Developments in Tennessee, Alabama, and Federal Employment Law

Effective July 1, 2014, a new law (T.C.A. § 29-39-104) changes the exposure for Tennessee employers subject to the Tennessee Human Rights Act (“THRA”) and the Tennessee Public Protection Act (“TPPA”). The law limits compensatory damages in discrimination suits, eliminates the common law claim of retaliatory discharge, changes the proof necessary for whistleblower claims, and precludes individual liability of supervisors or agents of the employer.

Most significant under the new law is a series of caps on compensatory damages that limit the right of an employee’s recovery for future losses and other nonpecuniary losses under the THRA and the TPPA. Previously, employees who pursued discrimination claims under Tennessee state law could seek unlimited compensatory damages, i.e. claims for monetary damages for emotional distress, humiliation, and other emotional and physical claims. Based upon an employer’s size, the new limits on compensatory damages are as follows:

Number of EmployeesCap on Compensatory Damages 8 – 14* $25,000 15 – 100 $50,000 101 – 200 $100,000 201 – 500 $200,000 501 or more $300,000

*Employers must have 8 or more employees to be covered by the THRA and the Tennessee Disability Law but not the TPPA.

Punitive damages are not available under Tennessee law for discrimination claims. However, successful employees can recover back pay, attorney’s fees, interest, front pay, and equitable relief, which are not capped.

The new law also changes the proof necessary to prevail in a whistleblower action. To maintain a whistleblower claim, the employee who claims to have been retaliated against for “blowing the whistle” on an employer’s alleged illegal activities must make that complaint to someone outside of the company. Furthermore, the individual must prove that the reporting of the illegal activities was the sole reason for his termination. Claims under this provision are also subject to the caps.

Finally, this new law also

• eliminates the common law action for retaliatory discharge;
• removes individual liability for a supervisor or agent of the employer who is accused of acting in a discriminatory manner against the employee (Prior to the new law, a manager or supervisor could be sued individually and held liable if he or she acted in a discriminatory manner or aided the discriminatory action against an employee.); and
• prohibits an employee from bringing simultaneous claims in both state and federal court where the claims are based upon the same operative facts and requires the state court to dismiss the duplicative state court action.

This law is a welcome change for employers, especially the limit on the amount of damages that can be asserted under the subjective standard of compensatory damages.

U.S. Supreme Court Reverses Eleventh Circuit Decision in Public Employee’s Whistleblower Claim and Reinforces First Amendment Protection

On June 19, 2014, the United States Supreme Court issued a unanimous decision in the case of Lane v. Franks, et al., protecting public sector employees from retaliation for testifying truthfully on matters of public corruption. The decision held that a community college worker who was fired after testifying against a former state senator in a criminal fraud case was protected by the First Amendment, but that the college president who terminated the employee was protected by qualified immunity from retaliation claims. Edward Lane, Director of the program for at-risk children at Central Alabama Community College, testified in a federal court fraud case brought against numerous defendants, including former Alabama State Senator Suzanne Schmitz. Lane accused Senator Schmitz of arranging and concealing a “no-show job” for herself at the community youth program. Upon assumption of his position Lane discovered that Schmitz was on the payroll but not showing up for work. Subsequently, Lane terminated Schmitz. Shortly after testifying against Schmitz in the fraud trial, then Central Alabama Community College President, Steve Franks, terminated Lane. Lane filed a lawsuit claiming that the termination was in retaliation for his testimony and in violation of his First Amendment Rights. The trial court held that Lane’s speech was part of his official job duties and thus was not protected by the First Amendment and was not made as a citizen on a “matter of public concern.” In reversing the trial court’s ruling, the Court found that the First Amendment protected Lane from retaliation based on his testimony against former Senator Schmitz. Writing for the majority, Justice Sotomayor explained: “Truthful testimony under oath by a public employee outside the scope of his ordinary job duties is speech as a citizen for First Amendment purposes. That is so even when the testimony relates to his public employment or concerns information learned during that employment.”

The case was part of a broader corruption scandal in Alabama’s two-year community college system, which subsequently led to the Alabama State Legislature enacting comprehensive ethics reform and federal prosecutors bringing criminal charges against 18 people in the wake of the corruption scandal. The decision bears significance primarily to public sector employees where First Amendment rights associated with public employment are commonly recognized.

Developments around the Federal Circuit Courts of Appeal

1. Religious Discrimination

Telfairs v. Federal Express Corporation is a decision by the U.S. Court of Appeals for the Eleventh Circuit, where the Court ruled in favor of two employees’ claims for religious discrimination and failure to accommodate their religious beliefs. Garrett and Travis Telfair were practicing Jehovah’s witnesses. After a scheduling change in 2009 impacted their work as part-time couriers, they advised FedEx that they could not work Saturdays because of their religious obligations and offered to work Tuesday-through-Friday schedules. FedEx denied the Telfairs’ request to continue working as couriers with Saturdays off, but offered them handler positions with reductions in pay. The Telfairs declined the handler positions and, pursuant to FedEx policy, were placed on 90-day leaves of absence that allowed them to seek other positions. The Telfairs did not apply for any open positions, and they were deemed to have resigned after expiration of the 90-day leave.

The Telfairs filed discrimination claims under the Florida Civil Rights Act (“FCRA”), arguing that FedEx failed to accommodate their religious beliefs by not allowing them to have Saturdays off and to continue their employment as couriers, and that their subsequent “resignation” was a constructive discharge. The trial court ruled that FedEx had satisfied its obligation to offer reasonable accommodation by allowing them to transfer to other open positions that would not have conflicted with the Saturday religious observance. The FCRA, like federal law, makes it unlawful for employers to discharge or discriminate against employees with respect to their terms and conditions of employment because of their religion.

To prevail, the Telfairs had to prove that they had a bonafide religious belief that conflicted with the employment requirement, that they informed the employer of their beliefs, and that they were discharged for failing to comply with the conflicting employment requirement. In upholding the lower court, the Eleventh Circuit ruled that FedEx provided a reasonable accommodation to the Telfairs when it offered them different positions that satisfied their scheduling criteria and then gave them 90 days in which to seek and secure other employment within the company. Although the pay cut was approximately 20 percent, the Court rejected the Telfairs’ claims that the move was not a reasonable accommodation. They likewise failed to convince the Court that transferring to another position would have imposed barriers to subsequent promotion. Finally, the Telfairs failed to make a good-faith attempt to work towards accommodation, because they refused to follow up on any of the open positions that were available to them while they were on leave.

2. Misclassified Exempt Workers

In Bacon v. Eaton Corporation, the Sixth Circuit Court of Appeals reviewed a group of former supervisors’ action against Eaton claiming unpaid overtime compensation and other damages due to their misclassification as exempt executives under the Fair Labor Standards Act (“FLSA”). The trial court had granted summary judgment in favor of Eaton and dismissed the supervisors’ claims. On appeal, the Sixth Circuit held that there were sufficient questions of fact as to whether the supervisors qualified as exempt executives, and reversed the case and remanded to the trial court for further consideration.

Bacon and other former frontline supervisors supervised more than 20 hourly employees and were under the supervision of second level managers. Plaintiffs claimed that they were misclassified because they did not have sufficient influence over personnel decisions to support the exemption. The evidence reviewed by the Court reflected that the supervisors completed probationary evaluations for the hourly employees but that they were typically hired as a matter of course regardless of their evaluations. In addition, their job descriptions did not support supervisor activity, nor did they complete the requisite training for conducting interviews or participate in the interview process. Finally, plaintiffs claimed that any recommendations that they made regarding personnel decisions were rejected by Human Resources and not followed up on by the upper level managers.

Under the FLSA, a supervisor may be exempt from the overtime requirements when their “primary duty is management of the enterprise in which the employee is employed or customarily recognized part or subdivision thereof, they customarily and regularly direct the work of two or more employees, and they have the authority to hire or fire other employees or make suggestions or recommendations as to the hiring and firing and other terms and conditions of employment.” 29 C.F.R. 541.100. The Sixth Circuit determined there was a sufficient dispute in the material facts to question whether the supervisors satisfied the criteria. Of significance to the Court was the apparent disregard or lack of influence that any recommendations and suggestions the supervisors had regarding hiring, firing, or other terms and conditions of the employees they supervised. The Court noted that occasional suggestions or recommendations do not demonstrate that an employee has significant influence over other employees’ change of status. The Court also stated that these supervisors may have merely carried out the orders of superiors to effectuate a change of status, which did not equate to performing exempt duties. Finally, Human Resources and management decided what discipline to utilize and follow, and many of the past disciplinary action forms and recommendations completed by the supervisors had been removed by Human Resources from the employee’s files. As a result, there were material facts at issue to determine whether the supervisors were acting in an exempt capacity.

3. Third-Party Harassment

In the case of Freeman v. Dal-Tile Corporation, a female African-American employee brought suit against her former employer alleging a racially and sexually hostile environment under Title VII and discriminatory discharge under § 1981 of the Civil Rights Act. Freeman’s claim for sexual and racial harassment, constructive discharge, and common law obstruction of justice were denied as the lower court granted Dal-Tile summary judgment. On appeal to U.S. Court of Appeals for the Fourth Circuit, the Court confirmed the dismissal of the constructive discharge and obstruction of justice claims, but reversed the holding regarding Freeman’s claims of racial and sexual harassment.

The case is significant because Freeman’s claims were brought against Dal-Tile as a result of the behavior of an independent sales representative who worked for another company but serviced Dal-Tile. Freeman had originally been hired as a temporary employee. She worked as a receptionist, moved on to general office clerk, and then served as a customer service representative with interaction between Dal-Tile’s customers before being promoted to sales consultant and then reclassified as a customer service representative. Over a roughly three-year period, Freeman had regular contact and exposure to Timothy Koester, an independent sales representative of Vostone who conducted business at Dal-Tile. Freeman alleged that Koester made derogatory and demeaning comments about African-Americans and females. Upon complaint about such comments, Freeman’s supervisor acknowledged that Koester was “an asshole” but “not likely to act that way again.” Freeman told Koester to avoid making any similar remarks in the future and that he had made her feel uncomfortable. Koester continued to make derogatory and offensive comments both in front of and about Freeman and her family, and also made sexually suggestive comments. Freeman continued to complain to her supervisor to no avail. Freeman also complained to one of the co-owners of Vostone, who simply laughed and said Koester “was funny” and “just do what I do and hit him, because he is an asshole.” Freeman eventually took a medical leave of absence suffering from anxiety and depression that she attributed to her continued interaction with Koester.

The trial court ruled that while there was some question about whether Freeman had established sufficient evidence that the alleged harassment was objectively severe or pervasive, it ruled that even if it was found to meet such standard, Dal-Tile was entitled to summary judgment because she could not establish that liability should be imputed to her employer who was not the employer of Koester. The trial court followed the negligence standard that an employer could not be liable for the actions of a third party unless “it knew or should have known of harassment and failed to take appropriate action to stop it.” The court ruled that Dal-Tile did not have actual or constructive knowledge of the harassment, finding that Freeman’s several complaints did not constitute a formal complaint that apprised them of sufficient detail regarding the severity of Koester’s behavior. Accordingly, Freeman was deemed to have voluntarily resigned.

On review, the Court of Appeals held that the evidence was sufficient to allow a reasonable jury to find that Koester’s harassment was based upon her sex and race, and included frequent use of racially and sexually derogatory terms. The Court acknowledged that Freeman subjectively perceived the types of behavior to be abusive and hostile that resulted in her significant depression and anxiety forcing her to take medical leave, and that a reasonable jury could find that Koester’s behavior met the objective standard of “severe or pervasive.” Finally, the Court ruled there were sufficient facts to create an issue of whether Dal-Tile could be found by a reasonable jury to “have known or should have known” of the harassment based upon Freeman’s complaints to her supervisor and whether it took any effective action to halt the harassment. After three years of ongoing offensive behavior from Koester, Freeman reported it to higher level Human Resources personnel. In turn, Dal-Tile proposed to ban Koester from the premises. However, it subsequently lifted the ban on access to the company’s premises and simply prohibited Koester from communicating directly with Freeman but. Thus, there was a viable question as to whether this was an ineffective remedial action reasonably calculated to end the harassment.

The Dal-Tile case underscores the significance of potential employer liability for harassment claims caused not just by employees but by outside parties who come into regular contact with employees in business situations. Simply ignoring or writing off the behavior as childish or because someone is a jerk that continues to go unabated represents potentially significant liability for an employer who is deemed to have failed to act promptly and effectively to remedy such complaints.