most employers do chose to indemnify or provide corporate legal counsel to supervisory employees sued as individuals, there is generally no requirement that an employer offer such legal assistance. If the employer assesses the situation and decides not to afford a manager legal counsel, they may opt to drop representation of the individual manager and that would necessitate the manager defending the lawsuit on his or her own or hiring legal counsel. It may be financially devastating for an individual expected to foot a legal bill on his or her own. The estimated cost of defending a lawsuit, excluding trial costs, is $150,000. For example, failure of the corporation to indemnify a company official occurred in one expert witness case involving EPS. The manager’s deposition unearthed additional information regarding employee misconduct by the manager and the employer subsequently made the decision to cut the manager loose, requiring him to find his own legal representation. Thus, unless you have a contract to the contrary, be aware that corporate support and indemnification is a privilege and not a right.

The bottom line is that many legal and tactical reasons support including individuals in employment-related lawsuits. Statistics show a growing number of individuals being sued in employment cases. Who exactly can be held liable or responsible?

Section II: Who can be liable in employment litigation? The issues affecting HR professionals’ personal legal liability.

Who can be liable in employment litigation? The typical legal answer applies: “it depends!” Human resource managers, supervisory managers, and company officials may be liable in employment cases if they committed an act of discrimination or had some role in the employment action giving rise to the lawsuit. However, personal liability depends on the statute which forms the basis for the lawsuit and on the jurisdiction the lawsuit is brought in. Breakdown provides some clarity:

Title VII prohibits employers from discriminating on the basis of race, color, religion, sex (including sexual harassment, pregnancy, childbirth, and abortion), and national origin. The ADEA prohibits discrimination against workers age 40 and over and the ADA prohibits employers from discriminating on the basis of disability. Each of these laws is written to prevent “employers” in engaging in discriminatory practices. The challenging legal question, and source of much legal debate, is determining the meaning of the term “employer” in these statutes. The majority of the Circuit Courts of Appeal addressing this issue find that the term “employer” does not include individuals. Thus, the philosophy is that a supervisor is not personally liable because the supervisor is not the employee’s “employer” as defined by the law. However, the courts are split on this issue, so depending on where you are sued, you may or may not be subject to individual liability for Title VII, ADA, or ADEA violations. Eventually Congress or the Supreme Court will have to provide a definitive answer to individual liability for federal discrimination law violations.

Despite the fact that individuals may be immune from lawsuits under the federal anti-discrimination laws, many state discrimination laws do allow for individual liability. For example, The Colorado Discrimination Act (Colo. Rev. Stat. 24-34-402) prohibits discriminatory or unfair employment practices and applies to employers, employment agencies, and labor organizations. However, it takes away the contest regarding the definition of employer and allows for individual liability by stating: It shall be a discriminatory or unfair employment practice: For any person, whether or not an employer, … or the employees or members thereof … to attempt, either directly or indirectly, to commit any act defined in this section to be a discriminatory or unfair employment practice. So, before you breathe too big a sigh of relief, if the legal challenge involves discrimination or harassment under a state law, that state law may allow for personal liability based on the definition in the statute.

Fair Labor Standards Act
The Fair Labor Standards Act covers, among other things minimum wage payment, overtime pay, and child labor. The FLSA includes the Equal Pay Act which prevents employers from paying different wages to men and women for equal work. This law affords plaintiffs the right to sue individuals by using the definition of an employer as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” (29 U.S.C. §203 (emphasis added)). The individual must have had control over conditions and terms of the employee’s employment, such as power to hire, fire, discipline, determine rates of pay, and/or make schedules.

Courts are holding that employees may seek damages against individual supervisors as well as the employer. This is especially poignant because of the recent changes in the FLSA regulations and the watchful eyes evaluating employers’ efforts to comply with the regulations that went into effect in August 2004. Individual managers or supervisors challenged for not comporting with the law may be named as individuals in any lawsuit arising from the alleged wage and hour violations.

Family Medical Leave Act
Most courts confronted with the issue have ruled that individual liability attaches to those involved with FMLA decisions that affected the aggrieved employee because the Family Medical Leave Act’s (FMLA) definition of “employer” is modeled after the one used in the FLSA, which allows for personal liability of managers and company officials. Many HR professionals find this troubling because of the difficulties employers face in understanding and properly implementing the rights and protections of the FMLA. Everyday HR professionals and organization officials grapple with FMLA issues having little definitive guidance and legal precedence; yet, based on the FMLA’s definition, individuals making these challenging decisions may face liability for their involvement. In one pending case, an employee is suing her company over alleged violations of the FMLA in her request for leave due to her own pregnancy. In addition to suing her employer, she has named the Benefits Coordinator, the Human Resource Manager, the employee’s direct Supervisor, the Supervisor’s Manager, and the District Manager. The defendants’ attorneys are asking the court to dismiss the Benefits Coordinator from the case and remove any personal liability from her but the court has yet to agree to such dismissal without the benefit of more information. The case clearly shows the example of how each of us can be affected by employment law suits and must be confident in our work decisions.

State Law Claims and Personal Liability
As mentioned earlier, some state discrimination statutes expressly permit individual managers and employees to be named personally in law suits. Other states, such as Virginia expressly limit personal liability by defining the employer as “any employer employing more than 5 but less than 15 employees.” (Va. Code Ann. §2.1-716). However, even in states where an “employer” does not include an individual, an individual company representative may be held liable for discrimination based on a public policy wrongful discharge theory. (John F. Buckley and Ronald M. Green, State by State Guide to Human Resources Law, Aspen Publishers). Refer to Wrongful Discharge section below. Essentially, protection from individual liability for discrimination charges existing at the federal level may erode if the lawsuit also includes state law claims.

Tort Claims
What are “tort” claims? And we are not talking about pastries here! These are claims based not on statutes or written laws, but on case law that has developed from common law court decisions. A tort is a civil wrong or injury. Tort claims can be brought in federal court in additional to the federal issue or can be brought in state court. In employment law cases, these include issues such as: intentional or negligent infliction of emotional distress; defamation – libel and slander; wrongful discharge or termination; and, negligent hiring or retention. The plaintiff must show an actionable wrong and damages resulting from the harm.

Let’s consider how these are implicated in employment claims. To bring an emotional distress claim, the claimant must show that the employer exceeded all bounds of decency and exhibited outrageous conduct. The harm must be severe and be more than just anxiety or sleeplessness. (Edward Isler, Steven Ray and Michelle Brodley, Personal Liability and Employee Discipline, SHRM Legal Report, Sept.-Oct. 2000, reviewed Aug. 2002). Examples of workplace behavior leading to potential emotional distress claims include: lost time from work or wages for inappropriate reasons; observing porn or inappropriate website viewing; assault or battery; and harassment where state law allows.

Defamation: To raise a defamation claim, the employee must prove that the employer or individual defendant made a written or oral statement to one or more persons concerning the plaintiff-employee, that the statement is false, and it injured the reputation of the employee. Examples include e-mail circulation or the comments made concerning a negative evaluation. Truth is the ultimate defense in a defamation claim, but individuals sharing information inappropriately or generating false or misleading information may face legal challenges. Give important consideration to providing references to prospective employers. HR managers and others are always concerned about sharing information. In some states, Colorado and Texas for example, employers, including any employee, agent, or other representative of the employer who is authorized to provide reference information, are protected or immune from liability for sharing truthful information about an employee’s job history and job performance to a prospective employer. (CRS 8-2-114).

Wrongful Discharge: Wrongful Discharge cases can also be brought against individuals. The traditional “employment at-will” doctrine followed in most states allows for either party to end the employment arrangement at any time for any reason or no reason at all. However, certain laws place limits on an employer’s ability to end an employment relationship if the reason is a discriminatory reason, a breach of contract, or contradictory to public policy, such is the case for protection of whistleblowers. Circumstances giving rise to wrongful discharge claims may include failure to adhere to the progressive discipline policy when terminating an employee or terminating an employee after that employee has reported internal violations or concerns to a regulatory body. For example, employees who report potential safety violations to OSHA or report accounting discrepancies or concerns under Sarbanes-Oxley and then are terminated in retaliation for reporting may bring suit for wrongful discharge against the employer and the individual who conducted the termination.

False Imprisonment: Another less common but viable claim is false imprisonment. False imprisonment claims could occur if someone blocks an exit so employees could not leave, physically detains an employee while discussing negative information, or improperly handles an investigation. According to “Personal Liability and Employee Discipline,” courts generally determine that mere threats such as “if you leave this room you are fired,” are insufficient to be liable for false imprisonment; however, more aggressive tactics may cross the line. In one case, an internal employee misconduct investigation was jeopardized when the investigator, apparently watching too much “Law and Order” on television, thought he could detain the witness during an investigation to prevent the witness from contacting another witness to corroborate their story. Lesson learned: make sure your investigators are well-trained and informed on investigation protocol and conduct.

Battery: Battery, or the unwanted or offensive touching of a person or an object attached to a person, is another claim against an individual. Interestingly, according to “Personal Liability and Employee Discipline,” the courts are broadly defining inappropriate contact to include things such as grabbing papers out of someone’s hand or pushing a chair that someone is sitting on. Thus, if any behavior becomes violent in the workplace, the individual causing the violence or disruption is subject to liability and the employer may be liable for inappropriately hiring (negligent hiring) or inappropriately keeping (negligent retention) a potentially violent or criminal employee.

These are a sampling of the individual tort claims an employee can bring against an individual acting in a professional capacity. Criminal sanctions and fiduciary responsibilities are also potential sources of personal liability for HR professionals.

Business Crimes
As if the fear of civil liability is not enough to make you think again about your career choice, criminal sanctions, including imprisonment, fines and other penalties, can be levied against individuals in the workplace. White-collar crime is a prevalent issue in the United States and the justice department is keeping a close watch on business law violators.

In business crimes, those in the management of the company whose employees actually commit criminal acts can be held liable if they authorized the conduct, knew about the conduct but did nothing, or failed to act reasonably in their supervisory capacity. The standard was set by the United States Supreme Court which stated that an employee could be found guilty of a business crime if he “by virtue of his position…had authority and responsibility” to deal with the situation…. (United States v. Parks, 421 US 658(1975)). Such was the case with Betty Vinson, a 47 year-old mid-level accountant and mother, who caved into requests by superiors to make false accounting entries into Worldcom’s books. She now faces possible jail time for conspiracy and securities-fraud charges. In another public case, a Texaco employee faced obstruction of justice charges for destroying records in a racial discrimination lawsuit. Employees destroying records, changing documents, or making false statements during the course of litigation face imprisonment and fines.

Also, many federal employment laws permit criminal sanctions for individual violators. Under the Occupational Safety and Health Act (OSHA), corporate officers may incur civil or criminal liability for violations of OSHA rules. Criminal penalties may result from violation of a rule, standard, order or regulation that causes the death of an employee or from making a false statement or representation regarding compliance. Another example is the Immigration Reform and Control Act (IRCA), which, in addition to civil penalties, imposes criminal penalties for knowingly hiring or continuing to employ unauthorized workers.

Finally, federal agencies such as the EEOC can pursue criminal sanctions against individuals impeding, resisting or opposing an EEOC representative while engaged in performance of their duties. Such violations could subject a person to a fine of up to $500 and /or one year in prison.

Fiduciary Responsibilities
A fiduciary has a duty to act primarily for another’s benefit in matters connected with such undertaking. The fiduciary acts as a trustee encompassing certain legal obligations, including the prohibition against investing the money or property in investments which are speculative or otherwise imprudent.

For example, in insurance issues, HR professionals responsible for benefit plan design, development and provider selection have a duty to investigate how brokers or consultants are compensated and how that comp structure affects the cost of the insurance policy, and a duty to confirm a fair bid selection process. If these duties are not fulfilled, the decision makers risk liability for breaching their fiduciary responsibilities.

A similar fiduciary concern is raised with respect to giving investment advice to employees. While most employers recognize that employees are not taking full advantage of retirement and savings plan options, employers are wary to provide too much guidance or advice on managing or investing money. A recent survey, titled Employer-Sponsored Investment Advice Survey Report, published by SHRM and co-authored with WorldAtWork, indicates that two-thirds of the employers not currently providing investment advice to their employees cite potential fiduciary liability as the top reason for not offering such services. The fear of breaching fiduciary responsibility is keeping organizations and managers from further educating and advising employees about investing funds. Respondents whose companies currently do not offer investment advice indicated that new laws exempting employers from liability for qualified independent investment advice or restructuring the fiduciary responsibility to rest entirely with the investment advice provider were the only ways an employer is more likely willing to offer investment advice.

Suffice it to say that employees feeling aggrieved have a plethora of potential claims against individual HR managers and company officials making employment decisions. So how can you protect yourself?

Section III: How to avoid being named in litigation. Prepare yourself and HR colleagues to avoid litigation and assess HR practices for legal liability

Based on an increased number of claims, court support for punishing individuals as well as employers engaged in employee wrongdoing, and legislation allowing for individuals to be tried for statutory violations, the scary truth is that HR and operational managers face a greater likelihood of defending themselves against an employment claim. Knowledge is power and can assist any supervisory employee in making decisions, communicating information, or advising others on issues that give rise to personal liability in employment claims.

  • Know the law. Ignorance is no defense. On too many occasions, HR managers being deposed in preparation for trial are quizzed on their experience and qualifications to implement HR decisions that have legal implications, such as making FMLA leave determinations or administering pay changes. Often admitting that they do not feel they have had enough experience or education to make unilateral decisions, they are nonetheless sought out by management to “rubber stamp” such decisions. Keeping up with the laws and seeking reference resources for challenging employee relations issues is one sure way to minimize legal exposure.
  • Follow the law and not strictly marching orders. Follow your instinct, research decisions that do not seem quite right, and question the illegal orders or suggestions of superiors or colleagues. Do not fall victim to a larger scheme of unlawful activity. One small indiscretion might seem okay, but one turns into a string of inappropriate behaviors and opens up the possibility of being reviewed and legally responsible. Ask questions and seek clarification before engaging in speculative or questionable behavior involving employees.
  • Know your organizational policies and procedures and implement them consistently. Ensure the human resources policies are in step with the law and best practices. Conduct regular HR audits to ensure legal compliance and internal organizational application and consistency. As the courts point out, it is not good enough to simply have a policy; it must be communicated, supported, and used appropriately. Violating internal organizational policies or implementing policies inconsistently raises immediate concern for personal liability by the violator and is one of the leading causes for employers choosing not to indemnify and provide legal counsel to a manager.
  • Know how to communicate with employees (truthfully, dignified and confidentially). Act professionally, honestly, and confidentially in every interaction with employees. Feelings of distrust, disloyalty and breaches in confidentiality lead many employees to question the treatment they received at work and seek remedy through complaints and litigation. Your contact with employees is critical to their overall view of the organization. Moreover, your honest and dignified treatment may result in diffusing difficult situations and averting legal action altogether.
  • Know how to respond to authorities. By not obstructing justice or otherwise interfering with or providing false information to an authority, you will not only be able to rest easier at night, but you will also diminish the need to worry about civil liability and criminal punishment for abuses toward authorities and their processes.
  • Know when to get help. The best practitioner knows when to seek out resources and references to assist in decision making and policy adherence. Even the most credentialed and experienced HR practitioners seek counsel and reference materials when making important decisions regarding FMLA matters, pay issues, policy changes, and so on. Do not be a martyr and attempt to address all concerns “in house.” Collaboration and a paper trail help to diffuse responsibility and minimize legal exposure for the individual. Many employers also purchase Employment Practices Liability Insurance (EPLI) to protect the organization against employment claim damages; however, as stated in The HR Specialist – National Institute of Business Management Special Edition, employers should be cautious of insurance providers quietly dropping or cutting back on some areas of coverage, such as defamation or problems stemming from the internet. Nonetheless, EPLI insurance is security blanket for businesses concerned about employment claims.

In summary, while the clear trend indicates that individual HR managers, operational managers, and supervisors are being sued along with their employer for participation in employment decisions, awareness, preparedness, and education can minimize individual exposure.