Discipline and Discharge in Litigious Times


Employment related lawsuits have continued to increase at an unprecedented rate throughout the past ten years. In fact, the number of discrimination cases filed in federal court increased 109 percent from 1991 through 1995. This increased likelihood that legal claims will arise from employment decisions has necessitated that employers scrutinize the manner and method by which they make disciplinary decisions. Those employees who exhibit marginal or low performance levels, are absent or late for work on occasion, or suffer from poor attitudes pose particular problems for the employer. As a result of these litigious times, an employer who disciplines or terminates an employee may incur a risk of a suit or legal proceeding.

The purpose of this article is to offer some practical advice to practitioners and business managers for reducing the likelihood of employment claims resulting from adverse employment actions.

MAJOR FEDERAL AND STATE LAWS

The primary statute governing employment discrimination in the United States is Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000e to 2000e-17. This statute makes it an unlawful employment practice for most public or private employers to make an adverse employment decision against any individual on the basis of the individual's race, color, religion, sex, or national origin. However, Title VII is only one of many statutes which prohibits various types of employment discrimination. The Age Discrimination in Employment Act of 1967, 29 U.S.C. §§ 621-634, precludes discrimination by an employer against an employee age forty or older because of the employee's age. Other federal employment statutes include the Equal Pay Act of 1963, 29 U.S.C. § 206(d); the Civil Rights Acts of 1866 and 1871, 42 U.S.C. §§ 1981, 1983; the Rehabilitation Act of 1973, 29 U.S.C. §§ 701-796i; and the Americans with Disabilities Act, 42 U.S.C. §§ 12101-12113. Many states also have enacted laws providing substantially the same or greater protection against discrimination in employment. See, e.g., Colorado Anti-Discrimination Act of 1957, Colo. Rev. Stat. § 24-34-301, et seq.; Kentucky Civil Rights Act, Ky. Rev. Stat. Ann. § 344.010, et seq.; Louisiana Fair Employment Practices Act, La. Rev. Stat. Ann. § 23:1006, et seq.

EMPLOYMENT AT WILL

In addition to statutory prohibitions, employers today must be concerned with lawsuits based upon claims of "wrongful discharge." Prior to fairly recent times, in virtually every state in the country, an employee without a written contract of employment was considered to be employed for an indefinite duration and, therefore, terminable-at-will. As such, the employee could be terminated for absolutely any reason, regardless of the fact that there was no "cause" for the discharge.

The "terminable-at-will" rule, however, has been sharply eroded in recent years in most states by a variety of court decisions. As a result, in many states, discharges other than those for "just cause" are subject to legal challenge. Judicially created exceptions to the general protection afforded by the terminable-at-will rule have developed to the point where, in many states, discharges are routinely challenged by breach of contract or tort claims. See, e.g., General Dynamics Corp. v. Superior Ct. of San Bernardino Co., 876 P.2d 487 (Cal. 1994) (termination of employee refusing to commit unlawful act states claim for wrongful discharge); Shoen v. Amerco, Inc., 896 P.2d 469 (Nev. 1995) ("lifetime" employment not unreasonably lengthy or indefinite period).

The importance of knowing whether an employee is an "at-will" employee or is subject to a higher standard in order to substantiate a termination is more than an academic issue. If the employee is an at-will employee, the employee's available legal remedies are far fewer. Conversely, the elimination of an employee's at-will status heightens the risk for employers in fairly routine terminations. For example, the U.S. Court of Appeals for the Ninth Circuit recently held that, under Oregon law, a supervisor's statement that job security for a group of foremen would be "no problem" if they did "good work" created an issue of fact as to whether an enforceable employment contract existed. See Koepping v. Tri-County Metro. Transp. Dist. of Or., No 95-36151, 1997 WL 411660, 13 I.E.R. Cas. (BNA) 28 (9th Cir. July 24, 1997).

One available response for managers and practitioners is to establish the at-will relationship through institutionalized use of disclaimers in corporate documents and communications. An at-will disclaimer should be included on every employment application. The at-will disclaimer also should be contained in pre-employment materials, the company handbook, and periodically in subsequent communications to employees. Of course, disclaimers must be used in a form consistent with state law in order to be enforceable. See, e.g., Hannah v. United Refrigerated Servs., Inc., 430 S.E.2d 539 (S.C. Ct. App. 1993) (disclaimer on second page of handbook in "welcome" section, absent evidence of actual notice, not enforceable). The continued use of disclaimers in appropriate circumstances leaves no basis for any employee to contend there has been an oral representation or separate agreement removing the employee from an at-will status. Consistent use of at-will disclaimers can eliminate potential liability for a host of state law claims involving disputed terminations.

ESTABLISHING A DISCIPLINARY POLICY

Review of EEOC charge filings in 1996 reflects that approximately seventy-five percent of all employment discrimination cases arise from termination or disciplinary proceedings. While managers must exercise independent judgment as to the merits of an employee's performance, adverse employment actions which are predominantly based upon subjective (as opposed to objective and quantifiable) considerations will invariably increase the probability that an aggrieved employee will resort to the judicial system for relief. Developing objective bases for measuring an employee's performance and consistently applying job criteria allow a manager to minimize the risk that a disciplinary action against an unsuccessful or even borderline employee was reached on an arbitrary basis or enforced in a discriminatory way. The elements discussed below are common to successful disciplinary programs.

A. Defined Duties And Job Standards -- All employees must have a full understanding of the duties and objectives of their jobs. Many times, employers simply do not communicate to their employees what is expected of them. A simple way of eradicating this problem is the development of objective and measurable performance standards. Many employers use job descriptions for this purpose. However, too often corporate job descriptions are generic, out of date, or too vague to be useful. As a consequence, many employers have turned to performance-based evaluation systems that rely on objective and quantifiable goals, rather than point systems or overall descriptions of performance such as "good" or "needs improvement." Regardless of whether job descriptions or performance-based objectives are used, it is critical that employees be told of the standards by which their performance will be measured. By helping employees to understand the measurable standards by which their performance will be evaluated, managers define the elements of successful job performance. Thus, criticism and corrective action are more likely to be conducted in a constructive manner because the parties involved will focus upon deficiencies that are truly important to satisfactory performance.

B. Notice -- The basic elements of a disciplinary program should be in writing so that employees are on notice as to the consequences of failing to adhere to disciplinary rules or failing to meet performance expectations. Employees should not be surprised by disciplinary measures. Only through a written disciplinary program, distributed to employees and explained to them by their supervisors, can employees be expected to understand and appreciate the seriousness of the company's policies.

C. Evaluations -- A common problem for employers defending employment discrimination lawsuits is an employee's receiving a favorable employment evaluation not long before his termination. These situations typically involve managers who fear that criticizing an employee too harshly in his or her evaluation will demoralize the employee and worsen his or her performance. As a result, the manager rates the employee as better than the employee's performance warrants. When the employee's performance does not improve, the manager then is forced to terminate the employee despite the fact that the most recent evaluation is generally favorable. The terminated individual leaves the company confused and angered since, not surprisingly, he believes he was performing his job in an acceptable manner and points to the employment evaluation as evidence of his satisfactory performance. The angry employee then files a lawsuit for employment discrimination or wrongful discharge. This scenario plays itself out in the court system more often than most employers can conceive.

The difficulty that employers seem to have with completing accurate performance evaluations has led the authors to increasingly recommend that employers discontinue use of evaluations, especially after the employee has been employed for more than one or two years. The simple fact is that many employers do not have the time or ability to utilize evaluations in an effective manner. Too often, the evaluations not only overstate an employee's performance and hinder the successful defense of cases, but also create employee ill will. Instead, employees with a year or more of service simply should be issued quantifiable goals and objectives which are easily measurable. In the event of a performance problem, there is no paper trail of inaccurate positive reviews, and performance issues can be carefully documented.

For employees who utilize evaluations, a New Jersey court's decision in Lawrence v. National Westminister Bank of New Jersey, 98 F.3d 61 (3d Cir. 1996), provides a good example of how an effective evaluation process can provide a strong defense to a discrimination action. In this case, a bank terminated its sixty-year-old Senior Vice President/Chief Investment Officer for poor work performance. The employee subsequently sued the bank, alleging that the bank had discriminated against him based on disability and age. In granting summary judgment in the employer's favor, the court noted that the bank's most recent evaluation of the employee's work was below standard in several categories. The court also noted that the employee's work evaluations gradually grew less favorable in the two years prior to termination.

Employment evaluations in today's litigious environment must be accurate and candid when assessing an employee's performance. Perhaps the best guide for managers in evaluating employees is to recognize that generally eighty to ninety percent of subordinate employees will perform at a standard or average rate of performance. It is unusual for more than five to ten percent of employees to perform at an excellent or outstanding rate of employment. Conversely, no more than five to ten percent of employees are traditionally assessed as unacceptable or poor performers. Absent unusual circumstances, employment evaluations that vary markedly from these general guidelines usually indicate that a manager is assessing his or her employees too generously or too harshly.

D. Documentation -- While virtually every manager today recognizes the need for documentation, the lack of adequate documentation still remains the single most common mistake in conducting disciplinary actions. Managers must recognize that their companies may have to explain a disciplinary action several years after it occurs, and that documentation is necessary when memories are dim as to the circumstances of the disciplinary action or when the individuals involved are no longer with the company. See Fuentes v. Perskie, 32 F.3d 759 (3d Cir. 1994) ("an employer which documents its reasons for taking adverse employment action can often be more suitably described as sensible than devious"). In addition, the absence of documentation may allow the terminated individual to create an inference that the employer's motivation for an employment action was for reasons other than those stated.

While the need to document is clear, it is equally important that managers understand that poorly prepared documentation may well hurt an employer's case. Just as good documentation is the key to successfully defending a case, bad documentation may place the employer in an untenable position. While there is no particular required format, the manager should ensure that all disciplinary documentation contains the following elements:

  1. the document should reflect the date that the described event occurred;
  2. the document should be signed by the person preparing it;
  3. the subject of the corrective action should be described in detail, and all individuals participating in the corrective action or party to the incident should be named;
  4. the employee should be informed of the consequences of failing to improve or of committing the same disciplinary infraction again;
  5. the document should reflect the fact that the employee is being told that the document will be placed in his personnel file; and
  6. the employee should sign the document, with a witness present, or the document should reflect that the employee was offered the opportunity to sign but chose not to do so.

Documentation of employee deficiencies must be done by managers on a regular and routine basis. "Building a file" on a particular employee will quickly be evident when other personnel files are examined and no other individuals have documentation of deficiencies. Creative plaintiffs' advocates will argue that the employer has in a calculating manner sought to unfairly and inaccurately build a case against the employee in order to justify a discharge that is motivated by an unlawful animus.

E. Investigation -- Certain types of disciplinary matters will warrant an investigation into the relevant facts and events before any decision is made with respect to a particular individual. Such an investigation should include interviews with all witnesses or individuals who may have knowledge of the particular matter. Valid disciplinary or corrective action should be undertaken only after all the facts and circumstances of a particular incident are disclosed and considered.

F. Consistency -- Particularly in discrimination cases, consistency in imposing disciplinary measures for the same or similar types of infractions is essential. If a manager does not treat like cases in a like manner, it is understandable that a judge or jury will infer that the reason for the different treatment was an unlawful one, such as race, age, or sex.

The need for consistency does not prohibit some variation in discipline according to the circumstances of a particular case. However, when a manager decides to grant leniency to one employee after another employee was treated more harshly for the same or a similar offense, the basis for the different disciplinary action should be carefully documented. For example, a company may have a rule that employees who fail to call in on the day of an absence will be terminated. It would be understandable, however, if a manager made an exception for an employee who was unable to call in and report an absence due to extreme, unavoidable circumstances. In such a case, documentation is of critical importance. The manager should set forth in writing the precise basis for why one employee was treated differently from another for the same offense.

The importance of consistency often comes into play in discrimination cases in connection with the issue of "pretext." The Supreme Court in St. Mary's Honor Center v. Hicks, 509 U.S. 502 (1993), held that a plaintiff showing only that an employer's articulated explanation for its adverse action is false (that is, pretextual) is not entitled to prevail in his action. In so ruling, the Court in Hicks clearly rejected the "pretext only" approach employed by some courts which had held that, if a plaintiff showed the employer's articulated explanation was false, the plaintiff could then prevail without any additional evidence that the employer's actual motivation was discriminatory.

In the aftermath of Hicks, however, some courts have continued to hold that establishment of a prima facie case, together with evidence that the reason for the employer's action is untrue, is sufficient to survive summary judgment. In this regard, evidence of differing treatment of similarly situated individuals has often been held by courts to be sufficient to create an issue of fact with respect to pretext. See Isenbergh v. Knight-Ridder Newspaper Sales, Inc., 97 F.3d 436 (11th Cir. 1996) (rejection of employer's proffered reason may be sufficient to support finding of discrimination); LaPierre v. Benson Nissan, Inc., 86 F.3d 444 (5th Cir. 1996) (falsity of employer explanation so substantial it creates inference of discrimination).

These cases emphasize the importance of consistency in connection with discipline and treatment of employees. Failure to do so oftentimes gives plaintiffs sufficient evidence to survive summary judgment and paint the employer as favoring some employees over others for discriminatory reasons.

G. Objectivity -- A disciplinary program should also provide for an objective review by management or human resources of all severe disciplinary actions and terminations. Objective review of a decision ensures that a termination is not made in the heat of a moment or based upon conflicting personalities, as opposed to a justified termination for inadequate performance which followed meaningful progressive discipline.

Objective review should include examination of the documentation contained in the employee's personnel file. This documentation should fully describe and justify on its face a particular disciplinary decision. The person charged with objective review of disciplinary actions should be familiar with disciplinary policies so that he or she can assess whether the discipline or termination decision is consistent with how other similar cases have been handled.

It is preferable that objective review of termination decisions be made by an individual in higher management or preferably human resources. Terminating employees can result in substantial financial liability and should not be lightly treated.

Objective review allows arbitrary or unfair terminations to be caught or stopped before liability is incurred.

Objectivity also can be demonstrated when the termination decision is made by the same individual who actually hired the employee in question. The so-called "same actor" rule has been adopted by a number of circuits based upon the rationale that it is unlikely that someone who was willing to hire or promote a person of a certain class will then fire the person simply because he or she was a member of that class. See, e.g., Buhrmaster v. Overnite Transp. Co., 61 F.3d 461 (6th Cir. 1995) (strong inference that same person who hires and fires employee was not motivated by unlawful animus); Lowe v. J.B. Hunt Transport, Inc., 963 F.2d 173 (8th Cir. 1992); Proud v. Stone, 945 F.2d 796 (4th Cir. 1991).

H. Confidentiality -- The importance of maintaining the confidentiality of employment information cannot be overstated. Communications to third parties about an employee or the failure to properly safeguard personnel files subject employers to potential liability for defamation. Defamation actions by employees against their employers account for nearly one third of all actions filed.

Defamation generally is defined as a communication of a falsehood that results in an injury to another's reputation. Defamation can be categorized as either "slander" (oral defamation) or "libel" (written defamation). In the employer/employee relationship, the potential for defamation arises whenever the employer communicates information concerning an employee to a third party. For example, an employer often communicates defamatory matter when it conducts performance evaluations, serves as an employment reference, conducts grievance meetings, and investigates accusations of employee misconduct.

Most states recognize that certain communications, even if defamatory, should be privileged. However, privileges vary greatly by state, both as to the extent of protection they provide and as to their very existence. As a general rule, an employer who finds that it must communicate information about an employee to third persons within the organization and/or outside the company should safeguard against defamation suits by:

  1. communicating information only to those persons who have a legitimate interest in the subject matter,
  2. revealing only information that is necessary to meet that need, and, most importantly,
  3. familiarizing itself with the applicable state law regarding privileges.

I. Reductions In Force -- Reductions in force present different risks than normal terminations for the reason that poor performance is generally not an issue, but an employer is selecting among satisfactory employees to be retained. A common RIF case involves the dismissal of an employee in a protected class when another non-protected-class employee is retained. The primary difficulty for most employers is that RIFs are conducted on a rolling and fluid basis, and it oftentimes is quite subjective as to why one employee is terminated and another is retained. The absence of a systematic and documented explanation for employment decisions means that employers oftentimes have difficulty articulating why a particular employee was terminated and another retained.

RIFs are best justified and defended when the need for the RIF is clearly outlined in writing and the basis for the employee decisions also are well documented. Employers should create documentation for RIFs, much as they do for discharge decisions. Except for the largest of RIFs, each RIF-affected employee's file should contain documentation of the basis for why that employee was selected. Documentation for the employee selected for termination also should include a discussion of seniority, skill, experience, and relative performance as compared to employees retained. Consideration of alternatives such as job consolidation, reduced workweek, work sharing, voluntary leaves of absence and early retirement also should be addressed.

J. Conducting the Termination Meeting -- An employer should take all necessary measures to insure that the discharge meeting is conducted in a sensitive and fair manner. In advance, the company should prepare a written separation notice stating the reason for the employee's discharge. The separation notice should articulate the specific reason for the termination. The company should make certain that the reason for the employee's termination can be substantiated. The employer's inability to prove the reason for the discharge understandably makes the reason suspect. At the meeting, the management official conducting the meeting should explain as objectively and unemotionally as possible the reasons behind the company's decision to discharge that employee. A witness also should be present. The termination decision should not come as a surprise to the employee if the company has adhered to its disciplinary program. In any event, the participants should maintain their objectivity and avoid any heated arguments regarding the circumstances of the termination.

Where the termination meeting is conducted in a manner that is highly emotional, the employer subjects itself to potential liability for intentional infliction of emotional distress. Discrimination plaintiffs often include a supplemental state law claim of intentional infliction of emotional distress with their Title VII claims. In most cases, the termination of an employee is generally not extreme or outrageous conduct, and thus does not support a claim for intentional infliction of emotional distress. For example, in Clark v. Coats & Clark, Inc., 990 F.2d 1217 (11th Cir. 1993), the Eleventh Circuit found that an employer's forcing an employee to retire early after thirty-eight years of service without any advance notice did not constitute outrageous conduct, explaining that an employer's termination of an employee, however stressful to an employee, is not generally extreme and outrageous conduct. Likewise, employment disputes and disciplinary actions are generally not considered outrageous conduct sufficient to support a claim for intentional infliction of emotional distress. Badgett v. Northwestern Resources Co., 818 F. Supp. 998 (W.D. Tex. 1993). However, outrageous conduct in connection with a discharge can support a cause of action. A bizarre example of an employer's conduct that was found sufficiently severe to support an emotional distress claim was where the supervisor pointed a gun at the employee's head and threatened to kill him for refusing to sign a termination notice. Herrick v. Quality Hotels, Inns and Resorts, 24 Cal. Rptr. 2d 203 (Cal. Ct. App. 1993).

CONCLUSION

Managers in today's business environment must recognize the importance of familiarizing themselves with the basics of employment law. In the event of a lawsuit resulting from a manager's employment decision, every aspect of that manager's style and ability to handle employees will be examined by higher management, human resources officers, and lawyers during the course of a lawsuit. Poor understanding of basic employment principles and sound disciplinary techniques will, in the event of legal action, likely adversely affect a manager's career. While managers need not be lawyers with respect to their understanding of the law, managers must be able to spot problem issues and must be willing to seek the help of those within the company whose responsibilities encompass personnel matters.