Employer May Not Have Affirmative Defense to Harassment Claim even if Employee Fails to Report Harassment

Q:  Does my company have an affirmative defense to a sexual harassment claim if the company has a policy for reporting sexual harassment and an employee never makes a report of sexual harassment under that policy?

A:  Earlier this summer, in a case called Minarsky v. Susquehanna County, the United States Court of Appeals for the Third Circuit (governing employers in Pennsylvania, New Jersey, Delaware, and the Virgin Islands) ruled that “a mere failure to report one’s harassment is not per se unreasonable,” even though the Third Circuit had previously “often found that a plaintiff’s outright failure to report persistent sexual harassment is unreasonable as a matter of law.”

In Minarsky, Thomas Yadlosky was the former Director of the Susquehanna County Department of Veterans Affairs. Over the course of many years, he made unwanted sexual advances toward his part-time secretary, Sheri Minarsky.  Minarsky never reported the conduct, but the County was aware of Yadlosky’s inappropriate behavior regarding two other County employees and had warned him on at least two occasions to stop.  On a nearly weekly basis, Yadlosky engaged in conduct that was clearly inappropriate, including: attempting to kiss Minarsky on the lips, attempting to embrace Minarsky from behind, massaging Minarsky’s shoulders, calling Minarsky at home to ask personal questions; and sending sexually explicit messages from his work email account to Minarsky’s work email account. To make matters worse for Minarsky, she and Yadlosky worked in a building separate from many other County employees. Minarsky testified that she feared speaking up to Yadlosky or protesting the harassment because Yadlosky would become “nasty,” and had warned that Minarsky should not trust county administrators.

Nearly four years into her employment with the County, Minarsky (with the encouragement of her physician) eventually drafted an e-mail to Yadlosky demanding that he stop his conduct. She also confided in a co-worker regarding Yadlosky’s conduct.  The co-worker mentioned the conduct to another employee, a supervisor overheard this conversation, and the supervisor reported the conduct to the Chief County Clerk. The Chief Clerk then interviewed both Minarsky and Yadlosky, and Yadlosky admitted to the allegations. Yadlosky was immediately placed on paid administrative leave, and then terminated.  Minarsky alleged that she continued to feel uncomfortable in her role despite Yadlosky’s termination, however, because her workload increased and her new supervisor asked about what happened with Yadlosky and “who else she had caused to be fired.”

Under pertinent United States Supreme Court case law, an employer has an affirmative defense to a claim of harassment if the employee has not been subject to any adverse employment action (e.g. termination, demotion, etc.) and the employer can show that (a) it exercised reasonable care to avoid harassment and to eliminate it when it might occur, such as with a written harassment policy, employee training, by conducting a prompt and thorough investigation of any complaints, and promptly taking “remedial measures” reasonably calculated to address any inappropriate behavior, and (b) the employee failed to act with reasonable care to take advantage of the employer’s safeguards and otherwise prevent harm that could have been avoided.

In Minarksy, the trial court granted summary judgment in favor of the County, concluding that the employer proved the affirmative defense as a matter of law because the County maintained an anti-harassment policy and Minarsky had not complained about Yadlosky’s behavior.  On appeal, however, the Third Circuit disagreed and reversed the trial court.

The Third Circuit acknowledged that the County maintained a written anti-harassment policy of which Minarsky was aware. The Court disagreed, however, with the trial court’s conclusion that this fact, standing alone, satisfied the first prong of the affirmative defense. The Third Circuit held that there were factual questions about whether the County acted reasonably to prevent Yadlosky’s behavior and to take prompt remedial measures when it learned of his prior conduct toward other women.   According to the Court, the County had evidence that “Yadlosky’s conduct toward Minarsky was not unique,” and had “seemingly turned a blind eye toward Yadlosky’s harassment.” The Court concluded that a jury should determine whether the County had acted reasonably.

Even more disturbing for employers, the Third Circuit also concluded that there was a factual issue for the jury to decide on the second prong of the affirmative defense, even though it was undisputed that Minarsky failed to report Yadlosky or otherwise utilize the County’s reporting process. In an apparent nod to the #MeToo movement, the Court recognized the current climate of “national news regarding a veritable firestorm of allegations of rampant sexual misconduct that has been closeted for years, not reported by the victims.” The Court noted that, in many of these instances, “the harasser wielded control over the harassed individual’s employment or work environment,” and “the victims asserted a plausible fear of serious adverse consequences had they spoken up at the time that the conduct occurred.” Given this climate, and the facts of the case, the Court wrote that “a jury could conclude that [an] employee’s non-reporting was understandable, perhaps even reasonable.”

Per the Court: “Workplace sexual harassment is highly circumstance-specific, and thus the reasonableness of a plaintiff’s actions is a paradigmatic question for the jury, in certain cases. If a plaintiff’s genuinely held, subjective belief of potential retaliation from reporting her harassment appears to be well-founded, and a jury could find that this belief is objectively reasonable, the trial court should not find that the defendant has proven the second [element of the affirmative defense] as a matter of law. Instead, the court should leave the issue for the jury to determine at trial.”

Some lessons for employers?

  1.  Do not count on the affirmative defense recognized by the U.S. Supreme Court. The only way to eliminate the risk of lawsuits from sexually harassed employees is to actually prevent sexual harassment, and failing that, to take strong action when it occurs. It is not nearly enough for employers to merely have an anti-harassment policy in place. An ineffective or unutilized policy is just as bad as having no policy at all.
  2. Train your employees and managers on company harassment and non-discrimination policies. Foster a work environment that encourages individuals to make reports of harassment or discrimination when they observe inappropriate behavior and then investigate all allegations of discrimination and harassment. Consider creative ways to encourage employees to come forward, such as a method for reporting misconduct anonymously, and a strong non-retaliation policy and environment.
  3. Do not wait for somebody to make a complaint. If managers or human resources personnel are aware that inappropriate conduct is taking place, the company should take affirmative steps to stop the harassment (even if the victim does not want the company to be involved or does not want to “get the harasser in trouble”).
  4. When an investigation concludes that an employee engaged in unlawful harassment, take strong action. Termination may not be the appropriate remedial action in every case.  Minarsky v. Susquehanna County shows, however, that any action short of termination will leave the company exposed – at least to a jury trial—for any unlawful harassment by that employee in the future.
  5. If you currently have an unaddressed serial harasser in the workplace, partner with legal counsel to determine appropriate next steps.

Lee E. Tankle

 

New Maryland Law Requires Employers to Gather Information on Settlement of Sex Harassment Claims

Q.  Are there any laws related to settlement of sex harassment claims in Maryland that I should be aware of?

A.  In response to the many high-profile scandals in the news, several jurisdictions have enacted anti-sexual harassment legislation. To date, Vermont, New York, and Washington passed anti-sexual harassment laws. Maine, North Carolina, Ohio, and New Jersey introduced similar statutes in state legislatures. The new legislation aims to reduce sexual harassment in the workplace by prohibiting waiver provisions in employment contracts, preventing non-disclosure and other provisions in sexual harassment settlement agreements, and providing new avenues for employee reporting and disclosure. Maryland is the latest state to say “#MeToo.”

On May 15, 2018, Maryland Governor Larry Hogan signed into the law the Disclosing Sexual Harassment in the Workplace Act of 2018 (the “Act”). Designed for transparency, the Act prohibits jury trial waivers and also imposes reporting requirements related to settlement of sexual harassment claims by Maryland employers.  Unlike many of the other laws, the Maryland law does not expressly prohibit nondisclosure provisions in settlement agreements.

The Act takes effect October 1, 2018.

Prohibition on Waivers

The Act prohibits Maryland employers, regardless of size, from requiring employees to arbitrate sexual harassment claims. The Act renders mandatory arbitration provisions as void against public policy. In addition, the Act prohibits an employer from taking any adverse action against an employee because the employee refuses to enter into any agreement containing an invalid waiver.

As we have written previously, mandatory arbitration provisions are favored under the Federal Arbitration Act, despite state law to the contrary. In fact, in a recent United States Supreme Court opinion, Epic Systems Corp. v. Lewis, the Court confirmed previous rulings in favor of mandatory arbitration of employment claims, upholding the validity of class action waivers in arbitration agreements signed by employees.  It is therefore likely that the prohibition on mandatory arbitration clauses will be attacked on the grounds that it is preempted by federal law. Similar state statutory provisions prohibiting mandatory arbitration have been found to be preempted.

Reporting Requirement

The Act also requires Maryland employers with 50 or more employees to submit a survey to the Maryland Commission on Civil Rights containing the following information:

  1. the number of settlements made by or on behalf of the employer after an allegation of sexual harassment by an employee;
  2. the number of times the employer has paid a settlement to resolve a sexual harassment allegation against the same employee over the past 10 years of employment;
  3. the number of settlements made after an allegation of sexual harassment that included a confidentiality provision; and
  4. information on whether the employer took any personnel action against the employee who was the subject of the settlement.

Employers must submit the first survey on or before July 1, 2020 and a second survey on or before July 1, 2022. The Commission will collect the employer-provided data and publish aggregate data on its publicly-accessible website, as well as provide, upon request, responses of individual employers to requirement number. 2.

Employer Action Items

With respect to the waiver prohibition aspect of the new Act, Maryland employers will have to decide whether to remove any provisions in employment agreements mandating arbitration of harassment claims, or take the position that the Maryland Act is preempted by federal law.

In addition, Maryland employers with 50 or more employees should prepare to comply with the survey requirements of the Act by coming up with a method to track and gather internal information on sexual harassment claims and settlements, as well as ensure that personnel files of the subjects of those sexual harassment claims are retained in order to complete the Commission survey.

Employers also should monitor for any future regulations or other guidance issued by the Commission that clarifies the Act’s employer reporting provision. For example, the Act does not address if the survey includes current and former employees and settlements outside of Maryland. Nor does the Act provide for any penalties or enforcement mechanisms if an employer fails to comply with the mandatory reporting requirements.

— Tracey E. Diamond and Sara Mohammed, Law Clerk

 

Supreme Court Upholds Validity of Employee Class Action Waivers

Q.  Can my company require its employees to sign an arbitration agreement mandating that they arbitrate all employment disputes, and limiting their ability to participate in a class action against the company?

A.  On May 21, in a 5-4 opinion, the U.S. Supreme Court ruled that arbitration agreements in which an employee waives the right to pursue his or her employment claims in a class or collective action are enforceable under the Federal Arbitration Act (FAA). The holding in Epic Systems Corp. v. Lewis, No. 16-285, resolves a circuit court split on whether class action waivers in arbitration agreements violate the National Labor Relations Act (NLRA). Justice Gorsuch delivered the opinion of the Court, rejecting three primary arguments made by employees to undermine the validity of class action waivers under the FAA.

For more information about this case, please click here.

-Tracey E. Diamond

 

Single Ageist Comment May Be Insufficient to Sustain Age Discrimination Claim

Q.  If a supervisor makes a comment about an employee’s age, will the company be liable for age discrimination?

A.  While ageist comments are never appropriate in the workplace, an Illinois federal court recently ruled that a single age-related comment was insufficient for an employee to prevail on an age discrimination claim.

In Maglieri v. Costco Wholesale Corp., No. 16-cv-7033 (N.D. Ill. Mar. 14, 2018), the plaintiff employee alleged, among other claims, discrimination and retaliation under the Age Discrimination in Employment Act (“ADEA”). The 54-year old plaintiff worked in a Costco bakery and was directly supervised by a 57-year old manager. According to the plaintiff, the manager repeatedly yelled at her in a “nasty” and “intimidating” voice about working faster. But according to a co-worker, the manager was mean and abrasive to all subordinates and would sometimes yell to motivate employees. The co-worker also testified, however, that she once recalled the manager stating she was “kind of surprised that [Costco] didn’t hire someone younger” when plaintiff was hired. All of the plaintiff’s performance reviews reflected the manager’s concerns with plaintiff’s work speed.  However, plaintiff was not terminated or demoted and did not otherwise experience a change in her job duties.

The ADEA protects employees age 40 and above from age-based discrimination in the workplace. Employers may not discriminate against employees in any manner on the basis of age, and employers may not retaliate against employees who oppose any practices made unlawful by the ADEA. The plaintiff in this case alleged that she was the victim of both discrimination and retaliation.

In order to prove an age discrimination claim, plaintiff needed to show that her employer subjected her to an adverse employment action (such as termination, change in job duties, or a hostile work environment) because of her age. As the Court noted, “not everything that makes an employee unhappy is an actionable adverse action.” Although the manager’s yelling and alleged abrasiveness could present a Human Resources problem, merely being mean or raising one’s voice does not constitute a violation of the law.

The Court observed that plaintiff did not suffer termination or a change in job duties and also concluded that plaintiff was not the victim of an age-based hostile environment. According to the Court, it is not enough that an employee subjectively believes an employer’s conduct to be discriminatory. To prevail on a hostile environment claim, a plaintiff must show that the complained of behavior was both subjectively and objectively offensive. The evidence in this case showed that there was only one comment about age (the manager’s comment that she was surprised Costco did not hire someone younger). The Court found that “this sole age-based comment, which was not directed at [plaintiff] and did not contain any prejudiced views or derogatory slurs, is not enough to establish that [the manager] harassed [plaintiff] . . . because of [her] age.”

The Court concluded that the manager’s criticism about “slowness” and “lack of urgency,” were not a veiled way of harassing plaintiff about her age. While the ADEA prohibits employers from relying on age as a proxy for an employee’s work-related characteristics—such as productivity—the ADEA does not bar employers from focusing on the work-related characteristics themselves. According to the Court:  “Not completing work quickly enough is a legitimate workplace criticism.”

Employers should be aware that a single comment that is discriminatory on its face, such as a racial slur, could be sufficient to establish a hostile work environment.  In fact, courts have concluded that such singular comments are sufficient to bring a claim under various state and federal employment discrimination laws.

Although the employer in the above-referenced case managed to avoid liability, all employers would be well-served to conduct non-discrimination and anti-harassment training in the workplace that focuses not only on age-based discrimination and harassment but also on other forms of harassment based on sex, race, disability, and other protected traits. Pepper Hamilton’s Labor and Employment Practice Group can conduct anti-harassment training sessions for both your managers/supervisors and rank and file employees. Contact a Pepper Hamilton Labor and Employment attorney to discuss how we can tailor a training program to the needs of your workforce.

Lee Tankle

Confidential Harassment Settlements No Longer Subject to Tax Deduction

Q.  Has the #MeToo Movement led to any changes on how companies settle harassment complaints?

A.  While there are numerous legislative initiatives on the horizon intended to change how employers handle harassment complaints in light of the #MeToo Movement, the most significant federal change is a little known revision to the Tax Code recently enacted.

The Tax Cuts & Jobs Act prohibits either the employer or the employee from taking a tax deduction for (1) any settlement or payment related to a sexual harassment claim that is the subject to a non-disclosure agreement; and (2) attorneys’ fees related to such settlement or payment. The intent of the statute is to discourage parties from keeping harassment claims secret and thereby reduce the risk that the alleged harasser will strike again.

The term “related to” is not defined in the statutory language. It is possible that the settlement proceeds for any claim that merely mentions the word “harassment” may not be deductible, even if the majority of the allegations involve other issues.  However, we believe that the IRS likely will allow parties to allocate the portion of the proceeds that is for settlement of harassment allegations in those cases in which harassment is part of a larger suit involving other disputes.

The impact of the deduction for attorneys’ fees also is significant. Most claimants pay their attorneys on a contingent fee basis, meaning that the settlement proceeds are split between the claimant and the attorney, often as high as 60 percent claimant/40 percent attorney.  Since proceeds from an agreement containing a nondisclosure provision cannot be deducted, this means that the employee may not be able to deduct even that part of the proceeds that goes directly to his or her attorneys.  This is true regardless whether the employer pays the attorney directly, or pays the proceeds to the employee who then pays his or her attorney.

The new rule may have several detrimental consequences to both parties and the public. As a confidentiality provision is an important component of most settlement agreements, the new tax burden will make settlements more costly.  Employers may be less interested in pursuing such settlements, resulting in harassment claims clogging the courts.  Additionally, employees who would rather keep their claims private due to the sensitive nature of the allegations will have to face the public eye.

While it remains to be seen how the IRS interprets this new provision, both employers and employees must consider the tax consequences of any agreement that they seek to keep confidential.

–Tracey E. Diamond