SHRM Legal Report, July-August 2002

Sexual harassment claims filed in the last decade exploded in number. In 1990, employees filed over 6,000 claims. By 2000, the annual number of claims filed skyrocketed to almost 16,000. In response, the U.S. Supreme Court imposed on employers the duty to take positive steps to prevent and correct promptly sexually harassing behavior. More recent cases are expanding these twin Title VII duties to cover other forms of harassment and other employment laws. Beyond harassment, Bureau of Labor Statistics demographic data confirms the obvious. The workforce is aging and becoming less white and less male, trends that will continue. While 9-11 has dampened immigration, global economics keeps the American doors of opportunity open. In the face of these trends, attention-grabbing headlines of lotto-like, multi-million dollar settlements and judgments due to harassment, discrimination, and other employment law violations are a weekly occurrence.

Many employers, justifiably fearing the potentially crippling impact of becoming one of these statistics, have covered management weaknesses with a thin veneer of employment practices liability insurance. It has not taken long, however, to see that EPLI only numbed some of the financial pain of cancerous employment practices. The only way to ensure healthy best practices is by prescribing an employment practices wellness program—a regular regimen of employment law and practices training for managers and employees.

Recent judicial and agency activity make clear training is no longer a discretionary HR activity--it is essential. The question is not whether your company is going to provide it, but how long will it have to suffer the costly consequences of neglect. A carefully crafted, effectively executed, methodically measured, and frequently fine-tuned employment practices training program for managers and employees is a powerful component of a strategic HRD plan that aligns vital corporate values with daily practices. The costs of neglect are serious. The benefits are compelling and foundational to long-term success.

The Legal Duty to Train Regularly

In the wake of the tidal wave of harassment suits following the Clarence Thomas hearings, the Supreme Court issued landmark decisions in Faragher v. City of Boca Raton, 524 U.S. 775 (1998), and Burlington Industries, Inc. v. Ellerth, 524 U.S. 742 (1998). In those seminal 1998 rulings, the Supreme Court clarified legal duties with which employers must comply to avoid liability for sexual harassment. Since then, cases have expanded employer’s duties beyond sexual harassment to other EEO-related laws. Additionally, the Civil Rights Act of 1991 and cases construing it, such as the Supreme Court’s decision in Kolstad v. American Dental Association, 527 U.S. 526 (1999), consider practices like training key evidence for averting punitive damages. Courts are not alone, though, in stressing the duty to train. Mandatory training has been a standard mantra in EEOC settlement agreements since the appointment of Cari Dominguez as the EEOC Chair. The writing is on the wall and HR professionals need to take note: training is now the rule, not the exception.

Faragher and Ellerth: Establishing “New” Legal Duties for Employers

In Farragher and Ellerth, the U.S. Supreme Court set the stage for regular employment practices training. To avoid liability for sexual harassment, the High Court imposed two duties. First, employers must take reasonable steps to prevent harassment. Second, employers must correct promptly any sexually harassing behavior. As a practical matter, Faragher and Ellerth established the expectation that employers would develop, implement, evaluate, and refine practices satisfying these duties. Basic prevention and correction practices fulfilling the duties arising from Faragher, Ellerth, and their progeny include the following.

Adopt Compliant Policies. Employers must adopt policies and procedures compliant with current legal authorities. Keep policies current. Counsel should review their policies at least annually to stay abreast of the latest developments.

Give Every Employee a Copy. Employers must ensure reasonable steps are taken to disseminate the policy to all. HR must be prepared to show that everyone received the policy. This lesson was reinforced on January 10, 2002, when a Texas appellate court in Hoffman-La Roche, Inc. v. Zeltwanger, 2002 WL 849806, affirmed a jury verdict awarding more than one million dollars to a harassed employee. Though the company provided a policy to managers, it failed to give the policy to all employees, including Zeltwanger.

Train Managers and Employees. Employers must educate their workforce. That employees received the policy does not mean it is understood or that they know how to comply. More importantly, that managers have the policy does not assure they know how to counsel others about their rights and responsibilities. Furthermore, policy distribution alone does not guarantee managers understand their own responsibilities for complying with and enforcing the policy. Consequently, prudent employers will develop and provide regular training for managers and employees as one reasonable method for preventing harassment, discrimination, or other employment law violations.

Investigate Promptly. Employers must respond to issues promptly. An employer has breached its legal duty if it adopts, distributes, and trains its workforce, but fails to promptly respond to issues. A prompt, thorough, discrete, and well-documented response is convincing proof of a sincere commitment to EEO, reassures victims of their worth to the organization, deters further offenses, and can restore harmony and productivity essential for a successful workplace.

Enforce Adequately and Consistently. Employers must act decisively and promptly in taking necessary corrective action warranted by an investigation. Adopting comprehensive prevention practices and providing regular training is wasted time and money if management neglects to enforce its policies adequately and consistently.

In the Zeltwanger case, the company provided harassment prevention training for managers. However, the managers failed to follow the company’s policy and procedures. They neglected their responsibility to promptly respond to, investigate, and correct harassment. The jury punished the company with a verdict exceeding one million dollars. While training is unquestionably a core practice, it is not an impregnable shield against massive damages when management fails to practice what it preaches.

Evaluate Practices Regularly. Finally, employers must evaluate their practices regularly and make any necessary improvements. Best practices include regularly scheduled internal reviews to evaluate the effectiveness of employment practices. Policies should be reviewed for compliance with legal developments. Verify thorough policy distribution by checking personnel files for signed receipts. Incorporate effective training in orientation processes. Provide employment law and practices training for managers and employees at least annually. Track complaints, response time, quality of investigations, and consistency of results. Obtain feedback to assess employee perceptions, evaluate needs, and measure improvement. Most of all, act on your evaluation. Employers with evidence of regular evaluation and of resulting process improvements are well armed to defeat claims for punitive damages.

Expansion of the Employer’s Legal Duties to Other Areas

Recent cases have expanded the employer’s prevention and correction duties of Faragher and Ellerth to other class members protected by Title VII of the Civil Rights Act of 1964. For example, the U.S. Court of Appeals for the Ninth Circuit in Swinton v. Potomac Corp., 270 F.3d 794 (9th Cir. 2001), recognized that prudent prevention and correction practices defeat racial harassment claims. Decisions like Swinton show that it is no longer enough for employers to provide sexual harassment prevention training. Employers must implement and train employees to comply with practices designed to prevent and correct promptly harassing behavior targeting any class protected by Title VII—race, color, religion, national origin, gender, and pregnancy.

As is the nature of law, creative plaintiffs and active judges stretched employers’ rapidly burgeoning legal duties to cover laws beyond Title VII. The U.S. Court of Appeals for the Fourth Circuit in Fox v. General Motors Corp., 247 F.3d 169 (4th Cir. 2001), approved a claim of disability harassment under the Americans with Disabilities Act and upheld a jury’s verdict granting the disabled plaintiff over $200,000. Thus, contemporary practices and training must cover compliance with Title VII and the ADA. Moreover, prudence dictates that other areas be addressed as well, such as the Age Discrimination in Employment Act, the Equal Pay Act, and the Family and Medical Leave Act.

The DOL and EEOC Expect Employers to Provide Regular Training

The DOL and EEOC expect employers to provide regular compliance training. In the April 2002 SHRM HR News, FLSA Chief Tammy McCutchen, emphasized the DOL’s heightened training expectations. She announced Labor’s coming release of training materials. Employers can download PowerPoint presentations and scripts from the DOL website. In the same issue, Cari Dominguez proclaimed EEOC’s focus on “proactive prevention” strategies. The “greater calling,” she declared, is prevention. Not surprisingly, the first element of her strategic plan, listed in the May issue of HR Magazine, is prevention through education. Dominguez is walking her talk. All of the EEOC’s recent settlement agreements require employers to deliver regular training.

The EEOC recently settled a notorious sex bias class action involving Rent-A-Center for $47 million. Dominguez said the company agreed to make “wide-ranging institutional changes” intended to “transform the entire corporate culture.” Besides recreating a dissolved HR group, Rent-A-Center must supply HR “the resources necessary to develop, implement and monitor policies that ensure” nondiscrimination. It also must provide EEO training programs “for all employees at all levels.” Significantly, the EEOC required Rent-A-Center to agree that training will “not be limited to presentations at annual meetings.” To effectively transform a culture, training must occur regularly.

On May 9, 2002, EEOC and The Burlington Northern and Santa Fe Railway Company (BNSF) settled a controversial ADA suit over genetic testing for $2.2 million. BNSF also agreed to provide training for all appropriate personnel, including senior management, covering ADA law, policies, and practices.

On March 22, 2002, EEOC settled a racial harassment suit against Apollo Colors for $1.8 million. The agreement requires Apollo to implement anti-discrimination measures including “training for managers and employees.”

On March 6, 2002, EEOC announced a $1.2 million settlement of a discrimination suit against McKesson Water Products Company. The agreement obligates McKesson to implement a variety of anti-discrimination policies and procedures, including “provision of training on equal employment opportunity law.”

In December 2001, EEOC and Wal-Mart settled disability discrimination actions pending in 11 states for $6.8 million. The global settlement required Wal-Mart to conduct “significant nationwide training on the ADA and job offers” in order to show Wal-Mart’s sincere commitment to complying with the ADA. Wal-Mart acquiesced to the global settlement shortly after a federal court punished Wal-Mart with fines for breaking a previous promise in a consent decree to provide “adequate” ADA-related training.

The trend in the courts and with governing agencies is clear. Adequate, effective, and regularly scheduled employment law and practices training is now the rule, not the exception. HR professionals must take the lead in making sure employees and managers understand their rights and responsibilities in complying with employment laws and related company policies and practices.

The Risks Outweigh Training Costs

Cost should not stand as an obstacle to training. The enormous risks of neglect swamp training costs. Indeed, the EEOC is requiring employers to supply adequate resources for training and compliance. According to Jury Verdict Research, the median compensatory damage award for employment suits stands at $150,000. Though $150,000 as a median number for compensatory damages seems like a large sum, it is just the tip of the iceberg. Compensatory damages do not include the fees paid to the employer’s counsel, which can vary between $50,000 and $80,000 for trying a garden-variety case. It also excludes the plaintiff’s attorney fees, which losing employers must often cover. Other costs employers often bear that are not included in the $150,000 figure are front and back pay and punitive damages. Even settlements between 1994 and 2000 averaged $62,000 (not counting attorney fees and other litigation costs).

For this reason, EPLI providers are no longer merely suggesting their clients provide regular training. According to the May 2002 SHRM HR Magazine article, “EPLI Providers Turned Up the Heat,” most insurers are raising rates dramatically. They are also reviewing employer policies and practices much more scrupulously. Many now require employers to provide regular training. In fact, Ronald Adler, President of SHRM’s Employment Committee, cautioned, “having a policy and conducting training sometimes isn’t enough for insurance providers.”

Organizations that tend to rely on EPLI, rather than taking proactive steps to solve their root employment practices problems, focus myopically on mitigating legal expenses. They fail to consider, however, that legal expenses can be minor compared to more destructive and pervasive costs, such as declining productivity that inevitably results from poor employment practices and workplace disputes. Deficient employment practices often foster absenteeism, low morale, dismal attitudes, poor performance, turnover, and, worse still, deterioration of the employer’s public image and status in the community—costs that can only be cured through a deliberate employment practices wellness program that includes healthy investments in training. These risks of neglect clearly outweigh the cost of training and other wellness practices.

Corporate Values and Behavior in Concert

The proper approach to employment practices training is recognizing its strategic importance as a critical component of a thorough HRD plan for promoting long-term successfulness. The organizations that are the most successful and produce the most shareholder value over the long run are those that do three key things well. First, they know their mission. Second, they have identified and defined the critical corporate values foundational for achieving the mission. Third, and most importantly, they ensure that all of their strategic and tactical plans are executed through daily decision-making that is completely consistent with their bedrock corporate values. According to a study reported in a June 1999 Wall Street Journal article, companies that took steps to ensure that their daily activities were in accord with their core corporate values enjoyed “four times faster revenue growth and seven times faster job growth than others over an 11 year period.” The message is clear. Successful employers train their leaders and employees to act in accordance with corporate values by training and rewarding them to do what is right under employment laws and corporate policies that build and maintain a strong, effective corporate culture.

Components of an Effective Training Program

As cases like Zeltwanger make clear, it is not enough to “just do it.” Employers need to make sure training is effective, which means the behavior of managers and employees is changing.

The Right People

For effective employment law and practices training, subject matter expertise is paramount. The last thing an employer wants is for an aggressive plaintiff’s attorney to learn in discovery that the training your company has been providing is outdated or simply inaccurate. The plaintiff is likely to amend her complaint to include claims of negligent training and/or negligent supervision. And guess what, there is no federal cap on damages for those claims. To avoid this pitfall, the trainer should have a thorough knowledge of the area of employment law and practices being covered, including recent legal developments. Those with excellent training references bring immediate credibility and attention to the program, boosting the transferability of the skills and knowledge learned. The training your managers and employees receive should be both legally accurate and ethically solid.

The Right Training

Effective training includes the right training—it covers the major areas of employment law and practices necessary to ensure a healthy employment practices wellness program. Managers and employees should receive regular doses of training in at least the following areas: EEO practices in recruiting, hiring, training and development, compensation and benefits, and succession planning and promotion: Harassment prevention training for all protected classes, not just gender: ADA and the Rehabilitation Act: ADEA and the OWBPA: FMLA: Workers’ Compensation Laws: FLSA: EPA: The WARN Act: Principles of negligent hiring, training, supervision, and retention: Torts such as invasion of privacy and defamation.

The right training emphasizes building and maintaining a culture of success based on doing what is right, as opposed to a culture of mere compliance. A culture of mere compliance will foster an environment where leaders and others will push the envelope of appropriateness, dragging the company into distracting if not debilitating quagmires. A culture of success encourages and rewards doing what is right in harmony with corporate values essential for long-term success.

The Right Time

Lastly, effective training comes at the right time. Experience is the best trainer, and there are two types of experiences from which we can learn. We can learn from the experiences of others, or from our own. Learning from the experiences of others is both less expensive and a lot less painful. Wise organizations are learning that the right time to implement effective employment practices training is now.

Mitsubishi paid over $30 million to learn the importance of regular employment practices training. BNSF paid $2.2 million to learn that targeted employee groups and management must have training covering ADA law, policies, and practices. Apollo Colors paid $1.8 million to learn that it must provide anti-discrimination “training for managers and employees.” McKesson paid $1.2 million. Wal-Mart paid $6.8 million. Rent-A-Center just paid $47 million to learn that effective employment practices training is not only essential for a successful company, but also must involve more than an “annual presentation.”

Company orientation processes for new employees should include certain fundamental forms of employment practices training, such as standards governing harassment and EEO. Beyond orientation, the right time for training your managers and targeted employee groups is regularly. Some provide bite-size chunks of training at weekly or monthly meetings. Others provide comprehensive doses during multi-day semi-annual or annual training events. The key, though, is a good faith commitment to pursuing an approach that is in fact effective and producing results for your organization.

Conclusion

The writing is on the wall. Recent legal precedents and agency action show that employment law and practices training must be the rule, not the exception. Do not be one of those companies compelled by our friends at the EEOC or DOL to start your training program. Instead, design and implement a program that is customized to fit your strategic organizational development plan and uses an effective trainer to address legal compliance in the context of meeting your company’s corporate values and strategic goals. Build and maintain a culture of success that includes successfully managing employment law and practice issues. Like mom always says, “an ounce of prevention is worth a pound of cure.”