Compensating Experience, Talent, and Seniority – Avoiding Discrimination Adam Augustine Carter The Employment Law Group® Law Firm Phone: 202.261.2803 Fax: 202.261.2835 acarter@employmentlawgroup.com www.employmentlawgroup.com

Overview • Recent Cases • Hiring Practices

• Interviewing & Selection • Code language and avoiding discrimination

claims • Employment agreements • Termination

THE HIGH COST OF DISCRIMINATION

Recent Cases Illustrating the High Cost of Discrimination • Robertson v. Hunter Panels LLC, et al., No. 2:13-cv-01047 (W.D.

Pa. April 20, 2015). $13 million jury verdict for gender discrimination. Employee made repeated complaints about gender discrimination before being terminated for her “management style.”

• EEOC v. Hillshire Brands Co. f/k/a/ Sara Lee Corp., No. 2:15-cv-01347 (E.D. Tex.). $4 million settlement following allegations that management “allowed and contributed to the racially hostile environment” suffered by approximately 70 African American employees.

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Code Words & Bar Napkins • Age discrimination case brought by a senior manager at a

manufacturing company. • A consultant told the president of the company that the

company should create a task force of “young,” “energetic” “future people” to help the company reduce operating expenses.

• During a meeting, a manager wrote notes on a napkin which included the phrase “young, energ[etic].”

• Hand written notes from a follow up meeting mentioned building a team of “young – energetic, future people.”

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Failure to Investigate Claims of Discrimination • National origin discrimination and retaliation case against a

large defense contractor. • Employee complained to HR that he wasn’t being “measured

by the same yard stick.” Does not mention a category at first. • HR failed to investigate his claims of discrimination and

management began retaliating for the complaint. • We secured an $830,000 verdict plus $350,000 in attorneys’

fees and costs on the retaliation claim.

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Additional Examples from the EEOC

• Tempe Elementary School District No. 3: (D. Ariz.) resolved 5/23/12 by Phoenix District Office - The Commission alleged that the charging party and a group of retired employees were discriminatorily compensated for accrued leave based on their age. More specifically, Defendant maintained a facially age-discriminatory early retirement incentive plan which compensates retiring employees for accumulated general leave at rates which vary based on age, so that employees who retire at age 61 or older are compensated for accumulated leave at lower rates than the rates paid to younger employees who retire between ages 55 and 60. Case settled $148,162.53 to 49 class members and injunctive relief including training, revision of retirement policy among other things.

• Central Freight Lines: (N.D. Tex.) resolved 5/10/12 by Dallas District Office - The Commission alleged that a class of employees was discriminated against based on age. The EEOC alleges that Defendant used a reduction-in-force as a ruse to fire eight dockworkers, some of whom had worked at the company for 20 or more years and were approximately 50 years old and older. Defendant subjected this class of workers to names like "grandpa," "old farts" and "old bastards." Eventually, the company replaced the class of workers with younger hires. Case settled for $400,000 in monetary relief and injunctive relief.

• See http://www.eeoc.gov/eeoc/litigation/selected/adea.cfm for more examples.

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Practical Tips Interviewing & Selection

Interviewing • Anti-Discrimination laws apply to the hiring process.

• Be cognizant of the questions asked during interviews:

• Title VII: Number of children, pregnancy, place of birth, physical appearance (phone interview), languages spoken at home

• ADEA: Requiring age or DOB in application, date(s) of graduation • ADA: Specific health conditions, sick days at prior job, worker’s

compensation history • Whistleblowing: Prior whistleblowing activity, reasons for

dismissal

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• Age and date of birth

• Marital status

• Gender

• Parenthood

• Citizenship

• Religion

• Arrests

• Conviction records

• Physical or mental limitations

• Workers Comp history • Economic status; prior bankruptcy; rental or ownership of home; past

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Specific Questions or Topics to Avoid

ASK THIS: “Are you legally authorized to work in the United States?”

NOT: “Are you a U.S. citizen?” “Where were your parents born?” “Where are you from?” “What a beautiful accent . . . you’re

from Croatia, aren’t you?”

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Ask this, Not that: Avoiding Inappropriate Interview Questions

ASK THIS: “This job requires our team members to communicate frequently with residents and family members, to prepare written reports and to receive direction, all in English. Are you fluent in English – both written and spoken?

NOT: “What is your native language?” “How did you learn to speak English?” “You can only speak English here.”

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Ask this, Not that: Avoiding Inappropriate Interview Questions

ASK THIS: “What are your long-term career goals?”

NOT: “How much longer do you plan to

work before you retire?”

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Ask this, Not that: Avoiding Inappropriate Interview Questions

ASK THIS: As you hand the applicant the job description, ask: “Are you able to perform the specific duties of this position?”

NOT: “Do you have any disabilities?” “Show me how you would catch a

resident falling with just one arm.”

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Ask this, Not that: Avoiding Inappropriate Interview Questions

U.S. Equal Employment Opportunity Commission v. Abercrombie & Fitch Stores Inc., • On June 1, 2015, in an 8-1 decision in U.S. Equal Employment

Opportunity Commission v. Abercrombie & Fitch Stores Inc., 135 S. Ct. 2028 (2015), the U.S. Supreme Court put employers on notice that they may be held liable for rejecting prospective employees based on their apparent religious practices — even if an applicant never mentions religion.

• Employer Takeaways: • Disclose All Job Requirements • Require Affirmation by Job Seekers • Neutrality Is Not a Defense

• Employee Tips: • Request All Job Requirements • If You Need a Religious Accommodation, Say So • If You Are Denied, Assert Your Rights

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Practical Tips Employment Agreements

Hallmarks of Effective Employment Agreements

• Choice of law provisions • Right to amend compensation • Non-compete and confidentiality agreements • Arbitration agreements – pros and cons • Disclaim use of former employer’s trade secrets • Integration Clause • Termination: (Expiration, Notice of Renewal, Automatic Renewal) • All terms reduced to writing in contract instrument

• Note parol evidence rule

• Executives • Clearly described duties • Standards of Performance • Length of term • “Best Efforts” and “Full Time Employment” • Termination considerations • Change in Control (“CIC”) provisions • Length and scope of non-competition or non-solicitation

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Avoiding Oral Contracts • Oral promises limit employers’ rights to terminate at-will

employees only in very limited circumstances. Oral promises must be definitive and limited in duration.

• Oral promises can run afoul of the statute of frauds which requires contracts that cannot be performed within one year to be in writing and signed by the party to be charged in order to support a claim for breach of contract.

• There is no such thing as an “agreement to agree.”

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Unsigned Employment Agreements • Unsigned employment agreements can create binding contracts. • Dunn v. E. Petroleum, No. JKB 09–2851, 2011 WL 310400 (D. Md.

Jan. 26, 2011). • Employer prepared an employment agreement bearing Employee’s

name and delivered a copy to Employee. Neither party signed the agreement.

• The agreement provided for an annual salary of $165,000 and a minimum annual bonus of $165,000.

• Employee sued Employer seeking to enforce the agreement, alleging that failure to sign was an oversight. Employee further alleged that Employer’s President agreed orally to the terms in the draft contract.

• Held: Employee demonstrated circumstantial evidence of a course of dealing suggesting the existence of a contractual relationship, and his assertion that the services had some value regardless of the parties’ dealings created a factual dispute in light of the employer’s contrary contentions. Motion for summary judgment denied.

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Compensation, Bonuses, Stock Options, and other Benefits

• Salary/Direct Compensation • Expectations regarding annual increases

• Bonuses • Signing v. Performance • Guaranteed v. Discretionary

• Stock Options • Grant date • Price per share • Vesting schedule considerations

• Other incentive compensation • Deferred compensation • Variable compensation based on profitability • Stock options and other incentive compensation • Benefits – Medical insurance, life insurance • Vacation • 401(K) or Supplemental Executive Retirement Plans • Auto allowance, financial/estate planning assistance, legal

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Compensation, Bonuses, Stock Options • Direct Compensation – Example

• During the Employment Term, the Company shall pay the Executive a base salary at the annual rate of $XXX,XXX, payable in monthly regular installments in accordance with the Company’s payroll policy in effect from time to time. The Executive’s base salary may be increased (but not decreased) in accordance with Schedule 1. The Executive’s annual base salary, as in effect from time to time, is hereinafter referred to as the “Base Salary”.

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Compensation, Bonuses, Stock Options • Bonus Structure – Example

• The Executive shall be eligible to participate in the Group’s annual performance bonus plan with an on target opportunity of 133% of Base Salary. Performance targets will be agreed with the Board at the start of each fiscal year and will provide details of threshold, on target and stretch performance criteria. The Executive’s annual bonus for 2010 shall be prorated based on the number of days worked in that year. The annual bonus shall be paid to the Executive at the same time as annual bonuses are generally payable to other senior executives of the Company subject to the Executive’s continuous employment through the payment date. When determining payments due under the annual bonus, consideration will also be given to whether there has been significant fluctuation in the dollar/euro average annual exchange rate in the preceding year. Notwithstanding anything herein to the contrary or otherwise, the annual bonus shall be paid within the two and one half month short-term deferral period, beginning with the date that such bonus vests in the Executive, as set forth in Treasury Regulation Section 1.409A-1(b)(4) or any successor thereto.

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Drafting Non-Compete and Confidentiality Agreements • “Sufficiently narrow” to protect employer’s “legitimate business

interest” without causing “undue hardship” on employee. • Factors to consider:

• Duration • Geographic Coverage • Scope

• Generally “disfavored restraints on trade” with ambiguity construed in favor of employee

• Supported by consideration

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Hiring Decision Checklist Narrowly tailored non-compete agreements Inclusion of necessary restrictive covenants Established confidentiality agreements Identification of intellectual property Identification of pre-existing trade secrets Well-defined compensation arrangements Agreed-upon benefits

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Practical Tips Performance of Duties

Employer Liability Protection • Best protection: Up-to-date policies and forms • Consistent enforcement of rules/policies • Progressive discipline • Periodic management training • Mandatory arbitration of employment disputes –

pros and cons

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Disciplinary Procedures • Where disciplinary procedures are identified in company

handbook, contract, or memorandum, it is important to follow them uniformly for all personnel.

• As with handbooks, where deviations from established disciplinary procedures can give rise to potential claims of disparate or retaliatory treatment.

• In short, if you have established disciplinary procedures, follow them.

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Employee Complaints • Investigate all complaints of discrimination and unethical or

unlawful behavior. • Follow up with employees, even if you have unfavorable

findings. • Encourage internal disclosures by having strong policies

against retaliation. • If any employee experiences retaliation, or feels that their

complaints have fallen on deaf ears, there is a good chance that they are going to contact an attorney or make external disclosures.

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Termination of Employment

Implications and Limitations of Employment At-Will

• Employer and the employee may end the employment relationship at any time and for any reason, or for no reason at all.

• Possible Exceptions • Discriminatory reasons • Implied Contracts

• Handbooks that require progressive disciplinary policy • Employee foregoes other opportunity in reliance on employer’s promise

not to terminate • Wrongful discharge in violation of public policy

• Recognized in DC, Maryland, and Virginia – Texas? • Employee is discharged because of refusal to violate statute or regulation. • Contemplates constructive discharge • Preemption issues

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Termination Matrix

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Early Termination: Definition of “Cause”

• COBRA requires that employers sponsoring group health plans to notify their employees of the optional availability of continuing coverage when a “qualifying event” occurs, unless an employee is terminated due to “gross misconduct.” See 29 U.S.C. § 1163. • In Karby v. Standard Products Co., the United States District Court for

the District of South Carolina found that an employee had engaged in “gross misconduct” when he made false statements in his conflict of interest disclosures and committed a theft of company property. Karby v. Standard Products Co., 1992 WL 333931 at *6 (D.S.C. June 22, 1992).

• In Zickafoose v. UB Services, Inc., the United States District Court for the Southern District of West Virginia defined “gross misconduct” as conduct “so outrageous that it shocks the conscience,” and required that the test be applied on a case-by case basis. Zickafoose v. UB Services, Inc., 23 F. Supp. 2d 652, 655 (S.D.W.Va. 1998.

• The Fourth Circuit has not defined “gross misconduct,” but it includes “flagrant, repeated insubordination.” (Bryant v. Food Lion, 8 Fed.Appx. 194, 196 (4th Cir. 2001). 32

Cadillac “Cause” • “Cause” shall be limited to the following events (i) the Executive’s conviction of,

or plea of nolo contendere to, a felony (other than in connection with a traffic violation) under any state or federal law; (ii) the Executive’s willful and continued failure to substantially perform his essential job functions hereunder after receipt of written notice from the Employer that specifically identifies the manner in which the Executive has substantially failed to perform his essential job functions and specifying the manner in which the Executive may substantially perform his essential job functions in the future; (iii) a material act of fraud or willful and material misconduct with respect, in each case, to the Employer, by the Executive; (iv) a willful and material breach of this Agreement, or (v) the hiring of any person who was an employee of the Employer within 180 days prior to such hiring, other than to perform services for the benefit of the Employer. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Employer. Anything herein to the contrary notwithstanding, the Executive shall not be terminated for “Cause” hereunder unless (A) written notice stating the basis for the termination is provided to the Executive, and (B) as to clauses (ii), (iii) or (iv) of this paragraph, he is given 30 days to cure the neglect or conduct that is the basis of such claim (it being understood that any errors in expense reimbursement may be cured by repayment).

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Cadillac “Good Reason” • “Good Reason” means, unless otherwise agreed to in writing by the Executive, (i) any diminution

or adverse change prior to a Change in Control in the Executive’s title; (ii) reduction in the Executive’s Base Salary; (iii) prior to a Change in Control a requirement that the Executive reports to someone other than the Employer’s Chief Executive Officer and/or President; (iv) a material diminution in the Executive’s authority, responsibilities or duties or material interference with the Executive’s carrying out his duties; (v) the assignment of duties inconsistent with the Executive’s position or status with the Employer as of the date hereof; (vi) a relocation of the Executive’s primary place of employment to a location more than 25 miles further from the Executive’s primary residence than the current location of the Employer’s offices; (vii) any other material breach of the terms of this Agreement or any other agreement that breach is not cured within ten days after the Executive’s delivery of a written notice of such breach to the Employer; (viii) any purported termination of the Executive’s employment by the Employer that is not effected in accordance with the applicable provisions of this Agreement; (ix) the failure of the Employer to obtain the assumption in writing of its obligations under this Agreement by any successor to all or substantially all of the assets of the Employer within 15 days after a merger, consolidation, sale or similar transaction; or (x) the delivery of a notice of Non-Renewal by the Employer at any time up to and including November 22,2023. In order to invoke a termination for Good Reason, the Executive must terminate his employment, if at all, within 30 days of the occurrence of any event of “Good Reason.” Notwithstanding anything to the contrary herein, after a Change of Control, Good Reason shall not, by itself, include the assignment to the Executive of a different title that is, within the organization of the successor entity, equivalent to the Executive’s title with the Employer immediately prior to the Change in Control. Furthermore, notwithstanding anything to the contrary herein, Good Reason shall not, by itself, include (A) a reduction in Executive’s responsibilities or duties following a management led buyout of the Company or (B) removal of Executive’s authority and/or responsibility over any aspect of investor relations and/or the mergers and acquisitions function.

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Contract Termination (with and without cause) – Sample Definitions

• “Good Reason” Definition • Employers want:

• specific • written notice and opportunity to cure

• Employees want it broad with substantial discretion

• Financial Consequences: • severance • benefits • stock

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• Reasons for terminating “for cause” • Neglect of duties; failure to obey orders; disloyalty; misappropriation;

breach of agreements; misconduct; et al. • Parties involved in termination meeting • Benefits of identifying reasons for termination (“for cause”)

• No unemployment compensation • Leverage in severance negotiations • No notice

• Benefits of withholding reasons for termination (“without cause”) • Payment of unemployment compensation • Stated reasons proven false and impact on litigation

Contract Termination (with and without cause) – General Takeaways

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• An agreement between a company and an employee,

usually an executive, specifying certain significant benefits if employment is terminated.

• Change in control -- e.g., merger or takeover.

• Pro: Attract/retain top executives

• Con: Might create perverse incentives

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Golden Parachute

Dispute Resolution • Scope – what will it cover • Mandatory mediation with notice of claims

• A service such as JAMS or AAA. • The AAA’s fees for arbitrations depend upon the nature of the claim and whether the

claim arises from an employer-promulgated plan or an individually negotiated agreement or contract. For claims arising out of individually negotiated agreements/contracts, the initial filing fee can range from $775 for claims valued under $10,000 to $12,800 plus .01% of the amount above $10,00,000 for claims above $10,000,000. The initial filing fee is capped at $65,000

• Statutory prohibitions on Mandatory Arbitration - SOX • Example: Section 922 provides that the “rights and remedies” set forth in that section

“may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement.” 18 U.S.C. § 1514A(e)(1). The section further elaborates that “no predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.” 18 U.S.C. § 1514A(e)(2).

• Venue for proceeding • Choice of Law • Arbitration

• number of arbitrators • applicable rules

• Attorney’s fees

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Termination Checklist Understanding implications of at-will employment Making the “for cause” determination Negotiating severance packages Determining appropriate and best forum to resolve disputes.

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Q&A Adam Augustine Carter The Employment Law Group® Law Firm Phone: 202.331.2803 Fax: 202.261.2835 acarter@employmentlawgroup.com www.employmentlawgroup.com