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Legal Issues in RIFs

by Gerard Panaro, BOL Guru

A March Conference Board report said that Americans are now more worried about their jobs than at any time since 1993. The U.S. has lost more than 2 million jobs since March 2001, the worst slump in two decades (Berenson, "Tight U.S. Job Market Adds To Jitters Among Consumers," New York Times, March 01, 2003, Sec. C, p. 1.)


3/17 What`s Legal, What Isn`t; What You Can and Cannot Do at Work


Having to carry out a "reduction in force" (RIF) is difficult enough from a strictly human and economic perspective, and made only more so by the potential discrimination and other claims that "RIFed" employees may bring as a result. This article will discuss three RIF-related legal issues: the legal components of a claim; a RIFed employee's right to unemployment compensation; and a RIFed employee's right to rehire.

Discrimination claims arising from RIFs. In a reduction in force ("RIF") case, the plaintiff's burden is as follows: To make out a prima facie case of discriminatory discharge, a claimant affected by a RIF must prove: (1) that she is within a protected category (sex, race, age, etc.); (2) that she was doing satisfactory work; (3) that she was discharged despite the adequacy of her work; and (4) that there is some evidence the employer intended to discriminate against her in reaching its RIF decision. The fourth element may be established "through circumstantial evidence that the plaintiff was treated less favorably than employees in non-protected groups during the reduction in force. (Bost v. Headco Industries, Inc., 2003 WL 21939020 (D.Kan., 2003) (setting forth elements in the context of an ADEA claim).)

There are three ways that a plaintiff can prove that her RIF was a pretext for discrimination: (1) She may offer evidence that her lay-off is inconsistent with RIF criteria; (2) she may show that her evaluations were deliberately falsified or manipulated; or (3) she may show that the RIF is more "generally pretextual."

In the Bost case, the plaintiff attempted to show that his discharge was inconsistent with the RIF criteria. He did this by presenting evidence that he was a good, or even exceptional, employee who produced large profits for the company. Headco admitted that the plaintiff was a good employee, but justified its decision by the cost of retaining him: he was the second- highest paid employee in his section and had a company car and expense account.

Another issue in the case was whether the plaintiff was "similarly situated" to younger employees who were retained. The company argued he was not, because the plaintiff and the other employees had different supervisors. However, the court decided that because there was evidence suggesting a high level of involvement in all decisions by the same executive.

This case was a motion for summary judgment, so all the court was deciding was that the plaintiff presented enough evidence to avoid having his complaint dismissed. Nonetheless, the case does set forth the legal components of a discrimination claim in the context of a RIF and some of the facts and issues that a RIFed employee may raise to prove his or her claim.

RIFed employees may still be eligible for unemployment compensation. An employee who accepts a voluntary buyout agreement is still eligible for unemployment compensation, a Florida appellate court ruled in reversing a decision of the Florida Unemployment Appeals Commission that denied the employee unemployment benefits (Rodriguez v. Florida Unemployment Appeals Com'n, 2003 WL 21749529 (Fla.App. 3 Dist., 2003)). The issue in the case was whether the employee "had left work without good cause." (If so, she would be ineligible for benefits.)

In 2002, Telemundo Network Group announced pending budget cuts. As part of the cost cutting measure, Telemundo sent certain employees letters explaining the terms of a voluntary buyout agreement. The plaintiff accepted the buyout package and signed the agreement. Two months later, she applied for unemployment benefits which the UAC denied. The buyout agreement stated that it would not interfere with applications for unemployment and those who accepted the buyout would acquire layoff status. The company's HR representatives said that employees accepting the agreement would be considered "laid off" for unemployment purposes.

In reversing the unemployment commission's denial of benefits to the plaintiff, the court quoted the unemployment statute, that it is to be "construed liberally to accomplish its purpose to promote employment security...." (most if not all state unemployment compensation statutes have the same wording) and said that the commission's interpretation was too strict. The court said: "Employers are to be held accountable for their actions and representations to employees, particularly when modifying terms of at-will employment and when seeking participation in voluntary layoffs, buyouts or other company initiated programs."

Discriminatory failure to rehire after RIF.
A company's inconsistent explanations for its decision not to rehire the plaintiff call into question the credibility of its alleged explanation, the Seventh Circuit ruled in Zaccagnini v. Chas. Levy Circulating Co., 2003 WL 21741636 (C.A.7, 2003), thereby reversing the district court's grant of summary judgment to Chas. Levy (CLCC).

The plaintiff, a truck driver, had been discharged in a RIF. He claimed CLCC failed to rehire him because of his age (51). At the time of his layoff, the plaintiff told the VP of operations that he would like to be rehired should the company's need for drivers change. The plaintiff said that the VP told him that if CLCC were in the position to hire drivers in the future, he would rehire him. A few months later, the company's business did improve, and it hired four new drivers, whose ages were 30, 35, 31 and 32.

When the plaintiff complained, he was told that his layoff had been reviewed, the company had the right to recall or not recall drivers, and no laid off driver had been recalled, nor were there any plans to recall any of them. The district court found these to be legitimate, nondiscriminatory reasons not to rehire the plaintiff and so awarded summary judgment to CCLC.

Thus, the company justified its refusal to rehire the plaintiff on its policy of not rehiring laidoff drivers, and that was the explanation it gave when the plaintiff initially sued ("In its initial briefing before the district court and during discovery, CLCC maintained that Zaccagnini was not rehired because the company had a policy not to rehire workers who had been laid off.") However, in replying to the plaintiff's motion for summary judgment, the company said that the reason it did not rehire the plaintiff was because he was not referred to it by the union. ("For the first time in its reply brief at summary judgment, CLCC made clear that it was offering another explanation for its decision not to rehire Zaccagnini: the company has a practice of only hiring drivers through the union and Zaccagnini was not referred by the union.") Moreover, CLCC's own human resources policy explicitly allowed for the rehire of former employees.

Intentional discrimination may be inferred from an employer's untruthfulness, the Seventh Circuit said: "[The plaintiff] argues that CLCC's current argument--that [the plaintiff] was not rehired because he was not referred by the union--is unworthy of credence because CLCC did not rely on this second explanation until its reply brief at summary judgment. We agree." Later, the court was even more explicit: "We find CLCC's reliance on this explanation beginning at such a late date in the proceedings to be 'fishy,' [cit. om.]"

With respect to the VP's alleged statement to rehire the plaintiff, the court of appeals did say: "Although this assurance is not sufficiently concrete to constitute an offer, in combination with other evidence it may indicate some flexibility in the company's rehire policies."

There is one final point in the Zaccagnini case that readers should be aware of: in response to the company's argument that it should win because the plaintiff presented no evidence that his age was a factor in the company's decision, the Seventh Circuit said: "We emphasize that [plaintiff's] failure to bring any evidence regarding age does not defeat his claim per se, the special virtue of the indirect method of proof is that it allows victims of age discrimination to prevail without presenting any evidence that age was a determining factor in the employer's motivation. Holding to the contrary would violate one of the purposes of [age discrimination jurisprudence], which is to permit plaintiffs to recover, even if they are unable to discover evidence of discrimination, simply by proving that the employer's proffered justification is unworthy of credence."

Is Hiring on the Basis of Appearance Illegal?
Abercrombie & Fitch, the clothing raetailer, has recently been in the news for being sued for discrimination. This raises a fundamental question: Can employers hire on the basis of looks?

There is no question that employers cannot hire (or refuse to hire) employees on the basis of sex, race, age, disability and other protected characteristics. At the same time, however, neither is there any question that employers may have and enforce "grooming" (appearance) codes. Further, Title VII itself allows an exception to the rule against discrimination on the basis of sex, race, etc., if the employer can prove that sex, race, etc. is a "bona fide occupational qualification." (BFOQ.) Therefore, while an employer can't hire solely on the basis of appearance, it can take appearance into account.

EEOC regulations.
The EEOC Guidelines on Discrimination Because of Sex state that the "refusal to hire an individual because of the preferences of coworkers, the employer, clients or customers" violates Title VII, unless it is a BFOQ.

The guidelines on national origin discrimination define national origin discrimination "broadly as including, but not limited to, the denial of equal employment opportunity because of an individual's, or his or her ancestor's, place of origin; or because an individual has the physical, cultural or linguistic characteristics of a national origin group." (Emphasis added.) The national origin guidelines likewise recognize a BFOQ exception. In addition to forbidding discrimination on the basis of physical characteristics, the national origin guidelines as state that height and weight requirements will be subject to an adverse impact analysis.

At least one provision of the EEOC age discrimination regulations seems pretty strongly to prohibit hiring on the basis of appearance. Sec. 1625.4(a) of the ADEA regulations says that "When help wanted notices or advertisements contain terms and phrases such as age 25 to 35, young, college student, recent college graduate, boy, girl, or others of a similar nature, such a term or phrase deters the employment of older persons and is a violation of the Act, unless one of the exceptions applies." One of the exceptions is if age is a BFOQ. Whether or not this is the case (age is a BFOQ) is determined on a case-by-case basis.

Finally, the regulations implementing the Americans With Disabilities Act simply and flatly state: "It is unlawful for a covered entity to discriminate on the basis of disability against a qualified individual with a disability." At first glance, the ADA would appear to be no bar to hiring on the basis of appearance: after all, being unattractive or ugly is not a disability. However, this is not the case, for at least two reasons. First, aside from arguably making a person unattractive, obesity is generally a covered disability under the ADA. Therefore, if a plaintiff alleged that s/he was not hired because s/he was obese and her obesity made her unattractive to the employer, s/he could state an ADA claim. Second, the definition of disability includes the perception of disability and an employer certainly could not refuse to hire an applicant, for example, whose disability left him or her disfigured, without risking an ADA suit.

Can appearance ever be a BFOQ?
This precise question does not seem to be addressed in the reported cases (at least none that the author could find). Even the lawsuit against A&F is not premised on discrimination on the basis of appearance: it alleges race and national origin discrimination (and perhaps could also have alleged age discrimination as well). What case law is available seems to establish this principle: discrimination on the basis of appearance alone is not prohibited by Title VII; a plaintiff wishing to challenge the legality of "appearance" discrimination must in some form tie appearance to discrimination on the basis of sex, race, age, disability or some other legally protected characteristic. Of course, if an employer could establish that appearance was a BFOQ, it could also hire on the basis of appearance, without regard to Title VII's prohibitions.

Title VII does not bar "appearance" standards, so long as they are non-discriminatory. This appears to be one of the conclusions that can be drawn from Frank v. United Airlines, Inc., 216 F.3d 845 (C.A.9 (Cal.), 2000), where the court said: "An appearance standard that imposes different but essentially equal burdens on men and women is not disparate treatment." The court even cited a decision holding that an airline can require all flight attendants to wear contacts instead of glasses. (The holding of the case was that United Airlines could not use one set of weight tables for female flight attendants but another for male attendants without violating Title VII, unless it could prove that its use of different standards was a BFOQ.) United failed to make this showing.

Current law makes it clear that an employer cannot hire all white applicants, to the exclusion of African-Americans, Hispanics, Indians, Middle-Easterners, etc. But what if the employer's policy were simply to hire "beautiful" applicants of either sex and any race, age or nationality, but not to hire "ugly," plain, or "unattractive" applicants?

In Latuga v. Hooters, Inc., 1996 WL 164427 (N.D.Ill., 1996), which dealt with Hooters's objections to the certification of the litigation as a >The Craft/Metromedia case. One case presenting an extensive discussion of grooming and appearance standards in the context of Title VII is Craft v. Metromedia, Inc., 766 F.2d 1205 (C.A.8, 1985). Craft arose when the plaintiff, Christine Craft, was reassigned from coanchor to reporter by a tv station in Kansas City, MO (KMBC-TV), as a result of focus group studies and telephone polls which were "overwhelmingly negative" toward the plaintiff.

In reviewing the district court opinion, the court of appeals wrote: "Evidence showed a particular concern with appearance in television; the district court stated that reasonable appearance requirements were 'obviously critical' to KMBC's economic well-being; and even Craft admitted she recognized that television was a visual medium and that on-air personnel would need to wear appropriate clothes and makeup. ... While we believe the record shows an overemphasis by KMBC on appearance, we are not the proper forum in which to debate the relationship between newsgathering and dissemination and considerations of appearance and presentation--i.e., questions of substance versus image--in television journalism." (Emphasis added.)

The courts' analyses in Craft, in effect approving and relying upon focus group and telephone survey results, suggest that employers who wish to base hiring decisions on the appearance (attractiveness) of applicants would be wise to validate such criteria empirically with consumer and market research.

Would the ADA prohibit hiring on the basis of appearance? As noted before, there are no cases holding that being "plain," "unattractive" or downright "ugly" is a disability within the meaning of ADA, protecting job applicants in those categories. However, it is equally clear that disfigurement, for example, due to a disability or obesity are usually held to be disabilities within the meaning of the ADA, and so applicants who were not hired for those reasons could state a claim.

Summary and Conclusion
The above discussion suggests the following:

  • It does not appear to be a violation of federal anti-discrimination law to hire on the basis of looks, attractiveness, personal appearance.
  • However, such a policy may be forbidden by state law (e.g., District of Columbia Human Rights Act: unlawful to hire on the basis of personal appearance).
  • But it does violate federal law to hire on the basis of gender, race, national origin, disability and other protected characteristics.

Therefore, it would appear to follow that if an employer had a policy saying, in effect, "We only hire beautiful people. We will hire people of any gender, race, national origin or disability so long as they meet our standards of attractiveness," that policy would not violate federal law. Moreover, under such a policy, an employer would not have to worry about establishing a BFOQ defense, because it would not be excluding applicants of any gender, race, etc. Probably, however, "unattractiveness" due to an applicant's race would always violate Title VII.

Complications could and certainly would arise, however, if an applicant's "unattractiveness" were based on disability. With respect to a potential disability claim, the criterion is "reasonable accommodation:" that is, can the applicant perform the essential functions of the job with or without reasonable accommodation? So, an employer probably could not establish a "BFOQ" defense to an ADA challenge.

Ask the Expert
Q.
Is there a definition of what constitutes "part time" employment"?

A. No, but there are various federal and state statutes which have a "minimum hours worked" component to define or determine eligibility for coverage or benefits under the statute. Also, certain contracts, such as insurance policies and collective bargaining agreements, may define what is "part time" and "full time" status for eligibility and benefits purposes. Finally, the employer's own policies may define who or what constitutes a "part time" or "full time" employee for various purposes. Generally speaking, it seems to be common that persons who work less than 30 hours a week are considered "part time," but again, it is emphasized that this is a matter of corporate policy and not statute.

Perhaps most importantly, Title VII and other federal anti-discrimination statutes do not have any definition of part-time vs. full-time employment. This is important because only employers with 15 or 20 employees, as the case may be, are covered by Title VII or the age discrimination act. If only full-time employees counted, and if Title VII or the ADEA defined "full time," then an employer with 10 full-time and 10 part-time employees would not be covered. But this is not how Title VII works. In a section on "counting employees" for determining whether or not the employer is covered, the EEOC compliance manual says: "To count employees, determine the number of employees on an employer's payroll; exclude individuals who are not employees, e.g., discharged/former employees or independent contractors. Add to that figure any other individuals who have an employment relationship with the employer, such as temporary or other staffing firm workers." As can be seen, if a person is on the employer's payroll, s/he counts; there is no distinction between full or part-time workers.

To give some examples of other federal statutory provisions, the Fair Labor Standards Act says that if a "nonexempt" employee works more than 40 hours in a single workweek, s/he must be paid overtime for the hours in excess of 40. (A question and answer on the DOL's website asks and answers: [Q] How many hours is full-time employment? How many hours is part-time employment? [A] The Fair Labor Standards Act (FLSA) does not define full-time employment or part-time employment. This is a matter generally to be determined by the employer. Whether an employee is considered full-time or part-time does not change the application of the FLSA.)

The Family and Medical Leave Act says defines an "eligible employee" as one who has been with the employer at least twelve months and has worked at least 1,250 hours in the past twelve months. The Employee Income Retirement and Security Act (ERISA) states that anyone who works at least 1,000 without a break in service in a year is eligible to participate in a pension plan, if s/he otherwise satisfies eligibility criteria.

The Immigration and Nationality Act was amended in 2002 to include a definition of "full-time" employment as a position that requires at least 35 hours of service per week at any time.

There are a number of state wage and hour laws that require breaks after a certain number of hours worked (e.g., a half-hour meal period after six hours; a 15-minute break after four hours), but again, the state doesn't define who or what is a part-time or full-time employee. The Colorado State Personnel Rules, just to cite an example, defines "full time employment" as working 2080 hours for a full year, or at least 80 hours a month for at least eight months per year.

A health insurance contract may define a "full time" employee as one who works 20, 25, 30 or more hours per week; one who works less is "part time." And, of course, collective bargaining agreements may spell out in detail who or what constitutes "part time" work or employment.

As long as it is complying with applicable federal or state statutes where hours worked is a criterion for coverage, an employer may define "part time" and/or "full time" as it wishes.

Summary of Recent Cases and Developments
EEOC settles same-race discrimination complaint.
The EEOC announced on August 07, 2003 that it had settled a "rare color harassment and retaliation lawsuit" against Applebee's, the restaurant chain. The complainant was a dark-skinned African American who alleged discrimination by a light-skinned African American manager. The complainant said he was terminated when he complained to corporate headquarters.

Prior to the lawsuit, Applebee's did not have a written policy in effect at any of its nationwide restaurants prohibiting discrimination based on color. Applebee's now has amended its harassment and discrimination policies to include color as a protected basis in accordance with Title VII.

The EEOC Director in Atlanta, where the case arose, said: "It is equally important that employers realize that 'color' is a separate protected basis under Title VII. Employers violate federal law when they discriminate based on color, including the harassment of employees because of their respective skin colors."

The EEOC said that it has observed an increasing number of color discrimination charge filings at agency field offices across the country. Color bias filings have increased by over 200% since the mid-1990s from 413 in Fiscal Year 1994 to 1,382 in FY 2002. The majority of charge filing last fiscal year were in the Northeast (44%), followed by the West (21%), South (15%), Midwest (12.5%), and Southwest (7.5%).

This case highlights a number of points: 1) it emphasizes that "color" is a protected category separate from race. This is not the first such case: a few years ago, a black female who worked for the IRS successfully sued because her manager, also a black female, harassed her on the basis of color. 2) One's anti-harassment policy, even if it focuses on sex harassment, should also contain a statement that it similarly forbids harassment on the basis of all other protected categories. 3) In addition to being sensitive to color discrimination, employers should also be sensitive to rarer, but no less illegal forms of discrimination involving same-sex harassment (male-on-male and female-on-female) and national origin discrimination (e.g., employee of Chinese national origin harassing employee of Japanese national origin).

Release doesn't cover "willful and wanton" misconduct. A release is invalid as to willful and wanton misconduct, the Court of Appeals of Ohio, Tenth District, held in Peitsmeyer v. Jackson Tp. Bd. of Trustees, 2003 WL 21940713 (Ohio App. 10 Dist., 2003). Future liability exists if the alleged conduct involves intentional, reckless, willful or wanton misconduct.

The plaintiff was an assistant fire chief. As a result of an employment dispute, he entered into a settlement agreement and release ("release") with the township, under which he received approximately $70,000. He agreed to resign and to release all claims against the town. At the time of signing, he was told that he would have time to gather his office belongings but while he was packing them, his wife called and he left on a personal emergency. While at home, his belongings were delivered to his house. When he went back to the fire station, he discovered that someone had gone into his locked office and unlocked his desk drawer and locker, and discarded some of his personal belongings, including sensitive personal documents dealing with his son's legal problems. Some things were thrown away. He was forced to sort through his personal items in front of other firefighters on a folding table and had to retrieve a trash bag containing personal items from a trash container. Further, various Vietnam War mementos were thrown away which he was unable to find.

Three years later, the plaintiff sued the township for retaliation, invasion of privacy, violation of public policy, intentional infliction of emotional distress, bad faith breach of contract and conversion. In the meantime, he had kept the $70,000. The town defended on the basis of the release.

The court of appeals stated the legal principles governing releases as follows: Generally, a release of a cause of action is an absolute bar to a later action on any claim "encompassed" within the release. Where a party has taken and kept the benefits of an agreement of compromise and settlement, s/he will not be allowed to assert any claim that was released by the agreement. A release is a contract and, as such, the overriding consideration in interpreting a release is to ascertain the intent of the parties, which intent is presumed to reside in the language the parties chose to employ in the agreement. A court will not resort to extrinsic evidence unless the language is unclear or ambiguous.

Ohio law is equally clear, however, the court went on, that a release is invalid as to "willful and wanton misconduct." In this case, the court went on, there was no need to address the question of the parties' intent because the release at issue did not bar the plaintiff's claims, because he alleged willful and intentional misconduct on the part of the township. (Ironically, despite the plaintiff's success on his challenge to the release, the court ruled in favor of the township on each of his individual claims and the court of appeals affirmed.)

"Mistake or misunderstanding" is not a defense to an ADA suit. Brown v. Lopez, 2003 WL 21918587 (Tex.App.-San Antonio, 2003), involved a blind plaintiff who took his service animal into a restaurant. A waitress told him that dogs were not allowed in the restaurant. The plaintiff attempted to show the waitress an identification card establishing his claims. Although the waitress looked at the card, she did not read it and instead went to the kitchen and, without explaining either that the plaintiff was blind or that the dog was a service animal, she asked the cook and manager of the restaurant simply whether dogs were allowed in the restaurant. Without looking out of or leaving the kitchen, one of the owners responded that dogs were not allowed. When the waitress conveyed the message to the plaintiff, he asked to speak with a manager. He was not allowed to do so and thus left with his dog and the rest of his party.

The plaintiff sued under the ADA. The owners of the restaurant did not argue that it was not a place of public accommodation or that they were not responsible for the actions of their employees. Rather, they argued that they were not liable under the ADA because the incident was a mistake because the waitress did not tell them that the plaintiff was blind and the dog was a service animal. The court of appeals rejected this defense. "The ADA encompasses not only intentional discrimination but also the discriminatory effects of 'benign neglect, apathy, and indifference,'" the court explained. "The failure to accommodate constitutes discrimination and a violation of the ADA even when the failure to reasonably accommodate a disabled person is due only to neglect or indifference." The appellate court made a final point that is important for employers to be aware of: it faulted the restaurant for not having any polices or procedures for accommodating disabled customers and for not training its employees on compliance with the ADA. Before this incident, the court noted, the issue of serving disabled customers had never been discussed by the owners with its employees. "It is thus not surprising that the waitress did not relay to Lopez [a manager] that Brown is blind and the dog is a service dog; she was not trained to do so."

Employer can't compel arbitration. Employees continue to challenge compulsory arbitration agreements, at least in the context of discrimination claims, and continue to succeed on a regular basis, as Fontaine v. Weekly Homes, L.P., Tenn.Ct.App., 2003 (Westlaw) demonstrates. If employers are interested in having arbitration as an alternative to litigation, then they should find some way to get employees to accept arbitration voluntarily, instead of trying to compel it. Otherwise, they cannot be very confident that the arbitration agreement will be upheld.

The issue in the Fontaine case was whether an arbitration clause in an employee handbook that could be changed at will by the employer and that had an employment at will policy could be binding on employees. The Tennessee Court of Appeals held that it could not.

The plaintiff sued Weekly Homes for assault and violations of the Tennessee Human Rights Act. Weekly Homes moved to compel arbitration; the court denied the motion and Weekly appealled; the court of appeals affirmed. Weekly Homes argued that provisions contained in its 'Team Member Handbook" constituted a contract between the parties to submit claims or disputes between them to binding arbitration. It also argued that the plaintiff's signature acknowledging receipt of the handbook evidenced her intent to be bound to its dispute resolution procedures. The courts disagreed.

All that the "acknowledgement&#3

First published on 02/23/2004

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