It’s been a difficult three months for central Iowa employers.   May, June, and July each saw a million dollar plus plaintiff verdict in an employment discrimination lawsuit.    One such verdict in these parts is notable, but three in three months is unheard of until now.  Back in January, we noticed juries in other parts of the country had returned some substantial plaintiff verdicts, and wondered then whether more and larger plaintiff verdicts were becoming a trend.     It remains uncertain whether the recent Iowa verdicts are evidence of a continuing pattern, or if it was simply a coincidence these particular cases were tried in three consecutive months.   But, whether this is the new normal or not, these types of verdicts have a significant impact on how lawyers and clients perceive the risk of employment claims.  Perception effectively becomes reality when clients settle cases that otherwise might be tried, or pay more than they otherwise would, to avoid the risk of being a victim of a headline grabbing and ruinous jury verdict.

The first verdict was issued May 4.   The plaintiff was a former athletic administrator at the University of Iowa who alleged she was discriminated against on the basis of sex and sexual orientation, and was subject to retaliation when she was reassigned to a position outside the athletic department and then had her position eliminated.   Verdict:  $1.4 million, including past and future emotional distress of $1.056 million.

The second was returned June 18.   The plaintiff was the former communications director for the Iowa Republican Senate Caucus who alleged she was subject to years of sexual harassment and then terminated when she complained about it.  Verdict: $2.195 million, which consisted entirely of damages for past and future emotional distress.

The third was just a couple of weeks ago, on July 25.    The plaintiff was a 40 year employee of the Grinnell Regional Medical Center who claimed he was terminated because of age and disability.  Verdict:  $4.5 million, including $4.28 million in emotional distress.

What is most eye-opening about these verdicts is not necessarily the total dollar amount, but that the lion’s share of the damages awarded in all three was because of emotional distress.    In the suit against the Republican Caucus, there were no economic damages awarded at all; the verdict consisted entirely of damage for past and future emotional distress.   In the other two cases, the ratio of emotional distress to back pay was 3 to 1 (U of I Athletic Dept.) and 19 to 1 (Grinnell Medical Center).

What should we make of these stunning awards for emotional distress?    The value of discrimination cases used to be driven by hard numbers like lost wages or back pay.   That certainly made it easier to assess the risk of employment claims.  Back pay or other economic damage is fairly objective and calculable.  Emotional distress, on the other hand, is almost entirely subjective and quite unpredictable.   It is possible that increased emotional distress verdicts simply reflect the modern cultural attitude of greater sensitivity to emotional and mental distress resulting from traumatic events in life, and a willingness to put a dollar value on it.

Unfortunately, the knee jerk reaction among many is to panic and think runaway verdicts are more common than they really are.   We lawyers often contribute to the problem by using these big verdicts as examples of “what might happen to you” if you don’t follow the policies and practices we recommend in our client seminars.   Not that the standard advice is bad, but we should also not ignore the data that shows most employment discrimination cases that are tried result in an employer win.

The response I propose to these out-sized verdicts seems like common sense but is not very common:  employers should try more and settle fewer employment lawsuits.   So few cases are tried nowadays, we really don’t have a benchmark on how to reliably value the claims.   Instead, we look to the few outliers that are being tried and those verdicts are used to place settlement values on future cases.   Is this approach risky?  Sure.  Would you lose some cases?  Naturally.  Would it be expensive? Of course, at least in the short term.   But, over time, the defense bar would get better at responding to and countering claims of emotional damage.    Perhaps we would find out whether most of these cases are defensible like we think they are.    If we are right, it just might discourage the filing of cases just because the plaintiff expects to get a settlement.

 

While “joint employment” is not a new legal concept, federal agencies such as the Department of Labor and National Labor Relations Board have aggressively sought to expand its application in recent years.

A joint employment situation typically occurs when an employer uses an independent contractor or vendor for certain services, or relies upon a staffing agency to supply workers.   The employer relying upon the vendor probably does not consider the vendor’s employees to be its employees as well.  Indeed one of the reasons to use vendors, contractors, or staffing agencies is to delegate to others certain obligations that come with having employees, such as payroll administration, wage and hour compliance, collective bargaining, or workplace safety.     But, if an employer is not careful in how it structures and administers its vendor and contractor relationships, it may unwittingly find itself saddled with legal obligations it thought had been assumed by others.

A recent opinion issued by the U.S. Court of Appeals for the Fourth Circuit (Salinas v. Commercial Interiors, Inc. , No. 15-1915, 1/25/2017) highlights this very risk.  The Fourth Circuit’s opinion purports to clarify the test for determining when a “joint employer” relationship exists under the Fair Labor Standards Act (FLSA).   While this opinion applies only in Maryland, Virginia, and North Carolina, it would not be surprising if other circuits adopted the Fourth Circuit’s new test, which in many cases will make it easier to prove the existence of joint employment.

Summary of the Case

03The plaintiffs in Salinas were employees hired by a company known as J.I. General Contractors, Inc.   J.I. worked almost exclusively on projects for another contractor, Commercial Interiors.  Commercial Interiors offered general contracting and interior finishing services, including drywall installation, carpentry, framing, and hardware installation.    The J.I. employees filed a collective action against both J.I. and Commercial, alleging they were not paid wages, including overtime wages.   The plaintiffs obtained a judgment for unpaid wages and attorneys’ fees against J.I..  But, the district court dismissed the claim against Commercial, finding Commercial had a legitimate independent contractor relationship with J.I. that was not entered into for the purpose of evading its legal wage and hour obligations.

The Court of Appeals reversed, finding the district court incorrectly ruled in Commercial’s favor on the joint employment question.  In a lengthy opinion, the Court of Appeals criticized the trial court for focusing on the legitimacy of the contractual relationship and the good faith of the parties’ intent to comply with the wage and hour laws.  But, the Court also found the existing precedent for FLSA joint employment cases, both in the Fourth and other circuits, unsatisfactory and confusing.   As such, the Court decided to “set forth our own test for determining whether two persons or entities constitute joint employers for purposes of the FLSA,”  guided by the principle that the law “must not be interpreted or applied in a narrow, grudging manner.”

The Court framed the “fundamental threshold question” in these cases as, “whether a purported joint employer shares or co-determines the essential terms and conditions of a worker’s employment.”  In answering the question whether joint employment exists, the Court of Appeals said courts should consider the following, non-exhaustive, list of factors:

  • Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to direct, control, or supervise the worker, whether by direct or indirect means;
  • Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to—directly or indirectly—hire or fire the worker or modify the terms or conditions of the worker’s employment;
  • The degree of permanency and duration of the relationship between the putative joint employers;
  • Whether, through shared management or a direct or indirect ownership interest, one putative joint employer controls, is controlled by, or is under common control with the other putative joint employer;
  • Whether the work is performed on a premises owned or controlled by one or more of the putative joint employers, independently or in connection with one another; and
  • Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate responsibility over functions ordinarily carried out by an employer, such as handling payroll; providing workers’ compensation insurance; paying payroll taxes; or providing the facilities, equipment, tools, or materials necessary to complete the work.

Applying the six factors to the Commercial-J.I. relationship, the Court found the following facts were important in finding that Commercial jointly employed J.I.’s employees:

  • The Plaintiffs performed nearly all of their work on Commercial job sites and for Commercial’s benefit;
  • Commercial provided the tools, materials, and equipment necessary for Plaintiffs’ work, with Plaintiffs providing only small, handheld tools;
  • On at least one occasion, Commercial rented a house near the job site for J.I. employees to stay in during a project;
  • Commercial actively supervised Plaintiffs’ work on a daily basis by having foremen walk the job site and check Plaintiffs’ progress;
  • Commercial required Plaintiffs to attend frequent meetings regarding their assigned tasks and safety protocols;
  • Commercial required Plaintiffs to sign in and out with Commercial foremen upon reporting to and leaving the job site each day;
  • Commercial foremen frequently directed Plaintiffs to redo deficient work, communicating problems to J.I. supervisors who translated the information to Plaintiffs
  • Commercial foremen told certain Plaintiffs to work additional hours or additional days;
  • Commercial communicated its staffing needs to J.I., and J.I. based Plaintiffs’ jobsite assignments on Commercial’s needs;
  • When J.I. performed certain “time and materials” work for Commercial and was paid on an hourly, rather than lump-sum, basis, Commercial told J.I. how many of its employees to send to the project and how many hours those employees were permitted to work;
  • Commercial provided Plaintiffs with stickers bearing the Commercial logo to wear on their hardhats and vests bearing Commercial logos to don while working on Commercial jobsites;
  • I. supervisors instructed Plaintiffs to tell anyone who asked that they worked for Commercial;
  • Commercial provided J.I. supervisors with Commercial-branded sweatshirts to wear while working on Commercial projects;
  • On at least one occasion, Commercial required J.I. employees to apply for employment with Commercial and directly hired those employees.

Employer Takeaways

It’s typically in the details of doing the job that the relationship get blurred between an employer’s own employees, and those of a contractor or vendor.    The company principals sign an agreement that sets forth the relationship, usually with good intentions.  But, in the effort to get the project or job done, the administration of the relationship does not comport with what it may say in the written agreement.   The following are a few reminders that should help keep the lines between the employer and contractor/vendor more clear:

  • Provide clothing or logos for your employee’s, but not the employees of a contractor/vendor;
  • Do not provide equipment or tools for the contractor/vendor’s employees;
  • You are allowed to exercise quality control over a contractor/vendor’s finished product, but do not instruct a contractor/vendor’s employees about the details of the work;
  • Communication about unsatisfactory work should be to a designated liason with the contractor/vendor, not the employees themselves;
  • Do not discipline or threaten to terminate a contractor/vendor’s employee; issues of conduct or performance of a particular employee should be addressed with the liason;
  • Contractor/vendor employees should comply with general safety protocols of the work site; but, if there are safety protocols unique to the contractor/vendor’s work (e.g., if they use certain chemicals), the contractor/vendor should enforce those rules.
  • Do not directly keep track of contractor/vendor employee hours, or direct those employees when to work, or insist they work overtime.
  • Train supervisors about these rules;
  • Closely following these rules is most important if the employer is the exclusive or nearly exclusive firm that uses the contractor/vendor; even if the contractors has many other customers, the employer should endeavor to follow these practices, but there may be more flexibility.

Image Credit from Google, Creative Commons license, Contractors Plant and Machinery.

 

Two Des Moines lawyers, Karin Johnson and Angela Morales, recently wrote in The Iowa Lawyer about a study their firm conducted of employment law trials in Iowa.    With the exception of one county (out of 99), there is very little data available to lawyers on trial outcomes in this state, particularly in employment cases.    I commend Karin and Angela for their work, and particularly for sharing some of it with the rest of the bar. I expect the study will be frequently relied upon by lawyers, both plaintiff and defense, in evaluating their cases.

Some of the most interesting information from the study includes the following:

·          The study was based upon 134 bench and jury trials between 2000 and 2011, in both state and federal courts.   Included in the sample were claims involving wrongful discharge, discrimination, and harassment.   More unusual types of claims, such as whistleblower, wage claims, and ERISA ,claims were excluded.

·          It is not clear whether the 134 cases includes each and every employment cases tried in Iowa during the period in question, although the goal of the study was presumably to capture every case.   134 trials jury trial in eleven years is a fairly low incidence of trials, but nonetheless seems consistent with statistics showing most cases get resolved in ways other than by trial.

·          Most interesting was that the plaintiff prevailed 57 percent of the time.

·          Damages awarded ranged from a low of $3,000 to a high of $3 million. If the outlying awards (those over $1 million) were eliminated, the average damage award was $179,000.

·          In those cases where emotional distress damages were awarded, a vast majority of the time (two-thirds) the award was less than $100,000.

·          Punitive damages were awarded in less than half the cases.

·          The study focused on awards by a fact-finder (judge or jury) and did not consider any reductions in awards post-trial, application of damages caps, or reversals on appeal.  Nor did the awards consider other remedies awarded by the judge post-trial, such as front pay or attorney’s fees. 

Much ink has been spilled over the last week analyzing the background and record of Judge Sonia Sotomayor, the nominee to replace Justice David Souter on the United States Supreme Court.    Given that the Supreme Court’s docket has included a large number of employment related cases in recent years, a record which is likely to continue given the many changes to the federal employment laws under the Obama administration, how will a Justice Sotomayor potentially affect the jurisprudence in this area?

Judge Sotomayor has served as a judge on the U.S. Court of Appeals for the Second Circuit since 1998, and before that was a U.S. District Court judge in New York.   In one of her most notable cases as a trial court judge, Judge Sotomayor issued an injunction which prevented the Major League Baseball owners from using replacement players during the 1995 season.   

More recently, Judge Sotomayor was part of a three judge panel of the Second Circuit that issued a controversial opinion in the case of Ricci v. DeStefano ,a case which ultimately was appealed to the U.S Supreme Court.    Ricci involves a claim of reverse discrimination by a group of firefighters in New Haven, Connecticut, seventeen of whom are white and one who is Hispanic.    Based upon the results of written and oral promotional exams, only white and Hispanic candidates qualified for promotion to the position of Captain, and only white candidates qualified for promotion to Lieutenant.   Because no black candidate had a high enough score to be considered for the available captain and lieutenant positions, the City’s Civil Service Board refused to certify the results of the exam, which prevented the promotions from occurring.  The trial court found that the City’s refusal to allow the promotions did not constitute race discrimination, and granted summary judgment to the City (a thorough discussion of the decision is reported at Connecticut Employment Law Blog). 

The three judge panel on which Judge Sotomayor sat issued a short opinion affirming the trial court, but did not analyze any of the substantive issues.    Notably, another judge on the Second Circuit was critical of the panel for failing to address the important constitutional claims at issue in the case, stating that "this perfunctory disposition rests uneasily with the weighty issues presented by this appeal."    At least one critic has opined that Judge Sotomayor’s apparent refusal to weigh in on this important issue of civil rights law does not make her a jurist worthy of serious consideration for the Supreme Court. 

Judge Sotomayor certainly has a compelling personal story, and she may have empathy, but it remains to be seen whether she will make positive contributions to the development of employment law.   Stay tuned.