Surprising Challenges Employers May Face

Running a business is complex. With employment-related claims and lawsuits on the rise, management must have a basic understanding of numerous federal, state and local laws. Here are three cases that illustrate some employer liability trends.

Case 1. Giving a positive reference could cost millions. This court case, involving reference checks about a drug-addicted physician, reminds employers of the risks of recommending former employees and associates.

Facts of the case: A licensed anesthesiologist was a shareholder in a medical practice, which exclusively provided anesthesia services to a local hospital. After an investigation, the doctor's partners found he was abusing the drug Demerol. Eventually, the hospital stopped allowing the physician to practice there and the medical practice partners fired him.

The termination letter the partners gave the doctor stated: "...you have reported to work in an impaired physical, mental, and emotional state. Your impaired condition has prevented you from properly performing your duties and puts our patients at significant risk..."

A few months later, the doctor applied for a job at a facility in another state. The facility initiated a background check, including examining referral letters provided from the medical practice and hospital where the doctor previously practiced.

Letters from two former partners stated, according to court documents, that the doctor "was an excellent anesthesiologist" ... "recommend him highly" ... and that he is sure to be "an asset to [future employer's] anesthesia service."

The hospital's response to a questionnaire from the facility about the doctor was brief: "Our records indicate that (he) was on the Active Medical Staff ... in the field of Anesthesiology from March 04, 1997 through September 04, 2001."

The medical facility hired the doctor and a short time later, problems developed. In one incident, one of the doctor's patients was severely injured. The court noted the doctor later admitted to the facility's staff "that he had been diverting and using Demerol...and that he had become addicted ..."

The injured patient's family sued the doctor and the facility in cases that were settled.

The facility and its insurer then filed suit against the doctor's former medical practice, partners, and the hospital charging "intentional misrepresentation, negligent misrepresentation, strict responsibility misrepresentation, and general negligence." A jury awarded the facility and the insurer $8.24 million.

In U.S. Appeals Court, a two-part decision was recently handed down. The court — based on state law — found the hospital was justified in providing a "name, rank, and serial number" reference letter. In other words, it gave limited factual information about employment. The court exonerated the hospital because it had no affirmative duty to disclose negative information about the doctor.

However, the court upheld the jury's decision against the medical practice because of the partners' misleading letters about the doctor, stating: "The defendants owed a duty to (the facility) to avoid affirmative misrepresentation in the referral letters. In the state, 'although a party may keep absolute silence and violate no rule of law or equity,...if he volunteers to speak and to convey information which may influence the conduct of another party, he is bound to [disclose] the whole truth." (Kadlec Medical Center v. Lakeview Anesthesia Associates and Lakeview Medical Center)

Lesson for Employers: Although this case involves Louisiana state law, its results are an alert to employers. It highlights the importance of knowing how state law and state court decisions treat the obligations and liabilities of providing information and references on former employees and associates.

Case 2. Hiring and promoting one gender over another is illegal. A Texas restaurant chain paid $1 million and furnished remedial relief to settle a sex discrimination lawsuit filed by the EEOC. The EEOC had charged the chain with discriminating against a class of male applicants and employees.

The EEOC charged that the chain refused to hire or promote men to the position of bartender in its restaurants. The chain had a plan for an 80-20 ratio of women to men behind the bar, according to the EEOC. Men who worked as servers at the restaurants were generally denied promotion to bartender because of their gender. The few men who were promoted to bartender weren't allowed to work lucrative "girls-only" bartending events. The case was settled before going to trial. (EEOC v. Razzoo's, Civil Action No. 3:05-CV-0562-P, Northern District of Texas, Dallas Division).

Lesson for Employers: Explained Suzanne M. Anderson, EEOC supervisory trial attorney and lead counsel on the lawsuit: The chain's "decision to hire and promote by gender is a clear violation of federal law. A hiring ratio is illegal whether it is 80-20 whites to blacks or 80-20 women to men."

Case 3. Allowing any type of music to be played on the job can create a hostile work environment. A Silicon Valley manufacturer of semiconductor production equipment had to pay $168,000 to settle a racial harassment and retaliation lawsuit brought by the EEOC.

The EEOC charged the company with subjecting an African American employee to racial harassment after a co-worker played and "rapped" out loud to music lyrics that included anti-black racial epithets.

The employee complained several times to his supervisors that the language was offensive to him. The EEOC's lawsuit charged that delaying effective corrective action by more than half a year constitutes unlawful harassment, and that Cooke was fired in retaliation for his earlier complaints.

While the employer denied liability and admitted no wrongdoing, it agreed to incorporate a "Statement of Zero-Tolerance Policy and Equality Objectives" in employment policies. Additionally, the manufacturer agreed to amend its policies to refer specifically to harassment through the playing of music, and to include offensive musical lyrics in its examples of racial harassment.

Lesson for Employers: The EEOC's attorney noted that employers must respond promptly after being put on notice of racially offensive language or conduct in the workplace.

These three issues are just a sample of the challenges facing employers today. Consult with an experienced attorney to help protect your company from current and future risks.