HR Magazine - May 2000: The Wheel of Misfortune

By Wendy Bliss May 1, 2005

HR Magazine, May 2000

Vol. 45, No. 5

Personal liability can render you and unwilling contestant in a high-stakes game show for employees where your paycheck is the prize.

Game shows and employment litigation have been around for decades. But, recently, both have experienced a dramatic surge in popularity due to pervasive, and often sensational, media coverage focusing on the potential riches participants can win.

One particularly disturbing aspect of what some might call these “employee litigation sweepstakes” is the increased willingness of employees to sue not only their employers, but also company officials—including HR professionals.

For employees who file suits, just as for game show contestants, there is little to lose. They name you in a lawsuit, spin the wheel and hope to win fabulous prizes. For HR professionals, however, that spinning disc can become a wheel of misfortune.

A Rising Tide

As the number of employment law claims has risen dramatically over the last several years, so have the opportunities for HR professionals to become personally embroiled in lawsuits. The Bureau of Justice Statistics reports that employment discrimination lawsuits more than tripled in the private sector during the 1990s, climbing from 6,936 cases filed in U.S. district courts in 1990 to 21,450 cases in 1998. Such suits accounted for approximately 8.4 percent of all federal civil cases filed in 1998.

Further, a 1999 survey by the Society for Human Resource Management (SHRM) and the law firm of Jackson Lewis reported that 53 percent of respondent organizations had been named as defendants in at least one employment-related lawsuit in the past five years.

Moreover, it is not at all unusual for high-level employees, including HR professionals, to be sued personally in workplace disputes. Of organizations polled in a 1997 SHRM/Jackson Lewis study, 23 percent had an individual named personally in an employment-related lawsuit; at 16 percent of these companies, HR directors or HR managers were named as defendants.

Why Me?

Why are HR managers being personally named in lawsuits? The decision is often driven by legal strategy, economics or revenge. Plaintiffs’ attorneys may calculate that naming individuals will create greater incentive to settle a case quickly. These attorneys also may name individuals as a “divide and conquer” strategy aimed at creating diverging legal goals among the employer and various company officials. Additionally, naming key players provides another potential source of recovery in the event that the employer files bankruptcy or becomes insolvent.

Company representatives also may find themselves individually named for their alleged personal misconduct. Common law tort claims—such as defamation, intentional infliction of emotional distress, fraud, misrepresentation, invasion of privacy, contractual interference or even assault and battery—may provide a legal basis for an employee to punish responsible parties.

From a litigious employee’s perspective, naming supervisors or HR personnel as defendants may be the best or only way to get even.

The Price Is Wrong

Participating as an individual defendant can be extremely burdensome, both financially and emotionally. Trial attorneys estimate that defendants in employment law cases may pay over $100,000 in litigation costs alone for a typical trial.

Lose that trial and you can expect to pay a good deal more. In 1996, median damage awards for employment discrimination cases were $200,000—significantly higher than the $33,000 median award in all civil cases—according to a Department of Justice study of state court verdicts in the 75 most populous counties. Awards of over $1 million occurred in 14 percent of jury verdicts analyzed in this study.

Fortunately, defense costs and monetary judgments often are paid by the organization or an insurance carrier. However, even if this is the case, your credit rating and ability to get a loan may be adversely affected while you are a defendant in pending litigation.

Additionally, the price—in terms of time and stress—of being named in a lawsuit can be staggering. Regardless of whether personal liability is ultimately imposed, you may spend years defending yourself in a suit. Even if you leave your current company, the suit will follow you like a bad cold. (And your next employer may not be thrilled if you lose significant work time on a case that involved your previous employer.)

Even if you win the suit, you still lose the time and energy you spent fighting it. As Voltaire once said: “I was never ruined but twice—once when I lost a lawsuit, and once when I won.”

The aggravation alone provides a compelling reason to be aware of—and avoid—potential individual liability under federal and state employment laws. The only way to win the “employee litigation sweepstakes” is to never buy a ticket in the first place.

Name That Claim

When can you, in the course of carrying out your HR duties, be named as a defendant? There are many potential grounds for legal action against individuals involved in employment activities or decisions. Several danger zones are established by federal law.

Additionally, managers and supervisors (including those in HR) may be liable for violations of state fair employment practice statutes, state health and safety laws or common law tort claims.

Discrimination Claims. Federal courts have generally ruled that Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (ADEA) and the Americans with Disabilities Act (ADA) do not impose liability on individual supervisors. However, under state fair employment practice statutes, HR professionals may be liable for committing discriminatory acts or administering policies and making decisions that have a discriminatory effect on employees.

A recent example is a 1999 ruling of the Iowa Supreme Court, which determined that supervisory employees are subject to individual liability for race and sex discrimination under the state’s civil rights act. (Vivian v. Madison, 601 N.W.2d 872) Similarly, a Washington state appeals court ruled last year that workers may have claims against individual managers for sex discrimination and sexual harassment under a state discrimination statute, even if the employer is not held liable. (Brown v. Scott Paper Worldwide Com pany, 989 P.2d 1187)

Section 1983. HR professionals who work for federal, state and local governments have added legal concerns in discrimination actions, based on the potential for personal liability under the Civil Rights Act of 1871 (commonly referred to as Section 1983). This law prohibits public officials from depriving individuals of “rights, privileges and immunities” provided by the U.S. Constitution or law.

Section 1983 violations often arise in discrimination claims involving public officials. Last year, the jury in a Delaware federal district court ordered a city’s personnel director and mayor each to pay punitive damages of $250,000 in a Section 1983 race discrimination case. (Mano lakos v. Sills, No. 96-582, D. Del. 3/15/99)

Personnel Administration Laws. A relatively unknown source of individual liability for HR professionals is errors in paperwork or other tasks relating to wage and hour compliance, benefits administration, benefits continuation, family or medical leave or I-9 documentation.

As the “Personal Liability Wheel of Misfortune” table indicates (see pages 208-209), HR personnel who violate the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), COBRA, the Employee Retirement Income Security Act (ERISA) or the Immigration Reform and Control Act (IRCA) can be held personally liable for mistakes in handling frequent, routine duties.

Your financial exposure when sued under these laws can be substantial because some penalties are calculated on a per day, per employee or per document basis. For example, say you fail to provide proper COBRA notice to 10 departing employees. Under the law, you may be liable for damages of up to $100 per day per employee; with 10 employees involved, your potential exposure is $1,000 per day. Fail to catch your mistake for two months (60 days) and your total potential liability soars to $60,000.

Some HR professionals and supervisors have learned these individual liability lessons the hard way. In an Ohio federal district court case decided last year, a human resource manager was held personally liable under the FMLA because he administered the FMLA and because he decided to fire one of his employees in violation of that law. (Carpenter v. Refrigeration Sales Corp.,49 F.Supp.2d 1028)

In another FMLA case, the court found a Chicago hospital’s vice president of HR and two of the plaintiff’s supervisors liable for their recommendations or decisions relating to FMLA leave and the employee’s subsequent suspension and termination. (Freemon v. Foley, 911 F.Supp. 326)

And last year a partial owner and chairman of the board of a security firm was held personally liable for over $157,000 for minimum wage, overtime and recordkeeping violations under the FLSA. (Herman v. RSR Security Services, 172 F.3d 132)

Criminal Sanctions. By far, the most frightening aspect of personal liability is the potential for criminal sanctions, including jail time. Especially at risk are those individuals hauled into court for egregious violations of the FLSA, ERISA, IRCA, the Occupational Safety and Health Act or state laws that provide criminal penalties. In one such case, the president of a smelting company received a four-month jail sentence and was fined $15,000 for lying to the Occupational Safety and Health Administration (OSHA) about workers’ blood lead levels. (U.S. v. Mickey, D.C.N. Ohio 1.92-CR-0380)

The Violence Against Women Act (VAWA). Although Title VII may preclude individual liability, perpetrators of workplace sexual harassment may be personally liable for damages under the VAWA. This federal statute provides civil redress for victims of violent crimes motivated by gender.

In a case in 1999, the Colorado federal district court imposed substantial judgments against the employers and two managers at a restaurant franchise for acts including vulgar sexual remarks and jokes, sexual touching of, and sexual overtures to, female employees. (Wells v. Lobb & Company, Inc., 1999 WL 1268331, (D.Colo.)) á

Note: During its present term, the U.S. Supreme Court will review the constitutionality of the VAWA enactment. As a result, it is possible that HR professionals may no longer face personal liability under this law.

‘What’s My Line’ of Defense?

The $64,000 question in the area of personal liability is: “What can I do to minimize my chances of being sued?” As the preceding discussion makes clear, working in human resources can be risky business. HR professionals should neither ignore the risks, nor be paralyzed by liability concerns.

Your odds of buying a ticket to the employee litigation sweepstakes can be dramatically reduced if you exercise awareness, prudence and common sense in your daily behavior. While an HR professional’s ability to control the workplace and affect human resource policies and practices can vary considerably from one company to another, everyone has the ability to control his or her personal knowledge and behaviors.

Here are some key risk avoidance guidelines in areas that every HR professional can control:

Understand the employment laws that affect your job. As the saying goes, ignorance of the law is no excuse. Consequently, the threshold requirement for keeping yourself and your organization out of court is in-depth knowledge of the laws you are responsible for implementing. Carefully focus on:

  • What activities are mandated (e.g., recordkeeping, reporting, posting, training).
  • What actions are prohibited (e.g., discriminatory acts or policies, denial of valid leave requests, employment of unauthorized aliens, workplace hazards).
  • The potential penalties for non-compliance with laws.

Know what activities put you in jeopardy. HR professionals can be sued for playing any of several roles. Obviously, individuals who are the perpetrators of illegal acts such as discrimination, harassment, defamation or assault and battery may be personally named in lawsuits.

In other situations, HR may be viewed as an accessory to alleged misconduct by either knowingly permitting it to occur, or by ignoring a situation after an employee complains. It is more likely, however, that HR’s participation as a decision-maker on important personnel issues will cause it to be named in a suit. Similarly, an HR manager may be sued for being the messenger who delivers bad news, such as a termination. Finally, HR’s duties as a record keeper or plan administrator provide grounds for personal liability under several federal laws.

Determine whether you are protected by insurance. Traditional business insurance policies, such as commercial general liability and directors and officers liability policies, typically exclude employee lawsuits.

By contrast, a wide range of employment-related risks can be covered by Employment Practices Liability Insurance (EPLI). However, the majority of companies don’t carry EPLI. According to a 1999 SHRM/Jackson Lewis survey, only 29 percent of companies polled carried EPLI policies.

Even if your company does carry EPLI, the policy may not cover all HR professionals, supervisors or other decision-makers in your organization, unless it has been specifically requested that these individuals be included in the coverage.

Even if you are not covered by a policy, you may not have to pay the expenses of defending yourself in a suit. Some organizations voluntarily cover these expenses, and others may be required to pay these costs pursuant to corporate bylaws or state laws that require such indemnification.

Develop good record-keeping habits. Inadvertent mistakes or tardiness in completing routine paperwork—such as I-9 forms, COBRA notices or responses to ERISA information requests—can provide the basis for substantial personal and organizational liability. To minimize human errors in record-keeping:

  • Develop a compliance checklist for key personnel forms. Use it to check critical records immediately after you have prepared them.
  • Ask another HR staff member to proofread important records before filing them or sending them to employees.
  • Audit records periodically to ensure that high-risk personnel paperwork is correct and complete.

Support your decisions with detailed, accurate documentation. Written documents can provide strong proof that an employee committed certain acts, knew about policies or expectations, received performance appraisals or training or was warned or disciplined. Key topics to address in documentation include:

  • The specific facts of the situation (dates, times, names, actions of involved parties, etc.).
  • The process used to reach your decision (investigation, parties interviewed, records reviewed, experts consulted, etc).
  • Reasons for the actions taken by you and the organization.
  • Expectations of, and consequences for, the employee.
  • The employee’s reaction to your decisions or actions.
  • Copies of relevant policies, records, data, forms, letters or memos.

Timing is critical. Documents created immediately following a decision or action will be much more believable than those prepared after a claim is made—which, in turn, are more credible than no documents at all.

Avoid being a “villain” when delivering bad news. Implementing adverse personnel decisions with sensitivity can be the factor that determines whether an employee chooses to pursue legal action against you and your organization.

A recent study in Ohio of 996 terminated workers proved that sensitivity pays. Of the respondents who thought they were treated with much dignity and respect by former employers during their discharge, only 0.4 percent filed suits; of those who felt there was no dignity and respect in their dismissals, almost 15 percent filed suit. Additionally, employees who were not given a reason for their terminations were more than 10 times more likely to sue their employers than employees who were told the reason.

Employees are less likely to feel humiliated and angered by bad news if you make it your practice to:

  • Handle discipline and terminations in a private setting.
  • Give specific and truthful reasons for the decisions made.
  • Focus on discussion of the employee’s problem behaviors rather than criticism of the employee’s “attitude” or personality traits.
  • Discuss the steps taken to make the decision. This will help show employees that they were given “due process.”
  • Show compassion about the impact the decision will have on the employee.
  • Express willingness to assist the employee to adjust to new circumstances (e.g., by providing information about benefits available or answering other questions).

It also makes sense to have a witness on hand who can attest to the fact that you handled a difficult situation humanely.

Use tact and diplomacy in day-to-day interactions with employees. A supervisor’s daily management tactics recently provided the basis for a $275,000 award for his intentional infliction of emotional distress on three employees. This supervisor constantly screamed, cursed and “charged” at employees. Over a period of more than two years, he engaged in a pattern of grossly abusive and degrading conduct toward employees. For instance, he ordered one employee to stand in front of him almost daily while he stared at her for as long as a half-hour; he also forced another employee to clean a spot on the carpet on her hands and knees while he stood over her yelling. (GTE Southwest, Incorporated v. Bruce, 998 S.W.2d 605)

Suffice it to say, this supervisor probably never got close to employing the following commonsense management practices:

  • Avoid acting explosively or with the intent to demean or embarrass employees, especially in public.
  • Think before speaking off-the-cuff to avoid making irrevocable employment decisions in the heat of the moment.
  • Listen carefully and non-judgmentally when employees express anger or disappointment. (This way employees don’t feel it’s necessary to use the legal system to be heard.)
  • Respect the confidentiality of personnel and medical information.
  • Steer clear of inappropriate comments, jokes or teasing; do not permit such behavior in your presence.

Author’s note: This article should not be construed as legal advice or as pertaining to specific factual situations.

Wendy Bliss, J.D., SPHR, is the principal of Bliss & Associates, a Colorado Springs, Colo.-based HR consulting firm. She specializes in delivering corporate training, national conference presentations and executive coaching services on issues, trends and best practices in employment law and human resource management. She will conduct two concurrent sessions on avoiding personal liability under federal and state employment laws at SHRM’s annual conference in Las Vegas.


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