Sexual Harassment Training : ELT, Inc. : AB 1825, Employment Law, Online Harassment, Compliance, and Harassment Training

When it comes to ethics and compliance training, I constantly find myself talking with in-house counsel about how to allocate the corporate legal budget.  Where should the money be spent, and how can those decisions be justified?  Sobering up to the current economic conditions (which are only going to get worse) makes the pressure around those budget allocation decisions even more extreme.

Plenty of organizations get bogged down in the smoke and mirrors of intricate compliance risk assessments and the infamous “training needs analysis” (usually run by a vendor who conveniently, also sells training).   But when it comes to the baseline training that should drive the foundation of spend decisions, it’s really not that complicated.  The core curriculum should be comprised of those areas where: (1) training is legally mandated, and (2) there is the greatest exposure based on actual litigation trends.

The first driver is pretty simple – frankly, because there aren’t that many true mandatory training laws.  Most are concentrated in the areas of harassment and discrimination.  (For a detailed overview, check out ELT’s mandatory compliance training summary.)

The second is a bit more complicated, and of course more fluid.  You have to look at the actual litigation data from recent years.  Luckily, we lawyers love to research this stuff, and write about the data at length – so the information is easy to come by.  Take the recently released fourth Annual Workplace Class Action Litigation Report from Seyfarth Shaw LLP.  It analyzes rulings and decisions in 507 leading class-action and collective-action cases against employers in all 50 states, along with key settlements.  The report’s chief conclusions are that the rapid pace of wage-and-hour litigation is likely to continue this year, and that workplace litigation, especially class action and multi-plaintiff lawsuits – “continues as the chief exposure driving corporate legal budget expenditures.”

Diving into its details, the report’s got some compelling data and conclusions – one that should convince every employer why training dollars in 2008 should be focused on wage hour compliance and discrimination prevention. It’s a sobering look back at last year:

• Collective actions pursued in federal courts under the FLSA produced more rulings in 2007 than did class actions for employment discrimination or under ERISA.
• The Class Action Fairness Act of 2005 continued to have significant effects on case law, primarily in wage-and-hour class actions filed in state courts.
• Plaintiff lawyers resorted to state courts more frequently to pursue employment-related class actions, particularly in the wage-and-hour arena.
• Although the U.S. District Courts for the Southern and Middle Districts of Florida experienced more wage-and-hour filings than any other federal jurisdiction, the most significant growth took place in state courts in California, Florida, Illinois, New Jersey, New York, Pennsylvania and Texas.
• As to discrimination exposure, in 2007, the EEOC “became increasingly activist in its litigation filings.”
• Recoveries secured by the EEOC and the U.S. Department of Labor in 2007 “represented new records in total monetary relief as compared to past years.”
• The financial industry has been bit hard in both arenas – wage-and-hour and discrimination:
• The report highlighted large settlements paid by Morgan Stanley and Merrill Lynch at the end of 2006 to settle wage-and-hour cases over unpaid overtime for highly paid financial analysts – employees many people did not think were likely plaintiffs in a wage-and-hour case.
• Two of the top 10 settlements in the area of private plaintiff employment discrimination class actions again involved Morgan Stanley – $46 million for female financial advisers and trainees who claimed gender discrimination, and $23.5 million for Black and Hispanic financial advisers and trainees who claimed gender and race discrimination.
• In the top 10 settlements of government-initiated lawsuits, Sidley & Austin agreed to pay $27.5 million to settle an EEOC suit alleging age discrimination against partners, Walgreen Co. agreed to pay $24.4 million to settle an EEOC suit alleging race discrimination against Black employees and Woodward Governor Co. agreed to pay $5 million to settle an EEOC suit alleging discrimination against Black employees.

So while you may be agonizing over the details of a complex risk assessment (no doubt supported by some pricey consultants), read the writing on the wall when it comes to your greatest areas of risk.  The numbers say it all.  Clearly discrimination and wage hour exposure will continue to lead the way – and the trend looks like it’s only going to continue.

Is there really any question where you need to focus your ethics and compliance training efforts?

When Sarbanes-Oxley passed in 2002, all of us understood that it represented a complete overhaul of financial controls and reporting in this country.  What some of us didn’t understand, however, was that SOX created a whole new theory of employment discrimination – not discrimination related to membership in a protected category defined by Title VII of the Civil Rights Act (like race, gender or religion), but discrimination related to whistleblowing activities – like raising a concern about the books being cooked.

The key provisions of the whistleblower protection under Article 8 of SOX are as follows:

• Employees who provide information about acts they reasonably believe to be a violation of securities laws, rules of the SEC, or laws relating to fraud against shareholders, are protected from retaliation by their employer.
  
  
• Protected employees cannot be discharged, demoted, suspended, harassed, or otherwise discriminated against.

SOX retaliation claims have been steadily on the rise since 2002.  What’s even more interesting is that the average recovery in a SOX whistleblower discrimination claim ($270,000) significantly exceeds the average recovery in a classic Title VII retaliation claim ($187,583).  (Employment Practice Liability: Jury Awards Trends & Statistics, 2005, Jury Verdict Research, Horsham, PA.)

So we know these types of claims are prevalent – which is why a robust ethics and compliance training program will include appropriate coverage of whistleblower protections and the rule against retaliation.  What some of us may not realize, however, is that SOX whistleblower protections could apply outside the U.S.  At least that’s what a recent case out of the Southern District of New York is suggesting.

In O'Mahony v. Accenture Ltd., 07 Civ. 7916, 02/05/08 (S.D.N.Y.), U.S. District Judge Victor Marrero held that the whistleblower protections of SOX applied to the U.S. subsidiary of a foreign Bermuda-based corporation based on conduct that took place on foreign soil, under foreign law and affecting an employee based in and performing services in the foreign jurisdiction. The case involved the non-payment of Social Security taxes in France for an employee of Accenture's U.S. subsidiary who had worked in France – not the typical kind of issue we focus on as ethics, legal and HR professionals. The Plaintiff claimed she was demoted and fired for refusing to conceal from French authorities that she had worked in the country long enough to invalidate the original certificate of exemption of coverage from France's Social Security taxes.  In other words, she was asked by her employer (Accenture's U.S. subsidiary) to keep silent about payments that were owed.

While it may seem a bit overly technical and obscure, the decision is worth watching because it is the first case to hold that the whistleblower provisions of SOX apply to an employee working overseas.  The Court focused on three key aspects of the case to justify the application of SOX protections extra-territorially:

1. The Plaintiff had worked at the U.S. subsidiary before being posted to France, and she was an employee of and paid by the U.S. subsidiary, even when she was working in France.  The employment relationship was therefore between a U.S. employer and its employee;
   
   
2. The alleged wrongful conduct "involved employees of Defendants located in the United States and occurred in the United States" [namely, the decision that Social Security taxes were not due and owing in France]; and
   
   
3. The Plaintiff was bringing suit against a "foreign parent and its U.S. subsidiary for alleged misconduct of the United States subsidiary in the United States."

Aside from the overseas application of SOX whistleblower protections, the case also carries importance because Judge Marrero rejected the previously assumed limitation of SOX to securities matters involving "fraud against shareholders."  He held that "general principles of statutory construction weigh against reading [the statute] as providing whistleblower protection only to employees who provide information concerning fraud against shareholders."

So O’Mahony is a big deal, not just for its jurisdictional reach, but also for its extension of SOX to cases not involving fraud on shareholders.

As to its specific relevance for those of us interested in compliance training, I think the take-aways are also three-fold:

1. It’s critical for your ethics and Code of Conduct training to cover the principles of whistleblower protection, to encourage reporting, and to make crystal clear the rule against retaliation – both by employees and by managers.
   
   
2. When you address the issues in #1, be sure to cast a broad net, and underscore that these rules are not limited to circumstances which involve reporting suspected fraud against shareholders.  They can apply to a much more extensive range of ethical violations and suspected misconduct.
   
   
3. If you are a multinational organization, don’t limit your ethics and code of conduct training to U.S. employees.  Train everyone (with appropriately localized programs).  Not only does your Code have global application, but in cases like O’Mahony, you may find U.S. laws being applied extra-territorially.

It will be interesting to see if O’Mahony can withstand appeal.  Even if it does not, the practical recommendations that it inspires make for good business practice in any event.  So many of the training programs I review are dangerously thin on proper treatment of anti-retaliation principles, yet lawsuits claiming retaliation are on a steep and steady increase.  Time to review your materials and blow the whistle internally (pun intended) if your organization’s training programs are coming up short.

The U.S. Supreme Court has been busy this week, passing down two major employment law decisions.  A brief summary of each case is below, along with its compliance training impact:

Admissibility of "Me Too" Evidence, is a Case-by-Case Analysis

A closely watched Supreme Court case, Sprint/United Management Co. v. Mendelsohn was decided yesterday.  Mendelsohn was a laid-off older worker who sued her employer for age bias.  At trial Mendelsohn attempted to rely on the testimony of other older workers who also were fired from the same company.  The district court refused to allow the testimony, indicating that the facts of these co-workers were not relevant, because they had been fired by other supervisors, not the supervisor who laid off Mendelsohn. 

The 10th Circuit reversed that order, holding this kind of testimony always should be heard because it is "relevant to [the company's] animus toward older workers."  In a unanimous decision in favor of Mendelsohn, Justice Clarence Thomas stated, "[t]he question whether evidence of discrimination by other supervisors is relevant ... is fact-based and depends on many factors, including how closely related the evidence is to the plaintiff's circumstances." 

The compliance training take-away?  Be sure that your discrimination and harassment training programs cover age.  As importantly, be clear with managers that their actions not only impact direct reports, but the company as a whole.  Even if a manager’s conduct toward one of his or her employees does not promote a lawsuit, those actions could become relevant to a lawsuit involving a completely different employee (or group of employees).  While as legal, HR and compliance professionals, this is not a far-fetched concept, to your average front line manager, it may be completely unfathomable.  Awareness of the far-reaching impact of workplace conduct needs to be raised.

See the full text of the opinion.

Employees Should Not Suffer for the EEOC's Failures

A second labor and employment opinion was issued from the Court just this morning, Federal Express Corp. v. Holowecki.  Justice Anthony Kennedy issued the 7-2 ruling in favor of the employees.

The Court was asked to determine if an age discrimination claim against FedEx was filed properly.  The ADEA requires that plaintiffs alleging discrimination notify the EEOC and wait 60 days before filing a lawsuit against an employer so that the EEOC can notify the company and investigate the charges. FedEx alleged that the plaintiffs filed suit before notifying the EEOC, but the plaintiffs indicated that they had complied with the law and any failure to notify FedEx was the fault of the EEOC itself.

The Court was highly critical of the EEOC and affirmed the 2nd Circuit allowing the employee's case to proceed.  See the full text of the opinion.

The compliance training take-away?  While this case highlights more of a procedural issue, it underscores the prevalence of age related discrimination claims.  Be sure that your discrimination and harassment training programs don’t suffer from the “silo effect,” only addressing issues of sex and gender.  It’s critical to address other protected categories.  According to the EEOC's most recent stats, discrimination charges from 2006 break down as follows:

• Race – 35.9% 
• Sex – 30.7% 
• Retaliation - 25.8% 
• Disability – 20.6% 
• Age – 21.8% 
• National Origin – 11% 
• Religion – 3.4% 
• Equal pay - 1.1%

The EEOC will soon release its FY 2007 statistics – stay tuned for more updates.  And remember, when it comes to establishing affirmative defenses with compliance training, your programs need to address conduct relevant to the lawsuit at hand.  A sex harassment training program doesn’t have much to offer if you find yourself fighting an age discrimination claim.