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Business law
For the layman, nothing is more inevitable than, as Ben Franklin said, “death and taxes.” For the businessman, nothing is more inevitable than taxes, competition and lawsuits. Death does not apply to the corporation, as it does to other forms of business and mere mortals. A businessman, whose practices are extraordinarily safe, will lose his business to the competition and still can’t avoid being a defendant. The lampreys of our society swarm the business waters intent on being parasites of large and small companies alike. The legislative and judicial branches of government have carved out the statutory and case laws defining the practice of fair employment. Congress passed the Civil Rights Act (1963), Americans with Disabilities Act (1990), Equal Pay Act (1963) and the Age Discrimination Act (1967). The judicial branch defined the meaning and application of those acts according to the political winds of business and public interest. Between 1989 and 1991, the courts made decisions that oriented the laws in favor of business. Congress responded by passing the Civil Rights Act of 1991 to reverse or modify those decisions to favor the employee. While anti-discrimination laws are noble and just, they expose the underbellies of even the most righteous companies to attack. The characteristics that the laws protect from discriminatory employment decisions are also protected from rude, crude or utterly hostile treatment by coworkers. For the victims of unscrupulous businesses, the laws provide recompense for tort. For the person whose ability to perform well on the job is compromised by a hostile environment, the laws provide recompense for tort. For the unscrupulous opportunist, they rend gaping holes in businesses’ vaults. A businessman is wise to be competitive and take risks in order that the company may prosper, yet he is negligent if he does not take precautions and assume a proactive approach in regards to employment law. Knowledge precedes precaution. Knowledge of the laws, their impact on the public, their impact on business, responsibility and ethics are fundamental prerequisites to planning profitable and successful human relations in business. Knowledge of legal practice is important for making decisions of strategy and taking risks in court.
Franklin’s sage advice and observations have survived two centuries of tests in human relations and nature. If he could have foreseen the passage of civil rights laws at the federal level, he may have changed his observation to state, “Nothing is more inevitable than death, taxes and getting a subpoena.” The business manager bases his strategic decisions on knowledge of the market and measurements of profitability. He bases his managerial decisions in hiring, promotions, and discipline upon measurements of productivity and knowledge of civil rights. The risk of being sued by people claiming real or imagined discrimination is not an idle threat but a guarantee. The smart manager considers that inevitability when making a decision and carefully documents all factors involved. He wants to know that when he gets sued, he will win. Sometimes his frontline managers will succeed in operating with practices that unintentionally segregate people based on a protected characteristic. The impact on those people is incongruous and unfair. It is disparate. Thus victims of disparate impact may receive reinstatement, back pay, attorney fees and lost seniority. Sometimes his frontline manager is intentionally biased in making decisions and wrongly treating people’s lives and careers. That too is incongruous and unfair. Intentional disparate treatment of people is a very serious offense and victims have a right to punitive damages. Thus the victims of disparate treatment may receive the same remedies as disparate impact plus compensatory damages and punitive damages. The punitive damages are capped according to the size of the company. Companies with fewer than 100 employees will not be penalized more than $50,000 while those with more than 500 are limited to $300,000 penalties. When disparate treatment is the result of racial discrimination, there is no cap, and a jury may award any amount. Disparate treatment victims also have the right to jury trials, which traditionally are inclined toward the victim and not the businessman. Disparate treatment victims must show the employer’s discriminatory intent, whereas the victims of impact need to show that people with a protected characteristic are statistically discriminated. The successful businessman works diligently to insure that not only his HR decisions are free of disparate impact and disparate treatment of protected characteristics, but also his managers’ decisions are equally free.
If the managers are diligent in not making decisions having disparate impact or causing disparate treatment, there is a greater chance of winning. But winning does not always mean coming out ahead. Most husbands realize too late in their marriage that by winning an argument, they have ultimately lost. The dynamics in business court cases are very similar. When a business considers how to respond to a subpoena charging a violation of employment law, the issue is mostly financial and a measure of risk. At risk is winning or losing, how expensive the defense is, how expensive the settlement is, and how expensive is the hidden cost of public image. One does not need a Ph.D. in mathematics to be able to calculate if the cost of settling a suit is less than the cost of defending it in court. Common sense will include the cost of lost public support from having the company’s name on front-page news. Settling should obviously be the best decision. However, there is a hidden cost associated to setting the precedent. By agreeing to the terms of that particular case, the company is agreeing to those terms for all potential cases where other employees may have the same complaint. Defending or settling a case is not a simple issue but raises important questions; “Will I win?” “If I win, what will it cost?” and “If I lose, what will it cost?” Cost, however is not limited to the sum of attorney fees and damages; it includes the value of public image and risk of additional suits.
The laws are specific in what is protected and by implication what is not protected. The Civil Rights Act of 1964, amended 1972, and the Civil Rights Act of 1991 protect a person’s employment rights regardless of race, color, religion, sex and national origin. The American Disabilities Act of 1990 brings a person’s handicap into the set of protected characteristics. The laws do not state that an employer may not be selective and discriminate between good candidates and bad candidates. Actually, the laws imply volumes by what they do NOT specify. A manager is free to hire a person because he has the same alma mater and just as free to fire a person because he roots for a rival school. A manager can refuse to hire a person because he is tall or because he is wearing an ugly tie. In employment “at will” states, as Alabama, he is free to fire an employee for taking his parking space or wearing long hair. The manager can pass over an employee for a promotion because he likes to leave early on Fridays. However, the manager cannot pass over the employee for observing his religion’s practices. For example, consider an employee who is a Seventh Day Adventist. In the late fall, when daylight savings time is in effect, the sun sets before five p.m. For that employee, his advent has started and he is violating his religion to stay at work. Title VII stipulates that employment decisions are unlawful if they are made because of a person’s race, color, religion, sex or national origin. A manager may not hire, refuse to hire, promote, refuse to promote, train, refuse to train, terminate or retain an employee if the decision to do so is based on those protected characteristics. Section 703 of the Act allows for some specific exceptions to that protection. An employer is allowed to discriminate on a protected characteristic if he can prove that it is a bona fide occupation qualification. The burden of proof for the exception is on the employer, not the plaintiff. A bona fide occupation qualification exception is narrowly written to allow for “certain instances where religion, sex or national origin” are exceptions that are “reasonably necessary to the normal operation of that particular business or enterprise.” For example, it is reasonably necessary for guards to be male in an Alabama maximum-security prison for men because there is too great a risk to the guard (Dothard v. Rawlinson). BFOQ defenses are usually raised in cases that involve public safety. The court allows Greyhound to limit the age of applications for new drivers to 35. The Age Discrimination in Employment Act of 1967 forbids employers from discriminating people who are over 40. While that Act forbids discrimination of those over 40, it does not forbid discrimination of those who are less than 40. The laws allow an employer to refuse to hire a person whom they consider too immature or inexperienced for a position. But the laws prohibit the refusal if it is because the person is too old, even if the other candidate is also over 40.
The courts have ruled the meaning of Title VII to include actions and environment as discriminatory if they have an adverse affect on an employee’s ability to perform his or her job. The Civil Rights Act of 1991 states its purpose is to provide appropriate remedies for unlawful harassment in the workplace. Essentially, an employee has the right to be allowed to work without being harassed for any of the protected characteristics of color, race, sex, origin, religion or age. Harassment includes environmental factors such as posters, cartoons, or music that are offensive to a reasonable person. A woman has the right to expect management to remove Playboy centerfolds, and a man can expect management to remove a Chippendale calendar. Sexual harassment is usually treated separately in company policies to combine hostile environment with quid pro quo. The statutory text does not include these terms, and their application is the result of case law. A sexual harassment claim of hostile environment requires showing that conduct was severe or pervasive. A sexual harassment claim of quid pro quo is established when a refusal or offer of sexual favors results in a tangible employment decision. The employer is vicariously liable for sexual harassment, which sets a more stringent standard for the employer than mere negligence. Vicarious liability means that the employer is liable for the supervisor’s actions, even if the supervisor hides his actions from management. An employer is negligent if it knows or should know of a supervisor’s sexual harassment and fails to stop it. An employer is subject to vicarious liability to a victimized employee for an actionable hostile environment created by a supervisor with authority over the employee” (Burlington v. Ellerth). There is no affirmative defense for tangible employment action cases. If a supervisor makes an employment decision because a person refuses to submit to a sexual demand, the employer is liable and has no defense. In the absence of a tangible action, the employer can raise a defense, subject to a preponderance of evidence. They must (1) assert they exercised reasonable care to prevent and promptly correct the behavior and (2) prove the plaintiff unreasonably failed to take advantage of opportunities provided to report and correct a problem. To help in preventing a sexual harassment claim, an employer should have a widely published written policy advising employees that it will not be tolerated, providing discreet and confidential mechanisms for it to be reported, and providing victims of harassment a way to report their supervisors’ actions (Yates v. Avco). They should immediately address all complaints, investigate them thoroughly, be discreet, and impose appropriate discipline consistently. Just the existence of a sexual harassment policy is not sufficient to defend a claim (Meritor v. Vinson). The best defense against sexual harassment lawsuits is a proactive and aggressive policy to prevent them in the first place.
In the area of employment, people with disabilities have the right to have jobs for which they are capable of performing the essential functions. The American Disabilities Act makes it unlawful to discriminate people from those jobs merely because the employer “has something against” a disability. Under the Rehabilitation Act, a handicapped person is (1) one who has an impairment that inhibits a major life activity, (2) has a history of such impairment, or (3) is considered as having one. The ADA prohibits employers from discriminating “against a qualified individual with a disability because of the disability of such individual.” A handicapped person is qualified if he can “with or without reasonable accommodation, perform the essential functions of the job.” The strength of the ADA is also its weakness. The wording is general and its scope is immense. It is up to the courts to decide what defines a disability (Sutton v. UAL). The wording “substantially limits” and “major life activities” results in litigation. Important is the very way in which it defines a person with a disability. “The wording has created problems.” (Koenig 1998) Stating the effects of a disability as the qualifying element removes consideration of the cause, and that opens the floodgates of psychological impairment. Opening that door allows opportunity for infinite abuse of the system by people who need only pretend to be crazy. Essentially it gives the chicken-coop’s keys to the fox. It is also up to the courts to decide what can be considered a reasonable accommodation (Vande Zande v. Wisconsin). A reasonable accommodation is essentially the change that an employer can afford to make for the handicapped without causing an undue hardship on the company. For example, consider a small company that has an opening for a mail clerk that will require delivering 40-pound packages around the building. The first applicant is a paraplegic in a wheelchair. The employer may reject that applicant and continue to advertise the position because to accommodate the paraplegic will require a very expensive robotic device to move the heavy packages. The second applicant has a back problem but can make the deliveries if given a hand-truck. The employer will be in violation of the ADA if he continues to advertise the position because the cost of a hand-truck is not a hardship. If an existing employee requests an accommodation for his handicap, the test of reasonableness is again considered. For example, if the company adds new floors to the office and has a paraplegic working on the first floor, it is reasonable for the paraplegic to expect the company to accommodate his disability by making the bathroom on his floor accessible. But expecting the company to make bathrooms on all floors accessible is not reasonable. The ADA has its supporters and detractors. Passed by majorities from both parties in both houses of Congress, it is a sweeping legislation affecting nearly every business owned in America. Its huge scope does more than ban discrimination because it requires employers to accommodate people’s disability in not only the work place but also the application, screening and testing processes.
Businessmen at all levels of management are faced with the challenge to motivate their staff to perform as well as possible, develop their skills, and respond to problems that affect the team’s effectiveness. Of those challenges, how a manager responds to problems presents a dilemma. In this context, the typical problem affecting a team’s effectiveness is the result of a single member. The effective manager must be attentive to the problem member’s psyche and consider what action will be most effective. Either the manager must make the employee stop a bad activity or help the employee return to an acceptable performance level. Even good employees sometimes make mistakes or fall into bad habits. But therein lies the problem. As trite as it sounds, good employees are hard to find! Management cannot afford to lose good employees. They cannot discipline too harshly without having the employee quit, whereas they cannot discipline too leniently or the behavior will continue. However, employees can sometimes be like teenagers who still live at home. Spanking them is totally ineffective, if not illegal. Kicking them out can make things worse. And they can have an attitude that they deserve more than they are entitled to. Unfortunately for the parents (and the company managers), kicking them out is the only truly forceful form of discipline. Unless it is specified by a contract that employment is permanent, employment is “at will.” The company can fire the employee for a good reason, a bad reason, a rude reason or no reason at all. However, just because employment is “at will,” the company may not fire somebody for a characteristic that is protected. A manager can tell an employee, “You’re fired because I don’t like your long hair; you hum Beetles melodies, and you’re taller than I am.” However, the manager may not say, “You’re fired because I don’t like your black kinky hair; you chant rap songs, and you kneel towards Mecca before eating lunch.” For that kind of indiscretion, the manager will either receive a subpoena or a broken nose. For people with a permanent employment contract, the employee can only be fired “for cause” such as theft, violence, or sleeping on the job.
Putting policies and procedure in writing can be both good and bad. A company lessens the probability of a sexual harassment charge if its policy and associated complaint procedure is clearly stated in an employee handbook. Accurate, written job descriptions that clearly state the requirements of a position reduce the likelihood of a discrimination claim as do structured interviews and testing procedures that measure the job-related skills. Having written disciplinary policy and procedures helps in their consistent application and reduces the chance of being sued for racial discrimination. However, having written disciplinary policy can create an employment contract and remove the “at-will” employment condition. If the policy is very specific and does not have wording to specify that employment is “at-will,” an employee can win at proving that people can only be fired “for cause.”
When a manager must fire an employee, he must consider the company’s policy, his code of ethics and the effect it will have on the employee to tell the reasons behind the termination. If the company policy states that the employee should be told the reasons, you should state all of the reasons. By stating only a few of the reasons (to soften the blow), it can come back on the witness stand when a plaintiff’s attorney asks why he fired for a few flimsy reasons. If the manager believes that the ethical thing to do is to tell the reasons, he should tell all of the reasons. However, if the company is responsible, the policy has probably allowed for a multi-level disciplinary process, and the employee has been warned, warned again, and threatened with termination before getting to the exit interview. Telling somebody who is that stupid is a wasted effort and only serves in reducing the manager’s feeling of guilt based on his ethics. In the unusual circumstance where it may help the employee to learn from his mistake, telling the reason might be good. Telling all is not likely to be a good idea. Therefore, (as rude as it is) saying nothing more than, “Goodbye” is probably best.
The processes, procedures and rules in the judicial system are shrouded with an intimidating complexity. To the layman, it is a mind-boggling mystery of specialized terms and ceremony complicated by the paradox of dual yet unequal truths or the concept that justice can be relative. For a manager, the important thing is to overcome the intimidation and become aware of the aspects pertaining to employment law. Fundamentally, there are six parties involved; plaintiff, plaintiff’s counsel, defendant, defendant’s counsel, the finder of fact and the judge. Usually the businessman is the defendant and the plaintiff is an employee who is suing for restitution or compensation for an alleged unfairness or tort. The counselors are bar certified attorneys representing the opposing sides. The finder of fact is the party who determines whose side has presented the most believable preponderance of evidence. In civil cases, the finder of fact is a jury. In disparate impact cases, the finder of fact is the judge. The judge determines issues of law, which includes the determination that an issue of fact exists such that a jury needs to be called to hear the evidence. Juries are unpredictable and can be compared to the behavior of a cat. Decisions can come back that have little to do with the real facts of the case. The only thing one can expect from a jury is that it will favor the employee. An employer will prefer for a case to be heard by a judge and not a jury because the jury is already biased against him. Also the jury is not experienced in what is being decided, and it can award extraordinary punitive damages to a plaintiff for whom they feel sorry. When a case is heard before a jury, both teams of attorneys will spend many hours in preparing for the trial, more hours than for non-jury cases. Because the employee/plaintiff is entitled to an award that covers his legal fees, the businessman/defendant stands to lose several more thousands of dollars. If there is no issue of material fact, one of the sides may move for a summary judgement asking the judge to rule on the matter of law. If the judge agrees that no issue of fact exists, he will consider the evidence in the light that most favors the non-moving party. Once a decision is made, the attorneys may appeal the decision if there is a question regarding the application of law. Very rarely is an appeal successful because the plaintiff or defendant dislikes the jury’s finding of fact.
The Equal Employment Opportunities Commission exists mostly as a sort of clearinghouse for claims of discrimination. Their resources are limited so they only participate in prosecuting those claims that will have the greatest impact on the greatest number of people. A victim of discrimination must go through the EEOC first, or his case will never be heard. This includes claims of discrimination that violate the Civil Rights Acts, ADA, Equal Pay Act and the Age Discrimination Act. The victim has a limited period in which to file the claim. In states that require going through a local agency, the period is 300 days since the last discriminatory act. In states that do not require going through a local agency, the time period is 180 days. The EEOC will interview the charging party and assist in deciding if it is a chargeable offense. They then either refer the parties to mediation or investigate the case and decide if they will participate actively in prosecuting it. Whether the EEOC decides the complainant has a strong case or not, the EEOC will issue a letter of Right-to-Sue. This is then the plaintiff’s “permission slip” to allow him to take the case to court. Without this “slip,” the case will not be heard. The processes and proofs are slightly different between cases of disparate treatment, disparate impact and ADA claims.
For disparate treatment the process goes through several steps before a decision can be made.
Step 1.
The plaintiff must first establish a prima facia case. Prima facia means a case with such evidence as by itself would establish the claim, or a case that will be sufficient if not contradicted by rebutting evidence. To establish Prima facia case in a hiring discrimination, a plaintiff must show
1 he/she belongs to a protected group
2 he/she applied and is qualified for the position advertised
3 despite being qualified, plaintiff was rejected
4 defendant continued to seek applicants.
To establish Prima facia case in a promotion discrimination, a plaintiff must show
1 he/she belongs to a protected group
2 he/she is qualified for promotion
3 despite being qualified, plaintiff was not promoted
4 defendant filled position with somebody belonging to a favored racial group.
To establish Prima facia case in a termination discrimination, a plaintiff must show
1 he/she belongs to a group protected by Title VII
2 he/she innocent of policy or law violation and is capable
3 plaintiff was fired
4 defendant refilled position with somebody belonging to a favored group.
Step 2.
The defendant must respond by offering a legitimate reason for his action that is not based on illegal discrimination. If the defendant does not offer a reason, the judge will rule for the plaintiff.
Step 3.
The plaintiff may attempt to rebut the defendant’s non-discriminatory reason and claim the employer’s reasons are not believable or they are truly based on discriminatory intent. If the plaintiff does not rebut, the case will be dismissed. Here, the employer has an intermediate burden of proof, not a full burden.
Step 4.
At this point a jury decides whose explanation is to be believed. Legally, they must presume that the ultimate burden of proof is on the plaintiff.
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For disparate impact cases the process is simpler but the rules of evidence are more complex. Opposing side may choose different groups of people and calculate different rates of bias (Hazelwood v. U.S.). The “poplation-workforce” must be the qualified labor market and be selected from a relevant geographical area. The statistics must represent the population at the time the discrimination is alleged. (Hazelwood v. U.S.) and calculate different rates of bias. The Supreme Court uses a set of calculations, Z-score, to determine the deviations. They calculate Z-score = (expected success – observed success) / standard deviation. The Court will agree that discrimination is occurring if the Z-score is greater than 2 or 3. A company cannot expect all managers to have the statistics available or expect them to calculate Z-scores. Managers have an easy calculation available to “keep a finger on the pulse” of employment practices – the Four-Fifths Rule. The rule is not legally binding and not used by the courts in determining if a practice is discriminatory. But managers can quickly and easily use it to raise flags and bring attention to a practice before it becomes a legal issue. The Four-Fifths rule is a function of the ratio of successful minority applications divided by a ratio of successful majority applications. For example, if 20% of Asian applicants are selected while 50% of the Whites and Blacks are selected, then a manager can calculate the function is 20/50, or 2 fifths. Two Fifths is not greater than Four Fifths, so a manager has cause for alarm and should make certain that the factors eliminating the Asian applicants are truly job related.
Step 1.
The plaintiff demonstrates with statistical comparisons that a facially neutral employment practice results in a bias that impacts a protected group.
Step 2.
The defending employer demonstrates by his statistics the bias does not exist, or he must demonstrate that the challenged practice is “job related” and consistent with “business necessity.”
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The Americans with Disabilities Act puts rules on employers and businesses. Businesses must modify the building to make it accessible to the handicapped. Employers may not inquire directly about a person’s handicap. The employer may inquire if the applicant has the ability to perform job-related functions but may not inquire if the applicant will need an accommodation. Alcoholics and ex-drug users may not be discriminated for indiscretions in their past. However, ADA does not protect them from being fired if they come to work stoned or drunk. If a person has an impairment that can be treated with drugs or an appliance, they are not disabled to the point they can claim ADA discrimination. For example, the ADA does not protect a person with high blood pressure if his medicine is effect in treating the disorder. ADA does not protect a person with very poor vision if his glasses allow him to see 20/20. With ADA claims, there are 4 degrees of disability, and they have an impact on how “cases switch gears.” First are those unimpaired people against whom a company may discriminate as it pleases, as long as it is within the confines of the Civil Rights Act. Second are people who are handicapped but not to the point they are disabled and the company may discriminate them too. Third are the people who qualify as disabled and can do a job with accommodations, but now the company cannot discriminate them without being dragged into court. Fourth are those who are disabled to the point it is an unfair burden to accommodate, and the company is again free to discriminate. When applicants and companies go to court over an ADA case, the applicant at first tries to prove he is disabled to the point he qualifies at the third level, while the company tries to prove he is really at level two. Once the applicant is determined to be at level three, they change gears and the company tries to prove that the accommodations are an unfair burden, implying that the applicant is really at level four.
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