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Here's the problem: Employee Joan Smith, who has a difficult personality, complains to her boss that her fellow workers tell obscene jokes and make lewd remarks to her as they pass by her desk. It's making it impossible for her to concentrate and do her job, she says. Her boss seems sympathetic, says he'll tell the guys to knock it off, but the remarks persist. Joan complains again. Now the boss is annoyed and tells her to just ignore it.

Finally, fed up as the harassment escalates, Joan contacts the Equal Employment Opportunity Commission and files a complaint. Now her boss is really angry at her.

"But I have to take my kids to day care, and I can't make it here that early," she replies.

"Too bad. That's what happens when you complain to the government. And if you don't make it, I'm going to dock your pay," the boss says.

Eventually, the situation gets too tough for Joan, and she quits the company. Then she files a gender-discrimination lawsuit against her old boss and employer, and also charges them with retaliation.

At the trial, the jury finds that Joan might have exaggerated the situation at work, and they dismiss the gender-discrimination lawsuit. But they find that Joan's retaliation claim was right on target--and right on the money. She's awarded back pay and damages, and the company is ordered to rehire her.

Too many risk managers and corporate human resource executives have learned the hard way that there is an increasingly overlooked risk with employee discrimination charges. It isn't the discrimination charge itself; it's what happens after an employee complains or files a lawsuit.

Today, the courts tend to uphold retaliation claims more frequently than discrimination complaints. Retaliation lawsuits and charges, according to the Equal Employment Opportunity Commission, now account for more than one-third of all discrimination charges and actions--more than charges of employment discrimination based on age, race or sex.

"Employers have always been much more vulnerable to retaliation actions," says Jonathan D. Wetchler, a partner in the Philadelphia office of Wolf-Block, who has more than 20 years of experience in employment law. "It's natural that jurors are far more likely to believe that an employer would retaliate against an employee after a discrimination complaint rather than actually discriminate against an employee," Wetchler says.

Worse, because of a new law in California, insurance companies may be barred from paying off an employment-practices insurance claim in retaliation actions. So, even if you think you're covered, it might do you no good whatsoever.

SUPREME COURT DECISION

Last summer, the highest court further complicated the situation with retaliation claims in the Burlington Northern v. White case by, in effect, expanding the kind of retaliation against an employee that is considered illegal.

Before that decision, the definition of retaliation was narrow, limited to a few specific actions. With the decision, all kinds of actions by an employer can be considered retaliation, as long as the effect of the action could have been to dissuade an employee from filing a discrimination complaint.

In the past, the courts held that, in order for a retaliation case to be successful, the employee had to show that the employer engaged in a "materially adverse action." For example, if an employer fired or demoted an employee, that would be such an action. In the Burlington case, the court ruled that less serious actions, such as a change in shift or responsibility, could support a retaliation claim. Even actions outside of the workplace could result in a claim, the court ruled.

The Burlington case focuses on an employee who filed a discrimination complaint about the behavior of her supervisor. Afterward, the supervisor was suspended for 10 days, but the employer also transferred the employee to a new job that she considered dirtier and more difficult, which was just one among other retaliatory actions by the employer. The employee filed a gender-discrimination retaliation action and also filed another complaint that she had been put under surveillance by the company. After the second complaint, her employer suspended her without pay for insubordination.

A jury found the job change and the suspension to be unlawful retaliation and ordered back pay. The Supreme Court upheld the decision and expanded the basis for retaliation. For example, the court said, a seemingly unimportant change in an employee's work schedule could prove to be retaliation if the employee was a woman with school-age children and dependent upon child care. If the new shift interfered with the child-care arrangement, that shift change could be considered retaliatory.

"When a company receives a retaliation claim," Wetchler says, "it needs to pay a lot more attention to it. They may have a far greater exposure than they thought."

Nor is this just an issue with actions in federal courts. All the states have discrimination laws, and the employer could be even more liable for retaliation and discrimination under those statutes. Retaliation claims are common in other situations, especially for government agencies and nonprofit institutions under the federal laws that protect whistle-blowers from retaliation.

Also, the Sarbanes-Oxley Act contains specific provisions to protect employees who report employer financial and securities-law violations.

"We are seeing SOX claims, and I think that public employers, as well as nonprofits, need to be more aware of retaliation issues," Wetchler says.

Retaliation lawsuits under Sarbanes-Oxley are becoming more common, and the legal ramifications of this new area are developing in the appellate courts. The standards for filing a retaliation lawsuit under SOX, however, are higher than if the claim relates to a discrimination allegation, he adds.

THE CALIFORNIA PROBLEM

John Rafferty, vice president at Hartford Financial Products, points out that under the California Insurance Code, section 333 may prohibit recovery of judgments, settlements and defense costs under an employment-practices insurance policy for a retaliation claim. The code denies protection if it involves what's called a "willful act." Retaliation, almost by definition, is a willful action. The California code puts the insurer in a quandary about whether or not it is legal to pay these claims.

"We see that retaliation claims do seem to be on the rise," Rafferty says. Certain kinds of losses can't be insured because the government insists that, as a matter of public policy, intentional wrongful conduct or a "willful act" should not be protected by an insurance policy.

"California is very overt in its insurance code," Rafferty says, adding that there seems to be a trend that jurisdictions are taking steps to make certain kinds of settlements and judgments beyond protection.

Rafferty adds that in past years it wasn't uncommon for policies to have an "intentional act" exclusion. That isn't as much the case today, and certainly the provisions of the California code in effect insert that exclusion into employment-liability policies.

"A lot of companies are not aware that they may not be covered," Rafferty says.

The answer, of course, is that companies need to adopt and implement stringent policies regarding employment discrimination. Human resources must know immediately about any employee making a discrimination complaint. There must be an established procedure that allows employees to make a complaint to someone other than a supervisor. And all managers need to have training and instruction about how to handle discrimination complaints and how to treat employees properly.

JACK ROBERTS is editor in chief of Risk & Insurance®.

May 1, 2007

Copyright 2007© LRP Publications