The Power of Discretion: EEOC Wins Equitable Tolling Argument in Late-Filed Sexual Harassment Lawsuit

The U.S. Equal Employment Opportunity Commission (EEOC) settled a sexual harassment lawsuit this week after a federal court allowed the matter to proceed even though the EEOC charges were filed 62 days beyond the statute of limitations. (EEOC v. Willamette Tree Wholesale Inc., D. Or., No. 09-690, consent decree approved 4/21/11).

Two sisters alleged that their supervisor repeatedly raped one of the sisters and subjected the other to groping, propositions and graphic sexual comments. The EEOC brought suit under Title VII of the 1964 Civil Rights Act, alleging the women, who were immigrants, were subjected to a hostile work environment due to sexual harassment by a supervisor, and that they (and two family members who were also employees) were fired as a result of retaliation for complaining about the abuse. The EEOC also alleged the company failed to investigate or respond to the reports of harassment.

The employer argued that the claims were barred because the EEOC charge was filed 362 days after the last alleged discriminatory act, which falls 62 days beyond Oregon’s statute of limitations.

However, the judge was swayed by the EEOC’s argument for equitable tolling due to the severe psychological damage caused by the alleged repeated rapes. The judge also took into consideration that the plaintiffs were illiterate Spanish speakers who were repeatedly threatened against disclosing the assaults.

In considering whether the brother who worked for the same employer could bring his third-party claim for retaliation based on his firing, the court noted that even had the sibling not directly engaged in protected activity himself, he was covered by Title VII's anti-retaliation rules as a result of his relationship to his sister who filed the EEOC charges.

While it is not common for a court to grant equitable tolling, it is certainly within the court’s discretion to do so. As part of the settlement, Willamette Tree Wholesale, Inc. has agreed to pay the four employees $150,000 and implement anti-discrimination policies and training for its managers and employees. The employer must also report to the EEOC on its compliance for the next five years.

Court Finds Franchisor not Liable as Joint Employer

SERVPRO Industries, Inc. (SERVPRO) grants entrepreneurs a license as independent franchises to use SERVPRO’s trademarks and customer service system in exchange for royalties. This relationship is certainly not unique, but can result in liability for the franchisor under the Fair Labor Standards Act (FLSA) and other employment laws.

In Reese v. Coastal Restoration and Cleaning Services, Inc., 2010 WL 5184841 (S.D. Miss. 2010), SERVPRO granted Coastal Restoration and Cleaning Services, Inc. (Coastal) rights as a franchisee. A Coastal employee (Plaintiff) brought suit under the FLSA against both Coastal and SERVPRO. Plaintiff alleged that Coastal and SERVPRO were joint employers. If a plaintiff can establish that two entities are joint employers, then both may be found liable under the FLSA for double the amount of wages wrongfully withheld or due to the employee and for attorney’s fees. The FLSA permits an employee to recover wages for a minimum of two years. In cases where the employee can establish a willful violation of the law, the employee can recover for a period of three years. The FLSA lends itself to class action lawsuits brought on behalf of numerous employees, which means increasingly high dollar amounts.

Courts typically employ the “economic reality test” to determine whether an entity is an employer for purposes of the FLSA. If an entity is not an employer, then it cannot be held liable under the FLSA. This test requires courts to consider whether the alleged employer: 1) had the power to hire or fire employees; 2) had the authority to supervise and control the employee; 3) had the right to determine the rate and method of payment for the hours worked; and, 4) maintained employment records. SERVPRO submitted an affidavit of its president that stated all franchises are independently owned and operated and franchise operators are independent contractors. In addition, the affidavit stated that SERVPRO does not: direct the daily operations of franchises, supervise or control a franchise’s employees, determine the rate of pay or the work schedules for employees of franchises, or maintain employment records for employees of franchises.

Plaintiff argued that SERVPRO had the power to hire or fire him and relied on an “Employee Certification Training Program Form” that authorized Coastal to perform a background check and to provide the results of the background check to SERVPRO. The court sided with SERVPRO and determined that the contractual provision permitting the background checks was simply “one of the quality control standards SERVPRO requires as a condition to granting a franchise….” As such, Plaintiff could not meet the first element of the “economic reality test.”

Plaintiff argued the franchise license agreement demonstrated that SERVPRO had the authority to supervise and control Coastal employees. The agreement provided:

1.2(a) obtain such vehicles, equipment, supplies, cleaning products, uniforms, computer hardware and software as FRANCHISOR may require for OPERATOR to meet FRANCHISOR'S then-current standards as reflected in the latest equipment and products package for new franchise sales;
The court again sided with SERVPRO and determined the language of the agreement did not demonstrate that SERVPRO has the authority to supervise and control employees, especially because the president’s affidavit specifically stated it did not.

Under the third factor, Plaintiff again relied on the franchise agreement and argued it demonstrated that SERVPRO had the power to control his rate and method of pay. Plaintiff cited the following sections of the franchise agreement:

4.1 OBLIGATION TO KEEP RECORDS. OPERATOR agrees to install, and maintain at all times, a complete and uniform accounting system in accordance with generally accepted accounting principals and meeting the standard operating procedures and specifications prescribed periodically by FRANCHISOR. These procedures and specifications may include, but are not limited to, all sales and cash journal sheets, bank reconciliations, payroll records, ... as required by FRANCHISOR.... OPERATOR agrees to maintain complete and accurate records, accounts, books, data and reports which shall accurately reflect all particulars relating to or arising out of this Agreement ...

4.2 REPORTING REQUIREMENTS. OPERATOR shall deliver the following reports to FRANCHISOR ...

(a) a monthly report of gross volume in a form approved by FRANCHISOR.
The court determined that nothing in these sections empowered SERVPRO to control what Coastal paid Plaintiff or how it paid him. Additionally, the court found no evidence under the fourth factor to suggest that SERVPRO maintained employment records for Plaintiff. Accordingly, the court granted judgment in favor of SERVPRO.
The importance of this case is not in the outcome. It is important for franchisors to be cognizant of the degree of control they exercise over franchisees, especially the employees of a franchisee. It is also important to periodically review your franchise agreements to insure that nothing contained within them may be used by a plaintiff to hold you liable. Franchisors need to protect themselves now more than ever given the rise in FLSA lawsuits across the nation and the fact that courts recognize broad coverage under the FLSA. This means that if it is a close call, the court will rule in favor of the plaintiff. Liability under the joint employer doctrine is not limited to the FLSA; it also applies to a host of federal and state laws, such as claims brought under Title VII for discrimination and sexual harassment claims. While a certain level of control over a franchise is necessary, exercising too much control can prove costly.

Contact: Jon Secrest


Worker Misclassification Bill: Part II (This Sequel Bites)

Last year, the Employee Misclassification Prevention Act was introduced into the House and Senate (Ohio’s Sen. Sherrod Brown was a sponsor). On April 8, 2011, Sen. Brown, along with two other senators, introduced the Payroll Fraud Prevention Act. Similar to the prior version, the current version of the bill expands the Fair Labor Standards Act to cover the misclassification of employees as independent contractors. The bill would require employers to provide notice to workers of their classification, including directing workers to the Department of Labor’s website for further information.
This bill also has teeth. Significantly, the bill would impose a fine of up to $5,000 on employers for each violation and impose triple damages for willful violations of minimum wage and overtime laws that result from the misclassification of workers. In effect, if an employer misclassifies 10 employees, it may be liable for a fine of up to $5,000 for each employee and be liable for triple times the overtime it owes to each employee.
Sen. Brown issued the following comments regarding the bill: “Intentionally treating workers as subcontractors when they really are employees is payroll fraud: it cheats workers, taxpayers, and other businesses that play by the rules.” 
This bill is another in the line of measures taken by the Department of Labor, the IRS and Ohio’s Joint 1099 Task Force to recover revenue lost due to employers’ misclassification of workers. It is more important than ever to ensure that workers treated as independent contractors cannot be determined to be employees pursuant to the 20-factor test used by the IRS, the DOL’s economic realities test or the common law tests used by courts.  


Employers: An Anti-discrimination Policy in Your Employee Handbook is Not Enough

A recent decision of the Northern District of Ohio illustrates the importance for employers to publicize and enforce their anti-discrimination policies in order to avoid liability for discrimination. In EEOC v. Dave's Supermarkets, Inc., No. 1:09 CV 2199 (N.D. Ohio March 1, 2011), the U.S. Equal Employment Opportunity Commission (EEOC) filed suit against an employer, alleging that it created a sexually hostile work environment. Several employees complained that their manager subjected them to unwanted sexually explicit comments and sexual behavior. The employer moved for summary judgment on the EEOC’s claim for punitive damages based upon its good faith efforts to comply with Title VII, which prohibits sex discrimination. The court denied the employer’s motion. It noted that, in determining whether an employer made a good faith effort to comply with the law, it looks to:

(1)   Whether the employer has a written anti-discrimination policy;

(2)   Whether the policy is effectively publicized; and

(3)   Whether the policy is effectively enforced.

The employer in this case had a written anti-discrimination policy in its employee handbook, which the employees received during their initial orientation. But the court found evidence that the employer failed to effectively enforce this policy: Employees testified that the employer did not promptly investigate and address allegations of sexual harassment and did not provide adequate sexual harassment training to its managers. Therefore, the court refused to grant summary judgment on the issue of punitive damages.

The lesson for employers here is that simply having an anti-discrimination policy in their employee handbooks is not enough. To prove they made a good faith effort to comply with the law, employers must actually enforce this policy by training their employees and promptly addressing any harassment complaints.

Contact: Nathan_Pangrace


NLRB Indicates Intention to Issue Complaint in Case Involving Employee Use of Twitter

Indicating its continued interest in the application of workplace social networking policies, the National Labor Relations Board (NLRB) announced last week it would issue a complaint against Thomson Reuters Corp., alleging the company violated federal labor law, specifically § 8(a)(1) of the National Labor Relations Act. The NLRB apparently plans to allege that Thomson Reuters interfered with, restrained, or coerced employees in the exercise of their § 7 rights, which section permits employees (whether or not they are represented by a union) to engage in protected concerted activities to improve working conditions, such as wages and benefits.

Allegedly, Thomson Reuters verbally reprimanded Deborah Zaberenko, one of its reporters, for sending a tweet to the company stating, “One way to make this the best place to work is to deal honestly with Guild members.”  The NLRB alleges that Thomson Reuters implemented an unlawful social media policy that chilled employees’ § 7 rights, and that it improperly applied that policy to Zaberenko following her tweet.

This will not be the NLRB’s first complaint about a workplace social media policy. In October 2010, it issued a complaint against American Medical Response (AMR) for what the NLRB viewed as an improper application of an overly broad social media policy. AMR had, at the time, a social medial policy that prohibited employees from making “disparaging, discriminating or defamatory comments when discussing the company or the employees’ supervisors, co-workers and/or competitors.”  It disciplined one of its employees after she posted disparaging comments about her supervisor on her personal Facebook page following a disciplinary meeting. The NLRB took the position that AMR’s policy, standing alone, may interfere with the employee’s right to engage in concerted, protected activities.

Because the AMR case ended with a settlement, the NLRB never came to a definitive pronouncement about the legality of that particular policy. We may see such a pronouncement in the Thomson Reuters case, but, in the meantime, employers eager to implement such policies must tread carefully when doing so.



Sixth District Gives Guidance on Substantial Aggravation Standard in Workers’ Compensation

On March 31, 2011, the Sixth District Court of Appeals of Ohio issued its decision in Smith v. Lucas County, 2011-Ohio-1548, L-10-1200 (OHCA6). The Court of Appeals upheld the trial court’s decision that the injured worker failed to prove a “substantial aggravation” in her request for additional allowance in her workers’ compensation claim.

This decision is a rare interpretation of the 2006 amendment to R.C. 4123.01(C) regarding compensable injuries. The amendment had changed the “aggravation” standard to “substantial aggravation” and nullified the Supreme Court’s decision in Schell v. Globe Trucking, Inc. (1980), 48 Ohio St.3d 1., which had only required an injured worker to show a worsening of their condition due to the injury in order to be considered an aggravation. With the 2006 amendment, “substantial aggravation” was required to be documented by objective diagnostic findings, objective clinical findings or objective test results. Subjective complaints alone were deemed insufficient to support a substantial aggravation.

Within months of the enactment of this amendment, Lisa Smith was injured while entering her workplace while in the employ of Lucas County. Her claim for workers’ compensation benefits was initially recognized, and she then filed a motion to include aggravation of a pre-existing condition in her cervical spine. The Industrial Commission of Ohio denied this request on the basis that it had not met the “substantial aggravation” standard. The injured worker filed an appeal into court, and the trial court granted the employer’s motion for summary judgment due to the injured worker’s failure to provide the statutorily mandated objective findings or results.

While the Court of Appeals affirmed the trial court’s granting of the employer’s motion for summary judgment, it also expounded on the “substantial aggravation” standard. The court held that, if the injured worker had provided sufficient documentation of her symptoms that preceded the injury, substantial aggravation could have been established. It also stated that this evidence would not necessarily require objective “before” and “after” findings or results. The court hinted that any credible “objective evidence,” including records or statements from the injured worker’s prior treating physician, may have sufficed. The court’s comments have left the door open for a fairly broad definition of “objective evidence,” and this will in turn invite more litigation on this issue.

Contact: Christopher R. Debski


Kasich Signs Senate Bill 5

The heated debate over Senate Bill 5 and its overhaul of the rights of Ohio public workers, including teachers, firefighters and law enforcement officers, to collectively bargain escalated yesterday when Governor John Kasich signed the legislation into law. The bill removes health care and benefits from collective bargaining, makes it illegal to strike, does away with binding arbitration, requires public workers to pay more for their share of health insurance and pension benefits, no longer allows union contracts to require nonunion members to pay dues, and replaces automatic pay increases with a merit based system. It also allows the Governor, Auditor of State or the Board of Regents to suspend public employee salaries and modify or terminate collective bargaining agreements if they determine that a fiscal emergency or watch exists. Opponents of Senate Bill 5, which include public employee unions, private sector unions and other progressive groups, along with the Ohio Democratic Party, have united to form a political action committee, "We Are Ohio," that will raise funds and coordinate efforts to gather the necessary 231,149 signatures in 90 days to place a referendum on the November, 2011 ballot to overturn the law. If the Secretary of State determines that sufficient valid signatures have been collected, the law is suspended until the November election. It is expected that this effort will garner national attention, particularly for the Democratic Party and its base, as the 2012 Presidential Election draws near.

Contact: Douglas M. Kennedy