Individual Liability Is More Common Than Many Realize

​LAS VEGAS—HR professionals and managers should be aware of the extent to which they might be held personally liable for wrongdoing at their organizations. They might be surprised at just how many laws permit individual liability.

In "Paying a Personal Price: The Risk of Individual Legal Liability for 'Going Along' with Wrongdoing," a concurrent session held June 25 at the Society for Human Resource Management 2019 Annual Conference & Exposition, R. Scott Oswald, an attorney with The Employment Law Group in Washington, D.C., listed nine federal employment laws that permit individual civil liability:

1. COBRA.

2. Employee Retirement Income Security Act (ERISA).

3. Fair Labor Standards Act (FLSA).

4. Family and Medical Leave Act (FMLA).

5. Foreign Corrupt Practices Act (FCPA).

6. Immigration Reform and Control Act (IRCA).

7. Occupational Safety and Health Act (OSH Act).

8. Section 1981 of the Civil Rights Act of 1866.

9. Section 1983 of the Civil Rights Act of 1871.

Among those nine laws, five allow individual criminal liability:

1. ERISA.

2. FLSA.

3. FCPA.

4. IRCA.

5. OSH Act.

Conference attendee Jeffrey Rienstra, vice president of human resources with Air-Way Global Manufacturing in Olivet, Mich., and a member of SHRM for about 10 years, said he is concerned about managers looking the other way when employees use drugs on the premises and the resulting safety dangers. Making managers aware of the possibility of individual liability can help them to be more vigilant.

Section 1981 Scenario

Oswald shared a scenario showing how HR and managers might be held individually liable for race discrimination prohibited by Section 1981.

Using characters from the television show "The Office," Oswald noted that Michael Scott, regional manager of Dunder Mifflin Paper Co., the show's fictitious employer, often mentions the race of Stanley Hudson, a Dunder Mifflin sales representative, and he often makes offensive comments in group meetings. Toby Flenderson, Dunder Mifflin's HR professional, is present at many of the meetings; he's always mortified but never speaks up.

Oswald envisioned a scene in which Stanley finally snaps and responds rudely when Michael asks him how to make the office more "urban": Stanley complains to Toby that Michael is creating a hostile work environment. Toby knows Michael won't change but half-heartedly raises the matter. Michael replies that Stanley should be written up for being rude. Toby knows that Stanley's outburst was inappropriate, so he complies. He does nothing else about Michael.

The next day, a still-irritated Michael asks Toby to prepare a performance improvement plan (PIP) for Stanley, saying that his sales haven't improved for years. Toby admits that's true but also notes that Stanley is still the best-performing sales rep in the branch.

"If he doesn't like it, he can go to the back of the bus," Michael snaps. Toby does as Michael asks.

Stanley doesn't improve his sales, but nor does anyone else. Michael decides to fire Stanley based on the PIP and asks Toby to get corporate's sign-off. Privately troubled, Toby sends a bland memo that repeats Michael's request without endorsement. Corporate signs off and Michael fires Stanley.

According to Oswald, if this had played out in reality, Toby, Michael and Dunder Mifflin all could be liable under Section 1981.

[SHRM members-only toolkit: Managing Equal Employment Opportunity]

What Should Have Been Done

Following the hostile work environment complaint, there should have been an investigation. When HR knows about wrongdoing, it has an obligation to act, Oswald said.

Toby should have expressed his opposition in writing. Research has shown that jurors tend to believe that if an action is not in writing, it's as though it didn't happen, Oswald noted. If HR professionals document that they opposed unlawful activity, they will be shielded from individual liability, he said.

But how can HR oppose unlawful activity without getting fired? It's a matter of striking the right tone.

Oswald said in the case of his imagined scene from "The Office," Toby should have written an e-mail to Michael, who instructed him to violate the law. In the e-mail, Toby should have noted his loyalty to the organization and how the e-mail was difficult to write. Toby should have written that he respects Michael, but what he has asked him to do is potentially illegal, and he is worried about what the consequences to the company will be.

Oswald recommended that HR professionals be on the lookout to recognize and speak out against:

• Discrimination or harassment.
• Retaliation.
• Fraud or safety issues.
• Employment actions used to silence complaints or prevent the exercise of statutory rights, such as taking leave under the FMLA.

Insurance

Oswald noted that standard commercial insurance typically does not cover the defense of individual executives in employee lawsuits.

Employment practices liability insurance (EPLI) covers claims against company directors, officers, managers and employees, including those actions brought for:

• Discrimination.
• Sexual harassment.
• Retaliation.
• Wrongful termination, discipline or failure to promote.
• Breach of contract.
• Defamation.
• Violations of FMLA or other leave.

Even EPLI policies usually exclude certain claims arising from employment practices, including criminal claims, as well as claims under the OSH Act and ERISA. So when negotiating EPLI, seek out additional coverage, Oswald recommended.

In addition, he noted that certain state statutes, such as in Delaware, require companies to indemnify all employees for actions taken during employment.