What's the Real Cost?

With the increase in Federal agency initiatives targeting employers, such as I-9 audits or independent contractor classification audits, employers face increased scrutiny. In addition, disgruntled current or former employees are free to lodge complaints with State and Federal agencies that may spark an investigation. In either case, an employer faces potential liability, as very few employers are capable of keeping up with the myriad of employment laws. In reality, most employers try to remain compliant with employment laws, but if the government looks hard enough, it is likely to find a violation or two.

What’s the cost of a claim? It might be fines for incomplete I-9s, unpaid taxes for misclassification of workers, overtime for unpaid wages or a need to change employment practices. But, the biggest cost is usually legal fees. It is a best practice to hire counsel when an employer faces a government investigation, employee claim or audit. Contacting counsel before reacting/responding to a claim is prudent, but it does create an expense. Moreover, a disgruntled employee is likely to have an attorney herself. When an employee has an attorney, that attorney will likely make a demand for some kind of monetary compensation for whatever wrong the employee alleges. The demand ordinarily includes the payment of that employee’s attorney’s fees.

Most Federal discrimination laws allow for the recovery of attorney’s fees to the “prevailing party”. In a case that goes to litigation, this can mean that the employee’s attorney will ask the court to award “reasonable attorney’s fees”. Typically, the employee’s will ask that the court award attorney’s fees in excess of $100,000. Even in cases that settle, employees expect their attorney’s fees to be paid by the employer, which again can add up to significant amounts of money even in a case that is considered suspect.

In a recent Federal employment discrimination case, a jury awarded an employee $110,000 in damages for the employer’s retaliation for her protesting unlawful employment practices. The employee asked the court for an award of attorney’s fees. Although the employee also brought two other unsuccessful claims (one for gender discrimination and one under the FMLA) that the jury rejected, the judge in that case awarded the employee $250,000 in attorney’s fees and expenses. Think about it: her attorney’s fees award more than doubled the amount of actual damages that the jury awarded to her. The judge reasoned that the winning claim (retaliation) was “intertwined” with her other discrimination claims such that she was entitled to all of her attorney’s fees.

What is the lesson learned from this illustrative case? Be proactive as an employer. Conduct regular training for both employees and management, including on topics such as harassment. In addition, conduct a self-audit of internal recordkeeping, policies and procedures, etc. If you find violations on your own, it’s cheaper and easier to correct with the assistance of counsel than when your company is facing a claim or audit. Finally, while not all claims are avoidable despite best efforts, if the company has taken proactive steps such as those mentioned above, it can mitigate its exposure and can reduce the number of claims. After all, paying someone else’s attorney’s fees doesn’t exactly help the bottom line.

Pregnancy Discrimination Claims Increase

It is not a surprise that the EEOC is receiving a greater volume of discrimination charges given that the U.S. unemployment rate is now over 10%. Naturally, many people who have lost their jobs have claimed a discriminatory basis for their separation. But, it is surprising that a large number of pregnancy discrimination claims have come into the EEOC. Pregnancy discrimination is covered under Title VII via the Pregnancy Discrimination Act (PDA). The EEOC reported that it received 6,285 claims in FY 2008, up from 5,587 in FY 2007.

The 7th Circuit Court of Appeals recently held that the PDA covers a "potential pregnancy" after an employee claimed she lost her job because she had taken time off for fertility treatment. This ruling certainly expanded the scope of covered claims (at least in that Circuit).

In addition, on January 1, 2009, the Americans with Disabilities Act (ADA) Amendments Act of 2008 went into effect. The ADA was amended because "the holdings of the Supreme Court in Sutton v. United Air Lines, Inc., 527 U.S. 471 (1999) and its companion cases have narrowed the broad scope of protection intended to be afforded by the ADA, thus eliminating protection for many individuals whom Congress intended to protect." Pregnancy can be covered under the ADA if it effects a major life activity (such a major complications requiring bed rest).

Further, the Family and Medical Leave Act (FMLA) allows employees with serious health conditions, including conditions related to pregnancy, to take leave on a reduced work schedule if it is “medically necessary.” A reduced work schedule is “medically necessary” if an employee has a serious health condition that requires a treatment regimen which is best accommodated by this type of leave. Thus, if a health care provider certifies a pregnant employee’s need for part-time work, an employer may have to modify the employee's work schedule.

As always, employers should make sure that they are in compliance with all laws and should consult with counsel if any questions arise.

FMLA Joint Employer Ruling

Many of the Federal employment laws do not take into consideration co-employment, joint employment or other employment relationships that involve more than one employer.

Under the Family and Medical Leave Act (FMLA), the U.S. DOL promulgated regulations explaining circumstances where a joint-employment relationship may exist: (a) Where two or more businesses exercise some control over the work or working conditions of the employee, the businesses may be joint employers under FMLA. Joint employers may be separate and distinct entities with separate owners, managers and facilities. Where the employee performs work which simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek, a joint employment relationship generally will be considered to exist in situations such as: (1) Where there is an arrangement between employers to share an employee's services or to interchange employees; (2) Where one employer acts directly or indirectly in the interest of the other employer in relation to the employee; or, (3) Where the employers are not completely disassociated with respect to the employee's employment and may be deemed to share control of the employee, directly or indirectly, because one employer controls, is controlled by, or is under common control with the other employer. 29 C.F.R. § 825.106(a).

A case just decided a few week ago held that for a joint-employer relationship to exist, each alleged employer must exercise control over the working conditions of the employee, although the ultimate determination will vary depending on the specific facts of each case. That case, Moldenhauer v. Tazewell- Pekin Consol. Communications Center, 2008 WL 2927018 (C.A.7 (Ill.)), is a Seventh Circuit case (which covers Illinois, Indiana and Wisconsin).

Cases like Moldenhauer arise where one of the two employers has less than the requisite "50 employees within a 75-mile radius" to come under the purview of the FMLA, but when aggregated to the second company, falls within the applicable number of employees.