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SPECIAL FOCUSanti-discrimination laws, such as Title VII of the Civil Rights Act, as well. Independent investigations by ultimate decision makers of employee complaints of allegedly inappropriate faultfinding by supervisors may provide a defense to USERRA and other discrimination claims, though it may burden already busy human resources executives.
The Facts
Vincent Staub sued Proctor Hospital of Peoria, Illinois, after he was discharged from his position as an angiography technologist. Staub, who was an Army Reservist, alleged that the hospital’s stated reasons for the termination — insubordination, shirking, and attitude problems — were simply pretext for discrimination based on his military status.
As an Army Reservist, Staub had to report for military duty one weekend each month and two weeks during the summer. Over time, his supervisor allegedly began to show animosity toward Staub’s military obligations. There was also evidence that the head of Staub’s department had made derogatory comments about his military service.
The trial evidence showed Staub had been counseled for problems with his work attitude, professionalism, and ability to work well with others. After one incident, he was warned in writing that he must remain in his assigned work area and not leave without permission from his supervisor or the department head.
Roughly three months later, Staub was terminated by the hospital’s Vice President of Human Resources for leaving his work area without permission. Staub explained to the Vice President of Human Resources that he had left a message for his department head that he was going to lunch. The Vice President of Human Resources apparently did not investigate this assertion.
Staub sued the hospital, claiming its stated reasons for terminating him were actually pretext for discrimination in violation of USERRA. He argued that although the Vice President of Human Resources, who made the decision to terminate him, was not one of the supervisors who had shown hostility toward his military obligations, the Human Resources professional was influenced by the two supervisors. This is the “Cat’s Paw” theory of liability.
VOL. 28, NO. 3 mARCH 2011
SUPREME COURT RECOGNIZES CAT’S
PAW LIABILITY IN ARMY RESERVIST’S USERRA
DISCRIMINATION CASE
WHAT’S INSIDE
Employee Releases: Section 409A Deferred Compensation Problems .................................................................................................. 3
ICE Guide To Worksite Enforcement Investigations: You Can Run But You Can’t Hide ..............................................................................................5 (Continued on Page 2)
The U.S. Supreme Court has ruled unanimously that employers may be subject to liability in employment discrimination cases even if the ultimate decision to take an adverse employment action was made by a manager who was not biased toward the affected employee. Staub v. Proctor Hospital, No. 09-400 (mar. 1, 2011).
In a case alleging discrimination because of military status under the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), the Court ruled an employee’s supervisor’s act that was motivated by bias and intended to cause an adverse employment action can make an employer liable under USERRA where the act is the proximate cause of the termination or other ultimate employment action.
While the employee in this case brought his claims under USERRA, the Court’s holding undoubtedly will apply to claims under other
Lower Court Decisions
At trial, the jury found for Staub, concluding his “military status was a motivating factor in [the hospital’s] decision to discharge him.” The parties stipulated Staub’s lost wages were $57,640. Although under USERRA, a successful plaintiff may be awarded double lost wages plus attorneys’ fees if the violations were found willful, the jury did not find willfulness here. The district court entered judgment accordingly.
The Seventh Circuit Court of Appeals disagreed with the verdict imposing liability. It relied on the ground there was no evidence the ultimate decision maker, the Vice President of Human Resources, considered Staub’s military status in discharging him.
Supreme Court Decision
The Supreme Court unanimously reversed the Seventh Circuit’s decision. (Justice Elena Kagan did not participate in the case.)
The Court described the case as one where the ultimate decision maker was not biased, but was influenced by previous company action that was discriminatory. Because the jury found in favor of Staub, the Court had to consider the facts in a light most favorable to him, accepting his claim that his supervisors had made a number of derogatory comments regarding his Army Reserve service.
After reviewing its prior decisions, the Court noted bias by a supervisor is not sufficient by itself; the biased supervisor’s action must be a cause of the ultimate adverse employment action.
The Court rejected the hospital’s claim that the supervisors’ actions were not the cause of Staub’s discharge because the hospital had conducted an investigation. The Court explained that if an “independent investigation” simply “relies on facts provided by the biased supervisor,” then the employer “will have effectively delegated the factfinding portion of the investigation to the biased supervisor.” Ultimately, the Court held, “if the supervisor performs an act motivated by anti-military animus that is intended by the supervisor to cause an adverse employment action, and if that act is a proximate cause of the ultimate employment action, then the employer is liable under USERRA.” (Emphasis in original.)
The Court found significant that Staub’s termination notice specifically referred to the directive of the purportedly biased supervisors. Evidence that Staub’s supervisors had the “specific intent” to cause Staub to be discharged also was noteworthy to the Court.
Seeing a difference between its holding and the instructions given to the trial jury, the Court remanded the case to the Seventh Circuit with directions to consider whether the discrepancy was harmless error or should require a new trial.
Implications for Employers
The Court’s holding will make it more difficult for employers to avoid trial through motions for summary judgment based on an absence of bias by the ultimate decision maker. The Staub motivating-factor test applies both to USERRA and mixed-motive Title VII claims. It does not apply, however, to age discrimination claims.
While the implications of the decision are not favorable for employers, the Supreme Court’s careful language regarding investigations points to an effective way of reducing exposure to discrimination claims. The “Cat’s Paw” theory can only provide a basis for liability if the purportedly biased supervisor’s action was the proximate cause of the adverse action. The Court noted, “[I]f the employer’s investigation resulted in adverse action for reasons unrelated to the supervisor’s original biased action, then the employer will not be liable.”
Future cases will certainly define the necessary scope of internal investigations. meanwhile, employers should consider applying some minimum requirements. For example, employers should review relevant documents and speak with the employee, the referring supervisor and other witnesses, as appropriate. Ultimately, the decision maker needs to be in a position to testify that he or she determined, “apart from the supervisor’s recommendation,” that the adverse action was “entirely justified.”
The facts in Staub also highlight the importance of training supervisors on employers’ obligations and employees’ rights under USERRA and other anti-discrimination statutes. For example, the testimony suggests the supervisors were unaware of the protected nature of the employee’s military duty and made a number of allegedly discriminatory comments. Additionally, inquiries regarding the ability to reschedule military training may have been better handled through Human Resources rather than supervisors.
It is also important for supervisors to counsel employees consistently in writing regarding misconduct and performance issues and to keep good records of counseling sessions. Such records may help show that an employee’s membership in a protected class — such as military status — was not the reason for an adverse employment action.
SUPREME COURT RECOGNIZES CAT’S PAW LIABILITY IN ARMY RESERVIST’S USERRA DISCRIMINATION CASE (Continued from page 1)
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-- Susan m. Schneider Omaha Office [email protected]
-- Conrad S. Kee Stamford Office [email protected]
-- matthew F. Nieman Washington DC Region Office [email protected]
-- Paul Patten Chicago Office [email protected]
-- Scott A. Blaney Phoenix Office [email protected]
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BENEFITS CORNER
Randy Limbeck is a partner in the Omaha, Nebraska office of Jackson Lewis LLP and has spent more than 25 years specializing in representation of clients in the areas of ERISA, employee benefits, and executive compensation.
EMPLOYEE RELEASES: SECTION 409A DEFERRED COMPENSATION PROBLEMS
The requirement that a departing employee execute a release of claims as a condition of receiving severance or other payments is a common business practice that has been turned into a complex and confusing issue by tax code § 409A.
Section 409A is concerned with the timing of payments under deferred compensation arrangements. When a payment is contingent on a signed release or the ending of a revocation period for age discrimination purposes, the Internal Revenue Service is concerned that releases may permit employees to designate the year of payment and potentially span tax years.
IRS Notice 2010-6 provides guidance concerning how to make payment of nonqualified deferred compensation that is subject to a signed release compliant with § 409A. Essentially, under § 409A, a plan may not allow an employee to delay or accelerate the timing of a payment as a result of the employee’s actions (such as signing a release). In addition, if the release agreement provides for payment (subject to the employee’s action) within a designated period following the permissible payment event under § 409A, the agreement must provide for payment only on the last day of such designated period.
Violation of § 409A may make all amounts deferred for the current and previous years immediately taxable and subject the taxpayer to a 20 percent penalty, among other things.
Short-Term Deferral Exception
Both the short-term deferral exception and the separation pay plan exception (which exempt the compensation plans from § 409A rules) apply to severance agreements with releases. Generally, if an actual payment is made within 2½ months after the end of the year in which the amount becomes vested, the payments are exempt from the § 409A requirements. There is an open question on the applicability of the exemption from § 409A if the payment would fall outside
the 2½-month deadline. For example, an employment-related
release may allow the employee to delay signing the release
(and receiving the payment) beyond the 2½ months. Even
though the payment may be made within the 2½-month
period, if the employee can extend that period by not signing
a release, the IRS may contend the payment violates § 409A.
Therefore, employers should structure releases to minimize
the risk of violating § 409A.
Approaches to Crafting Releases
One approach is for the employer, but not the employee,
to pick a 90-day period following the permissible payment
trigger in which to make the payment. The problem with this
approach is that the IRS has indicated it does not believe the
approach works.
Another option is the specified-year approach. The employer
picks a 90-day period, but specifies that if the period crosses
tax years, the employer will pay in a later year. The good
news is that the IRS approves of this approach, but the bad
news is that there will always have to be some delay where
separation is late in the year.
The third approach is the fixed-date approach, which pays at
the end of the given release period. The good news is that it
works, but the bad news is there will be a mandatory delay
to the end of the period that would not have been there
without § 409A.
There are hidden tax implications in employee releases that
did not exist prior to § 409A (and the related payments).
Employers should carefully draft employee releases to avoid
these potentially draconian tax results.
IRS Circular 230 disclosure: Any tax advice contained in this
communication (including any attachments or enclosures) was not
intended or written to be used, and cannot be used, for the purpose of
(i) avoiding penalties under the Internal Revenue Code or (ii) promoting,
marketing or recommending to another party any transaction or matter
addressed in this communication. (The foregoing disclaimer has been
affixed pursuant to U.S. Treasury regulations governing tax practitioners.)
-- Randal m. Limbeck Omaha Office [email protected]
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recent months, ICE has widened the enforcement net even further, targeting employers that violate immigration law by failing to observe I-9 rules.
Why me?
The Guide states that ICE receives information regarding potential worksite violations from a variety of sources. These include complaints from the general public, referrals from other state and federal law enforcement offices, and apprehended undocumented employees who provide information to law enforcement. ICE will prioritize the investigations, with national security and public safety at the top. After that, ICE reviews complaints involving critical infrastructure and egregious employer involvement, as where an employer is actively involved in criminal activity by harboring, smuggling, concealing or transporting undocumented aliens for employment purposes.
How does it all start?
ICE will use a variety of investigative techniques described in the Guide. These include informants, consensual monitoring, undercover activity, surveillance, and getting arrested, unauthorized workers to cooperate with ICE in exchange for legalization or work authorization. ICE also may utilize other local, state, or federal agency resources. For example, it may ask the Social Security Administration to determine if No match letters were sent and review E-verify information.
The Guide states that ICE must consider all applicable criminal statutes pertaining to violations discovered during a worksite investigation for the criminal prosecution of an employer or principal manager. These statutes include:
• Alien Smuggling - 8 USC Sec. 1324(a)(1)(A)(i)
• Transporting an Illegal Alien - 8 USC Sec. 1324(a)(1)(A)(ii)
• Concealing, Harboring or Shielding and Illegal Alien from Detection - 8 USC Sec. 1324(a)(1)(A)(iii)
• Encouraging or Inducing an Illegal Alien to Enter the U.S. - 8 USC Sec. 1324(a)(1)(A)(iv)
• Felony Provision for Knowingly Hire/Continue to Employ Illegal Aliens - 8 USC Sec. 1324(a)(3)(A)
• Fraud or misuse of Visas - 18 USC Sec. 1546
• Aggravated Identity Theft - 18 USC Sec. 1028(A)
• False Statements - 18 USC Sec. 1001
ICE GUIDE TO WORKSITE ENFORCEMENT INVESTIGATIONS: YOU CAN RUN
BUT YOU CAN’T HIDE
5
IMMIGRATION UPDATE
Amy Peck is a nationally recognized immigration attorney practicing out of the Jackson Lewis LLP Omaha, Nebraska office.
The U.S. Immigration and Customs Enforcement (http://www.ice.gov/) has stated that Form I-9 inspections will “touch on employers of all sizes and in every state in the nation.” It backed this up by issuing Notices of Inspection (NOI) to 1,000 businesses. The NOIs instruct companies that they have the standard three (3) days to present the Forms I-9 of their employees for inspection. While some tend to think of the I-9 audit as strictly administrative, the newly released internal ICE Guide to Worksite Enforcement Investigations (see http://www.electronici9.com/wp-content/uploads/2011/02/ICE-GUIDE-To-Worksite-Enforcement-Investigations.pdf) reveals that the purpose of the I-9 audit is two-fold: to identify substantive or technical violations that might result in the issuance of a fine or warning, or to identify any violations that might lead to criminal prosecution of an employer. It is the potential criminal prosecution of the owners and principal managers of a business that is the subject of the Guide and brings new pressure to businesses.
The ICE Guide, dated march 2008, was previously an internal-only (and “Law Enforcement Sensitive”) document provided to ICE Special Agents and Forensic Auditors responsible for conducting worksite enforcement investigations. The Guide is supposed to serve as a starting point for how worksite enforcement cases are initiated, prioritized, investigated and documented internally. While much of the Guide that has been released to the public is redacted, it is still useful to see how the Agency classifies I-9 violations and works with Assistant U.S. Attorneys to prosecute criminal cases.
ICE’s Enforcement Goal - the Same, but Expanding
The Guide reveals that worksite enforcement investigations continue to be a priority for ICE and central to the Department of Homeland Security’s interior enforcement strategy through which the Agency will attempt to “eliminate the magnet of illegal employment by targeting egregious employers, identity thieves, and aliens working at critical infrastructure sites.” In (Continued on Page 6)
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ICE GUIDE TO WORKSITE ENFORCEMENT INVESTIGATIONS: YOU CAN RUN
BUT YOU CAN’T HIDE (Continued from page 3)
• False Claim to U.S. citizenship - 18 USC Sec. 911
• Structuring Transactions to Evade Reporting Requirements - 31 USC Sec. 5324
• money Laundering - 18 USC 1956
• Conspiracy - 18 USC Sec. 371
Once crimes are identified, the Guide states that ICE must pursue criminal prosecution for all applicable criminal violations and must consult with the U.S. attorney “at the earliest possible point in the investigation.”
Don’t forget about the I-9s!
While criminal prosecutions are always priority #1 for ICE, the Guide makes clear that agents should use Form I-9 inspections where a criminal search warrant neither is feasible nor appropriate (which would cover many cases). Among other things, I-9 inspections allow ICE to uncover patterns of identity theft, fraudulent use of documents or bad-acting human resource officials.
There can be little doubt that ICE is serious about worksite enforcement of employment eligibility verification. The ICE Guide confirms what many of us have known all along: with a struggling economy and immigration reform nowhere in sight, ICE will continue to “seek and create a culture of compliance among U.S. employers” in whatever ways it can. Further, ICE may have a new internal guide that reflects this pervading theme. While many employers have been lulled into complacency, it is not too late to take action to control your I-9 compliance program.
Not sure where to start? Contact experienced immigration counsel, develop policies and procedures, adopt an electronic I-9 solution, and fix those errors while you can!
-- Amy L. Peck Omaha Office [email protected]
