The Biden Administration recently announced increased coordination between EEOC, the US DOL and the NLRB to strengthen an intra-agency approach focused on combatting unlawful workplace retaliation.  The approach will raise awareness and engage not only workers and the public, but also other key stakeholders, including employers.

Given the Administration’s focus, employers should anticipate aggressive coordination and joint enforcement efforts which will take advantage of the full range of resources and tools available within the government as the agencies work to secure workers’ rights because workplace experience issues in multiple, intersecting dimensions of their employment may not be completely covered by any single agency’s jurisdiction.

Prudent employers want to do the right thing – prevent retaliatory actions and behavior in their workplace.  But, acknowledging human nature, we know that the impulse to “get even” exists.  What can be done to show that an employer has taken every reasonable measure to mitigate the risks of a “bad actor” creating legal and brand risk for the organization?

Several practical steps exist, each of which must be tailored to suit the organization, ranging from the most benign, to the most severe approach.  Some of those steps include:

  • Put in place a written, widely circulated and easily understood – in layperson’s language – policy prohibiting retaliation.
  • Distribute the policy both to new hires when onboarding, and to incumbent employees at every level within the organization.  Senior-level leaders absolutely must consistently show that the policy applies to all within the organization, including to themselves.
  • Make clear that the policy applies to all employees, is linked directly to the organization’s values, and that violations will be dealt with sharply and consistently.
  • The policy should appear in the organization’s practices and procedures manual, handbooks and code of business ethics.
  • Require signed acknowledgments of receipt and understanding should be maintained and should be renewed/revisited annually.
  • Evaluate the risk attached to mid- and senior-level leaders, and influential individual contributors who may become the focus of claims or an investigation, and in the event of a claim, make clear that the burden of persuasion will fall on them individually or jointly to show that they played no part in any retaliatory behavior.
  • Make clear to all complainants and cooperating witnesses that the organization needs to hear about any concern that the individual might view as hostile within their work environment, and put in place routine, periodic, and systematic check-in’s to be certain that no complainant or witness has been subjected to retaliatory or unfair treatment.
  • Put in place a close, arm’s length review protocol for any employment actions affecting any complainant or witness prior to execution of any employment action using decisionmakers who played no role in and ideally are ignorant of the underlying claims.
  • Where heightened risk warrants doing so with senior-level leaders, in the event of a claim, present senior leaders with mandatory alternatives of [i] accepting a paid leave of absence until resolution, or [ii] remaining in role and entering into an agreement that allows for “Detrimental Conduct”-based claw back of compensation, with warning that finding of retaliatory conduct will result in termination for “Cause”, and ineligibility for rehire.
  • As permitted by law, consider a fee-shifting agreement under which an individual credibly accused of and determined by the organization to have engaged in retaliatory behavior or conduct, is in any action brought against the organization by the target or by a regulatory agency, responsible for payment to the organization’s defense costs.

There are more practical and effective solutions.  We can help you find them.  If you have any questions, please speak with a Jackson Lewis attorney.

As companies plan and strategize about next steps regarding the  “S” of ESG, i.e., Social initiatives, we are often asked about best practices in promoting Diversity, Equity, and Inclusion (DEI)  goals in the workplace.   Companies increasingly are seeking to tie compensation to DEI goals. Doing so demonstrates the company’s commitment to DEI, and rewards positive efforts. Of course, as any prudent lawyer would say, one needs to tread carefully and understand the path chosen.  Jackson Lewis principal Michael Hatcher, who regularly counsels employers in this area, advises that companies need to be careful not to tie compensation to any specific “hire” or “promotion” decision.   Such a practice could lead to claims that the company is incentivizing unlawful race/gender-based employment decisions, despite a laudable goal.

Instead, there are a variety of ways to carefully design a lawful compensation strategy to minimize exposure to litigation.  Such programs typically take into account the “big picture” of what the company is trying to achieve, rather than tie awards to “numbers.” Accordingly, Hatcher recommends relying upon a broader array of factors when creating the appropriate compensation program. Examples include, but are not limited to:

  • Manager evaluations, where the company can develop concrete examples that would be applied across the board, such as attendance at implicit bias training or actively mentoring others across racial, gender, or other boundaries.
  • Team-approach to bonuses, where for example, a particular level of company leadership is eligible to receive the reward based upon “team performance,” not individual effort, against appropriate benchmarks.  Benchmarks are typically goals a company strives for in their DEI efforts, and they need to be carefully crafted to avoid claims of bias.

The strong support of DEI initiatives by leadership and corporate culture play an important role in developing and carrying out these programs. 

Once the appropriate incentive program is developed, careful communication, both internal and external, will be paramount to its success. Internal communications will help educate and train stakeholders on the company’s DEI’s initiatives, as well as the limitations imposed by laws such as Title VII’s prohibition against discrimination, which includes so-called “reverse discrimination” against whites and men.  External communications can help enhance the success of the company’s DEI efforts.  Training to reinforce what company management can do to lawfully promote DEI initiatives within the bounds of antidiscrimination laws should be complemented by a strong communications program.

As this remains an evolving area, it is always important to seek legal counsel before tying compensation to DEI goals.  Please contact the Jackson Lewis attorney you regularly work with if you have any questions.

Introduction

Picture this: you are on-site at a new client’s headquarters for a weeklong hostile work environment investigation into several internal complaints made against the CEO and CFO. This is the first engagement for the client so you want to do as comprehensive a job as possible to leave a positive first impression (which will hopefully also lead to significant additional work). Importantly, your recommendations at the conclusion may lead to terminations, as well as subsequent lawsuits from either the purported victims and/or the terminated executives. There’s clearly a lot at stake here.

As of now, you have at least 15 witnesses to interview, but there will likely be many more that organically grow out of the investigation, which often happens. As you start your marathon of interviews and feverishly jot down every pertinent word the witnesses tell you, you can rest assured that future opposing counsel, jurors, and plaintiffs will never see your notes, right? Certainly, they would never be turned over in discovery or become a deposition or trial exhibit, would they? Well, as the typical lawyer response goes – it depends.

Attorney Work Product Doctrine

The basic rule, largely codified in Federal Rule of Civil Procedure 26(b)(3), is that the attorney work product doctrine generally prohibits the discoverability of materials an adversary prepares in “anticipation of litigation”. This makes sense considering the doctrine aims to provide lawyers with the privacy we need to think, plan, weigh facts and evidence, candidly assess a client’s case, and devise legal theories.

There are two types of work product: fact or “non-core,” which contains factual information resulting from a factual investigation; and “opinion,” which includes the lawyer’s mental impressions, conclusions, opinions, or legal theories. The latter receives virtually absolute protection and is typically discoverable only when a party shows “extraordinary justification.”  Conversely, fact work product may be discoverable if it (1) contains only non-privileged facts, and (2) the requesting party satisfies the substantial need and undue hardship elements.

Facts and Opinions Intertwined: Are My Notes Discoverable?

You might be wondering, “What happens if my notes contain both facts and my opinions?” In that scenario, a court must privately examine whether the facts may be disclosed in a redacted version without revealing your opinions.  Notably, at least one court has stated that “where the factual and opinion work product are so intertwined . . . that it is impossible to segregate and disclose the purely factual part,” the document should be protected as opinion work product.  While this isn’t the law of the land, it’s important to periodically review your note-taking as you conduct witness interviews.

Conclusion

Let’s return to your investigation of the client’s CEO. If you are taking down contemporaneous notes of a witness’ recollection and/or responses to questioning  – without including your opinions, these factual notes are likely discoverable. However, if a court determines that the facts are sufficiently intertwined with your opinions, mental impression, etc. (i.e., a statement such as “this witness is being inconsistent and would not be credible during deposition or trial)  such that it’s impossible to separate the two, then the attorney work product doctrine would likely protect your notes from disclosure. At the same time, however, one state’s Supreme Court (North Carolina) has recently held that some communications between an attorney and client regarding an internal investigation may not be privileged if those communications reflect “business” advice as opposed to “legal advice.” As one can see, note-taking and navigating legal privilege is both an art and a skill.

A recent Seventh Circuit decision interpreting Illinois law affirmed the district court’s ruling that an employee’s refusal to engage in activity illegal in New York, but not in Illinois, was neither protected under the Illinois Whistleblower Act (“IWA”) nor under a common-law retaliatory discharge theory.

In Perez v. Staples Contract & Commercial, LLC, Perez, a sales representative with a documented history of poor performance, worked on an account that involved the sale of laundry detergent in New York.    The supplier recommended a product, but later warned that its sale in New York was illegal due to its chemical makeup.  Perez advised his supervisor that he did not feel comfortable selling an illegal product, and his supervisor told him he would “take care of it.”  Perez was terminated a few months later for poor sales production.

Perez then sued, alleging various claims including: (1) retaliation under the IWA; and (2) common-law retaliatory discharge.  The district court ruled that the New York regulation prohibiting the sale of products containing the chemical did not trigger an IWA retaliatory discharge claim.  Rather, such a claim arises only when a “clearly established policy of Illinois” is at issue.  Further, the district court found no genuine issue of material fact as to whether Perez had participated in any protected activity under the IWA, as well as insufficient evidence of retaliatory motive to defeat summary judgment.

The Seventh Circuit affirmed the district court’s summary judgment ruling, holding that Perez did not engage in a protected activity.  First, under the IWA, “an employer may not retaliate against an employee for refusing to participate in an activity that would result in a violation of a State or federal law, rule, or regulation.”  740 ILCS 174/20.  There are two aspects to such a claim: (1) the refusal to participate; and (2) the violation of a statute, rule, or regulation.  There was no dispute that the detergent’s sale in New York violated a New York state regulation.  However, Perez’s whistleblower claim did not involve “Illinois” law, as required by the use of the term “State” in the IWA, which refers to Illinois, not any other state such as New York.  Since the sale of the product did not violate Illinois law, Perez’s actions were not protected.

Second, Illinois common law prohibits an employer from terminating an employee if the termination violates a clear mandate of public policy.  A clear mandate is something that “strikes at the heart of a citizen’s social rights, duties, and responsibilities.”  Palmateer v. Int’l Harvester Co., 421 N.E.2d 876, 878-79 (Ill. 1981).  Perez argued that Illinois environmental law also regulates the sale of detergents, so it is a matter of public policy in Illinois.  However, the Seventh Circuit rejected this contention, because “there is no analog to the New York regulation within the Illinois statutory and regulatory regime.”  Consequently, Perez’s termination did not violate a clear mandate of public policy, because refusing to violate New York environmental law “did not implicate any interest related to ‘a social duty or responsibility’ or the ‘health and welfare’ of Illinois citizens.”  And, the Seventh Circuit noted, that even if the district court’s reasoning was not correct, there was still insufficient evidence to support an inference of a retaliatory motive given that Perez had a track record of failing to meet performance expectations.

In April, a Los Angeles Superior Court held that Assembly Bill (AB) 979 which required publicly-held corporations headquartered in California to diversify by adding “underrepresented communities” to their board of directors, was unconstitutional. On May 13, 2022, a second Los Angeles Superior Court found Senate Bill (SB) 826, which required gender diversity on the boards of directors of publicly-held corporations, was also unconstitutional. (Read full blog here)

A phrase first coined in 2005, environmental, social, and corporate governance (“ESG”) is making headlines.   ESG is a lens applied by investors to evaluate the extent to which corporations function with respect to a variety of pro-social goals.  The term “ESG” is often used interchangeably with terms like “sustainable investing” or “socially responsible investing.”  Both institutional and individual investors have been vocal about the importance of these principles in investment decisions, as well as their interest in increased transparency over a variety of non-financial metrics.

Recently, the Securities and Exchange Commission (SEC) has indicated its intent to flex its rulemaking muscle to standardize ESG metrics that, under past administrations, had been voluntary.  These proposed rule changes could drastically increase the level of required transparency for management and board rooms of publicly traded companies.

While past administrations have taken a hands-off approach towards regulating ESG disclosure, the current SEC has announced an intent to incorporate ESG metrics into a regulatory framework for all publicly traded companies to standardize what otherwise have been varied data reporting.

On March 21, 2022, the SEC proposed rules regarding the “E” category of ESG that may inform what employers can expect to be instituted on the other categories.  The proposed rule changes would require corporations registered with the SEC to disclose information about greenhouse gas emissions, as well as the corporation’s identification of exogenous climate related risks (such as severe weather and rising temperatures), their risk management strategies, and the predicted impact such climate events could have on their bottom line.[1]

With this increased structure put in place for climate-related disclosure, publicly traded companies are wondering if more detailed disclosures on their social and governance metrics are next.  Publicly traded companies are already required to provide information regarding “human capital” on their form 10-K reports, without a standardized disclosure requirement. The SEC directed corporations to describe their human capital resources in their 10-Ks “to the extent material to the understanding of that registrant’s business taken as a whole,” including any measures “that address the development, attraction and retention of personnel.”  A survey from Financial Executives International surveyed the 10-K reports of 150 companies from the S&P 500, and determined that these human capital disclosures ranged from a single paragraph to three full pages, and that there was little uniformity in what information was included.[2] While some corporations chose to include information like metrics regarding gender pay equity and diversity, equity, and inclusion initiatives, others focused on metrics like COVID-19 relief, remote work availability, and employee benefits. Without standardized requirements, corporations could include as much or as little data as they want.

SEC leadership has suggested that the agency could eventually require information on employee compensation, benefits, safety, and even workforce demographics as part of human capital disclosures.  With new rulemaking on the horizon, publicly traded companies will be keeping an eye on exactly what statistics they will be required to provide, and how their disclosures will impact the perception of shareholders.

In future blog posts, Jackson Lewis will provide other insight into ESG and potential requirements.

 

[1] https://www.sec.gov/news/press-release/2022-46

[2] https://www.financialexecutives.org/FEI-Daily/May-2021/The-SEC%E2%80%99s-New-Human-Capital-Disclosures-Year-1.aspx

On April 6, 2022, Minnesota’s Supreme Court in Lori Dowling Hanson v. State of Minnesota, Department of Natural Resources affirmed the lower courts’ summary dismissal of a Minnesota Whistleblower Act (“MWA”) claim brought by a former Department of Natural Resources (“DNR”) employee Lori Dowling Hanson (“Hanson”). The case left unanswered the fate of McDonnell Douglas in MWA claims.

On August 14, 2017, Hanson, a DNR regional director, attended a work-related conference, staying at a hotel on an Indian Reservation in her region. At times during the day, she heard a crying baby in a neighboring hotel room and became concerned. Hanson reported her concern to the hotel. Shortly after, she talked to two men in the hallway who she believed were “johns or pimps.”

Hotel security arrived, calling 911 to report Hanson’s concerns. As an officer from the Bureau of Indian Affairs (“BIA”) was dispatched to the hotel, hotel security entered the neighboring room and talked to its occupants—a woman, three children, and a teething infant. Hotel security confirmed the room occupants were safe and secure.

Hanson insisted on talking with law enforcement and called 911 herself. She identified herself as a “state official,” asked for “safe escort,” and stated she was “barricaded” inside because she “stumbled upon” a prostitution ring. She demanded state law enforcement, not BIA, respond to the hotel to provide her a “safe exit.”

Thereafter, hotel management asked Hanson to leave. She became angry, refused to leave, and asked for a DNR conservation officer to respond to the hotel. She then called a high-ranking DNR official and reported she suspected child neglect and a prostitution ring were occurring at the hotel. The DNR official sent over a conservation officer. With the assistance of state law enforcement, Hanson left the hotel.

On September 25, 2017, following paid investigatory leave, the DNR terminated Hanson for her conduct during her report of suspected illegal activity, not because of her report. She sued alleging a MWA violation.

The Minnesota Court of Appeals upheld the trial court’s summary judgment in favor of the DNR. The Minnesota Supreme Court, utilizing McDonnell Douglas, held Hanson did not provide evidence that her report of suspected child neglect and a prostitution ring motivated the termination decision. The Court held the record demonstrated the DNR terminated Hanson because of her conduct during her report, not her report itself. The Court reasoned her conduct constituted an intervening event that severed any reasonable inference of a temporal connection between the alleged protected activity and termination.

Having a potentially broader impact, the Court declined to address whether Minnesota should abandon the McDonnell Douglas framework in MWA cases. As part of her appeal, Hanson asked the Court to replace McDonnell Douglas with a standard derived from model jury instructions “that focuses on whether the whistleblowing activity ‘was a motivating factor’ or ‘played a part’ in the adverse employment action.” The Court declined, holding the outcome was the same under either standard.

In a first of its kind, a concurring opinion held Minnesota should replace McDonnell Douglas in MWA cases with the Rule 56 standard. The concurring opinion reasoned McDonnell Douglas should be abandoned because it is cumbersome and obsolete, and the Court never previously analyzed whether it was the proper test in MWA cases.

At the onset of COVID in 2020, the Wall Street Journal reported that over a three-month period, there were a deluge of tips, complaints and possible referrals to the U.S. Securities and Exchange Commission (“SEC”). More recently, the SEC has reported record whistleblower awards. And although the extent to which remote work has contributed to these statistics can be debated, these trends and the continued popularity of remote work create an opportunity for employers to reassess internal reporting processes and their compliance culture.

Employers should have effective and accessible reporting mechanisms, including anonymous reporting, so that remote employees can report concerns of every kind. Factors to consider include:

  • Adequate staffing and resources to handle complaints received in a prompt and adequate manner, including documentation of the complaint, response, and closure;
  • Ensuring follow up with complaining employees to ensure reporters understand their concerns have been reviewed and addressed;
  • Reviewing codes of conduct to ensure consideration of the remote work environment;
  • Top-down messaging about important compliance values;
  • Reviewing business practices to evaluate compliance gaps and opportunities for misconduct created by remote and hybrid work; and
  • Ensuring investigations can be conducted virtually as needed with appropriate privacy and confidentiality safeguards in place.

Employers should also create a culture of trust so individuals will report concerns. A low volume of internal reporting may indicate a lack of trust, while a high volume may indicate a healthier compliance culture.

Creating a culture of trust may be a particular challenge for some companies as they re-engage with workers who have been virtual for two years since the outset of the pandemic. Strategies include:

  • Providing more information to employees about key company events, including financial condition, to create a greater sense of security in or awareness about their positions. Transparency breeds trust.
  • Ensuring that remote employees are not feeling intimidated. Communication styles have changed. Employees may feel uncomfortable, for example, when managers hold one-sided meetings, e., only the employee is on camera and/or the frequency of employee/manager communications may have changed. Tweaks in management style in this “new” environment may be required to build and maintain trust.

In sum, a prudent employer keeps a pulse on the challenges of the remote work environment by re-assessing the effectiveness of its reporting process and evaluating its culture. A smart employer then takes positive action.

On September 30, 2020, Governor Newsom signed Assembly Bill (AB) 979, which required publicly held corporations headquartered in California to diversify their boards of directors with directors from “underrepresented communities” by December 31, 2021. AB 979 followed similar legislation in Senate Bill (SB) 826, which required gender diversity on boards of directors. Read more here.

Building on board gender diversity requirements, California passed Assembly Bill (AB) 979 in 2020.  This statute requires publicly held corporations headquartered in California to diversify their boards of directors with directors from “underrepresented communities,” specifically those individuals who self-identify as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender. AB 979 required boards to diversify by December 31, 2021.

Starting this year in March, the California Secretary of State will publish annual reports on its website documenting compliance with these diversification requirements. Companies that fail to timely comply will be fined $100,000 for the first violation and $300,000 for subsequent violations.

AB 979 has faced several legal challenges, similar to Senate Bill (SB) 826, which required gender diversity on boards of directors. The State of California is currently defending four different actions involving these bills. Crest v. Padilla I (Crest I) is a taxpayer lawsuit challenging the use of state taxes to enforce the requirements under SB 826. Crest I is currently pending a verdict in the trial court. A taxpayer challenge to AB 979 was brought by the same parties (Crest v. Padilla II) and is scheduled for trial in May of this year.

Meland v. Weber is an action seeking to enjoin enforcement of SB 826 is pending appeal in the 9th circuit after a denial of a preliminary injunction in that action.

And finally, an action was brought by Alliance for Fair Board Recruitment against the California Secretary of State challenging both SB 826 and AB 979 on equal protection grounds. The State of California recently filed a motion to stay the action pending outcomes of the trials in Crest I and II and the appeal in Meland.

If you have questions regarding compliance with AB 979 or SB 826 or related issues regarding corporate compliance, contact a Jackson Lewis attorney to discuss.