A decision last week by U.S. Magistrate Judge Janie Mayeron offers an excellent analysis of the appropriate standards used in evaluating a claim for punitive damages in an employment case in federal court.

Defendant SMS provided housekeeping services to Ridgedale Mall. Defendant Gonzalez was employed by SMS as a facility manager for SMS, and in this role he was responsible for
supervising SMS employees at Ridgedale. Zuniga was hired by Gonzalez as a housekeeper there.

Zuniga resigned her employment with SMS in October 2007 without having reported any misconduct by Gonzalez. In March 2008, however, she filed a sworn Charge of Discrimination with the EEOC in which she alleged that Gonzalez had raped her four different times at work. Once SMS learned of these allegations, it sent a letter to Zuniga’s attorney asking for a statement regarding her allegations so that they could be investigated.

Eventually, Zuniga sued both Gonzalez and SMS under Title VII and the Minnesota Human Rights Act; she also asserted common law claims of assault and battery against Gonzalez and respondeat superior against SMS. She later moved to amend her Complaint to include claims for punitive damages against both Gonzalez and SMS.

Judge Mayeron first reminds us that in federal court, “the pleading of punitive damage claims under causes of action premised upon the law of the State of Minnesota must generally conform to the requirements of Minn. Stat. §§ 549.191 and 549.120.” In other words, a plaintiff may not seek punitive damages in her initial complaint, but must do so later by bringing a motion to amend, and then showing by “clear and convincing evidence that the acts of the defendant show deliberate disregard for the rights or safety of others.” To be “clear and convincing”, there must be “more than a preponderance of the evidence, but less than proof beyond a reasonable doubt.”

Significantly, when reviewing such evidence, the Court makes no credibility rulings, nor does it consider any challenges by cross-examination or otherwise to the plaintiff’s proof. The Court’s only task at this stage is to determine whether there is prima facie evidence that the defendant acted with deliberate disregard.

Ultimately, Judge Mayeron granted the motion against Gonzalez, but denied it against SMS. (In considering the claim against Gonzalez, she also has an interesting review of exceptions to the hearsay rule, but that is beyond the scope of this post). The analysis of the claim against SMS is the most interesting, because it involves consideration of whether SMS “implicitly ratified” Gonzalez’s conduct as required by Minn. Stat. § 549.20, subd. 2. This in turn requires an inquiry into whether SMS “knew or should have known” about Gonzalez’s conduct.

Implied ratification occurs where a principal fails to repudiate an agent’s act as soon as it is fully informed of what the agent has done. The Court provides a very thorough analysis of two seminal Minnesota cases on this topic, Baufield v. Safelite Glass Corp. and Wirig v. Kinney Shoe Corp., before concluding that SMS did not ratify Gonzalez’s behavior (even though it offered him a new position in Texas after it learned of Zuniga’s allegations). More important to Judge Mayeron’s analysis was the fact that SMS had attempted to investigate those allegations; “even if it is determined that the investigation by SMS was cursory, biased and inadequate, SMS’s investigation of her post-termination complaint does not rise to an implicit ratification of Gonzalez’s alleged assaults of Zuniga, nor does it amount to clear and convincing evidence that SMS deliberately disregarded the rights and safety of Zuniga.”

The Court also rejected Zuniga’s contention that SMS had failed to properly monitor the workplace by leaving that task to Gonzalez because SMS had mechanisms in place to ensure that its policies on sexual harassment were being followed. “Whether these policies were adequate or inadequate, or whether SMS staff should have or could have done a better job in ensuring that site supervisors were following the rules, does not lead to the conclusion that SMS knew or should have known that Gonzalez was assaulting Zuniga. At best, any breakdown in SMS’s procedures may be evidence of negligence or gross negligence, but it does not rise to the level of willful indifference on the part of SMS.”

Aside from being a terrific primer on the procedure and standards for bringing motions for punitive damages in federal court, this case also provides a reminder to employers of the importance of having anti-harassment policies and mechanisms in place, and investigating all allegations of alleged harassment, even if the complaining employee has already left the workplace.

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The latest is here:

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The Minnesota Court of Appeals issued an important decision last week clarifying the standard for imposing “aiding and abetting” liability under the Minnesota Human Rights Act. Going forward, a plaintiff will have to prove that a defendant both knew that another person’s conduct constituted a violation of the act and also gave “substantial” assistance or encouragement to that person’s conduct.
Sheila Matthews1 worked as a business manager for Eichorn Motors, Inc. for a three-month period during 2006. Eichorn Motors was owned by Justin Eichorn and Michael Coombe. Eichorn held an 85-percent majority interest in Eichorn Motors; Coombe held a 15-percent interest and served as general manager.
Coombe began pursuing Matthews romantically before she began her employment at Eichorn Motors, and he continued once she started. (For the curious, the Court’s opinion details many of his overtures). After she was fired for “not following procedure”, Matthews sued Eichorn Motors, Justin Eichorn and his father, Mitch Eichorn, alleging that Coombe had subjected her to sexual harassment and reprisal, in violation of the Minnesota Human Rights Act (MHRA). She also alleged that Mitch Eichorn and Justin Eichorn were liable for aiding and abetting the sexual harassment under the MHRA.
Mitch Eichorn and Justin Eichorn moved for summary judgment on the aiding and abetting claim, which the district court granted. The district court subsequently granted a default judgment against Eichorn Motors, which had ceased operations during the pendency of the litigation. The appeal followed.
In addition to imposing liability on employers, the MHRA also provides: “It is an unfair discriminatory practice for any person . . . intentionally to aid, abet, incite, compel, or coerce a person to engage in any of the practices forbidden by this chapter” or to attempt to do so. Minn. Stat. § 363A.14. The act does not define the terms “aid” and “abet”, however, and no previous cases had addressed the legal standard for an aiding-and-abetting claim.
The Court used several different methods to determine that standard, including considering the dictionary definition of “aid” and “abet”, as well as its use in other legal contexts and states. Ultimately, however, the Court concluded that the standard established in the Restatement (Second) of Torts should govern aiding-and-abetting claims under the MHRA. Accordingly, a person will be liable for aiding and abetting a violation of the MHRA when that person knows that another person’s conduct constitutes a violation of the MHRA and “gives substantial assistance or encouragement to the other so to conduct himself.” Restatement (Second) of Torts § 876(b). Whether the requisite degree of knowledge or assistance exists will depend in part on the particular facts and circumstances of each case. Factors such as the relationship between the defendant and the primary tortfeasor, the nature of the primary tortfeasor’s activity, the nature of the assistance provided by the defendant, and the defendant’s state of mind all come into play. Significantly, the Court also held that a defendant’s failure to act does not constitute “substantial assistance.”
This case should make it more difficult for plaintiffs to establish “aiding and abetting” liability against individual defendants under the MHRA.

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The Eighth Circuit Court of Appeals issued a ruling last week affirming Wal-Mart’s right to fire an African-American manager for a seemingly minor violation of its “Working Off The Clock” policy. The decision reminds us of the difference between unfairness and illegality.

Plaintiff Chestine Clay was manager of the Vision Center at Wal-Mart’s store in Bloomington, Minnesota. Beginning in 2005, Clay complained several times about the behavior of several co-workers, which she viewed as racially discriminatory. Wal-Mart investigated but concluded that race was not a factor.

In August 2006, one the employees that Clay supervised asked Clay to call her to let her know how Clay was doing. Clay called the employee at home after-hours, and they had a 90 minute conversation that included some work-related issues. Several days later, the employee mentioned to the Bloomington store manager that she and Clay had talked after-hours about work issues. The store manager informed the employee that she should be compensated for the time she spent on the phone with Clay. Two days later, the District Manager who was Clay’s immediate supervisor told Clay that the phone call had violated Wal-Mart’s “Working Off the Clock” policy, which prohibits managers from requesting that associates work off the clock, and that because of this violation Clay was being fired.

Clay sued, but the trial court dismissed her claim on summary judgment, finding that even though the outcome seemed harsh, there was no evidence that Clay’s race had played any role in the decision. The Court of Appeals affirmed this decision. Clay argued that Wal-Mart’s reason for terminating her was pretextual because her conversation did not violate the company’s policy. The Court noted, however, that the issue was not whether Clay had actually violated the policy, but whether Wal-Mart believed that she had done so. “If an employer takes adverse action based on a good faith belief that an employee engaged in misconduct, then the employer has acted because of perceived misconduct, not because of protected status or activity.” Because there was no evidence that Wal-Mart’s belief was not honestly held, the dismissal of Clay’s claim was appropriate.

This case provides an excellent example of why proving discrimination can be so difficult at times. Courts do not want to second-guess employer’s business decisions; thus, even if the decision appears harsh or just plain stupid, a plaintiff must nonetheless be able to point to some evidence of race or other discrimination to get past summary judgment and to a jury. Put another way, just because a decision is unfair does not mean it is necessarily illegal.

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It seems a lawyer in New York sat by while his client lied about whether she was working at a deposition. When the court found out, it showed its displeasure by sanctioning the lawyer $15,000.

Have a great Memorial Day holiday.

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Judge Michael Davis of the U.S. District Court in Minneapolis recently spent 35 pages sorting through various issues in a race, national origin and age discrimination case brought by a Nigerian-born professor against St. Cloud State University in Onyiah v. St. Cloud State University. Ultimately, Judge Davis granted summary judgment on plaintiff’s claims. Without providing a thorough analysis of his very interesting opinion, I can tell you that Judge Davis reached the following conclusions:

• That a proposed expert witness on salaries was not qualified under a Daubert analysis, and that his opinions were speculative and not reliable because they did not explain why it started where it started;
• That various affidavits offered by plaintiff would not be stricken because they complied with the personal knowledge requirement of Rule 56;
• The elements of a prima facie case of salary discrimination under Title VII;
• That simply making general statements about how much unidentified white professors were paid is insufficient to establish that employees outside of plaintiff’s protected class were paid more for equal work;
• That evidence that other black professors from Nigeria were paid higher starting salaries also undercuts a prima facie showing of discrimination;
• That the plaintiff’s failure to allege religious or tribal discrimination in his Complaint and in his EEOC charge meant that he could not raise it at summary judgment;
• That plaintiff’s age discrimination claim failed because none of the employee to which plaintiff compared himself were actually similarly situated, and because SCSU’s reason for the differences in pay was not pretextual.
If you are interested in understanding how Daubert applies to certain types of experts, or how to evaluate and prove a salary discrimination claim, you will want to review this opinion.

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The Equal Employment Opportunity Commission has sued Starbucks Coffee Company for allegedly denying a reasonable accommodation to a barista with dwarfism at its El Paso café and then firing her because of her disability.

According to the EEOC’s suit, Elsa Sallard has a physical impairment, dwarfism. She was hired by Starbucks to work in a customer service position in July 2009, but was only allowed to train for 3 days before she was fired. Soon after being hired, Sallard asked to use a stool or small stepladder to prepare orders and serve customers at the counter. Starbucks allegedly disregarded Sallard’s request. Later that day, it terminated her employment, claiming that she could pose a danger to customers and employees. The EEOC filed suit after first attempting to reach a pre-litigation settlement through its conciliation process.

“Starbucks has become a virtual icon of modern American culture, appealing to an incredibly diverse customer base,” said Robert A. Canino, regional attorney for the Dallas District Office of the EEOC. “We’d hope that when considering hiring a person with a disability, Starbucks would choose to enhance its brand with the mark of equal opportunity and access.”

The EEOC has done much good work over the years to reduce the amount of discrimination in the workplace. I’m not sure that this case, however, represents the best use of the agency’s resources.

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A decision last week by Judge Ann Montgomery in RSM McGladrey v. Epp should be required reading for all attorneys who draft employment agreements, especially those with non-competition and arbitration provisions.

The defendants were managing directors of RSM, working out of its New York office, specializing in RSM’s health care practice. As a condition of their employment, each signed a Managing Director Employment Agreement, which includes covenants restricting the solicitation and servicing of certain RSM clients for a period of two years after termination of employment.  The Employment Agreement also has provisions regarding enforcement, preliminary equitable relief, and arbitration.

RSM terminated Defendants as employees in January 2011.  Defendants then joined a competitor of RSM, and have allegedly breached the covenants in the Employment Agreement by servicing and soliciting RSM clients.  RSM obtained an ex-parte Temporary Restraining Order against Defendants in state court. Defendants then removed this action to federal court.

The parties dispute whether their agreement to arbitrate disputes under the Employment Agreements deprives the Federal Court of authority to grant a preliminary injunction. Under Eighth Circuit precedent, a preliminary injunction may be granted in a case subject to arbitration only where “the contract terms contemplate such relief and it can be granted without addressing the merits.”  Therefore, injunctive relief is appropriate only if a contract has “qualifying contractual language”; i.e.,  language that provides the Court with clear grounds to grant injunctive relief without addressing the merits of the underlying arbitrable dispute. Without qualifying contractual language, courts must necessarily pass on the merits of a claim because the Dataphase standard for granting a preliminary injunction requires consideration of: the merits of the case.  However, a preliminary injunction pending arbitration may be granted without considering “the probability that the movant will succeed on the merits” because courts may disregard the Dataphase criteria in deference to the arbitrators.

Judge Montgomery then considered just what constitutes “qualifying contractual language” by examining two previous 8^th Circuit cases on the topic.  In one, Manion v. Nagin,  while the contract between the parties stated that the agreement to arbitrate “is without prejudice to the right of a party to request interim relief directly from any court  of competent jurisdiction without prior authorization of the arbitrator(s),” that language was not “qualifying contractual language” because it merely authorized a party to request relief, as opposed to being entitled to relief, which would necessarily embroil the court in the merits of the dispute.   

In the second case, Peabody Coalsales Co. v. Tampa Electric Co., the Eighth Circuit found qualifying contractual language and allowed injunctive relief notwithstanding the agreement to arbitrate. There, the parties’ agreement expressly stated that “performance of [the parties’] respective obligations under this Agreement shall be continued in full by the parties during the dispute resolution process.”  Based on that language, the Court ruled that it could grant the injunction without delaying arbitration and without considering the merits of the case.

Applying these standards to the RSM case, Judge Montgomery held that the preliminary injunction was appropriate because the Employment Agreements include “qualifying contractual language.” The terms of the Employment Agreements provide the Court with clear grounds to grant injunctive relief without addressing the merits of the underlying arbitrable dispute. Specifically, Defendants agreed to waive arguments relating to irreparable injury and with respect to enforceability of the contract. Therefore, unlike cases where the contract language only allowed the parties to request injunctive relief by embroiling the court in the merits of this case, the RSM Employment Agreement evinces an intent to avoid addressing the merits of the dispute by waiving any arguments relating to irreparable injury or enforceability. By waiving those arguments, the parties clearly intended that the first Dataphase factor not be reached.

There are many advantages to choosing arbitration of disputes over employment agreements, but lawyers drafting those agreements should make sure to include the requisite language allowing their client to seek immediate injunctive relief where necessary.  Judge Montgomery’s decision provides a template for how to do that.

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As any defense lawyer can tell you, retaliation cases are some of the most problematic to deal with.  Further evidence of that arrived this week with news that a jury awarded $361,000 to a former employee of G&K Services for workers’ compensation retaliation.

Dubiel was injured on the job in a car accident.  He filed a report of injury for workers’ compensation purposes, after which G&K fired him.  G&K claimed that Dubiel had lied in a preemployment physical exam.  A Hennepin County jury disagreed, finding that Dubiel’s filing for work comp benefits was a motivating factor in his discharge, and awarding him $111,000 in lost wages and emotional distress, and another $250,000 in punitive damages.

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