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IN SEARCH OF BEST PRACTICES EMPLOYMENT POLICIES -
THE STANDARDS REMAIN ELUSIVE

by Vanessa Kelly, Esq.

How to best insulate itself from discrimination and harassment claims and to effectively compete in today's diverse and global markets is a difficult challenge for employers. Initially, employers "best practices" were shaped by the sweeping changes in employment laws brought by the civil rights movement. Employers struggled to ensure their workplaces were free from discrimination and harassment on the basis of protected characteristics described in the new federal and state laws with little or no guidance from the courts or legislatures. Slowly case law developed to address the needs of employers who desired to comply and many employers responded in earnest to these requirements. But now, years after the enactment of the civil rights laws, despite employers' good faith efforts to comply, there appears little impact upon the tide of litigation under the employment statutes. Are we just a litigious society or is there still hope for employers trying to minimize their litigation risks and create profitable workplaces?

THE EMPLOYER'S RESPONSE TO HARASSMENT AND DISCRIMINATION SUITS

In 1993, the New Jersey Supreme Court offered guidance to employers to comply with workplace discrimination and harassment laws in Lehman v. Toys R Us.¹ A few years later, the United States Supreme Court added its voice on a national scale with its seminal decisions in Faragher,² and Ellerth.³ Though employers greeted these decisions with modest relief, the standard for meeting the affirmative defense announced in these opinions remained an evolving concept in the years following. Each time an employer thought that it had finally "gotten it right," the standard shifted resulting in keen disappointment. Nowhere is the problem more genuinely felt than by employers than in the State of New Jersey.

When the New Jersey Supreme Court decided Lehman v. Toys R Us, it announced a new standard for hostile environment claims and an employer's liability for the acts of its supervisory employees. In review, Lehman provided that an employee states a -claim of hostile environment where he or she shows: (1) discriminatory conduct; (2) a reasonable person of the same gender who is similarly situated, would find that conduct; (3) sufficiently severe or pervasive; (4) the conditions of employment have been altered; and (5) an intimidating, hostile or offensive environment has been created. Liability will be imposed on an employer where the harasser is a supervisor on a strict basis for "equitable relief' (e.g. reinstatement); upon a showing of "vicarious liability" under agency principles for compensatory damages; and only where it has authorized, participated or ratified the conduct for punitive damages.

But Lehman was not all bad news to employers. Lehman also offered hope to employers that if they exercised "due care" to prevent a hostile environment, then it might be able to avoid the imposition of vicarious liability. Lehman suggested that an employer maintain: (1) formal policies prohibiting harassment in the workplace; (2) complaint structures, formal and informal, for employee use; (3) anti-harassment training; (4) monitoring mechanisms to ensure the trustworthiness of the policies and complaint structures; and (5) unequivocal commitment from the employer's executive team that harassment is intolerable and that the employer is committed to its policy as demonstrated by consistent practice. While the absence of these mechanisms is not negligence per se, the existence of preventative measures may be evidence of "due care" and may provide a defense against harassment claims and the imposition of vicarious liability.

In 1996, the United States Supreme Court discussed an employer's duty to maintain effective anti-harassment measures and described that these measures likewise may be a defense to an employees claims. The Supreme Court announced an affirmative defense for employers subject to harassment claims under Title VII in Faragher and Ellerth; which was actually quite similar to Lehman's discussion of due care. The High Court held that to avail itself of the defense, an employer must show (1) it exercised due care to prevent and promptly remedy harassment; and (2) the employee unreasonably failed to take advantage of preventative or corrective opportunities to avoid harm. While not mandating any specific action, the Court discussed a number of ways that an employer could show an exercise of "due care."

Among the ways of demonstrating "due care," a well publicized policy and complaint process plays an integral role. At a minimum, any policy should provide a clear explanation of prohibited conduct; protection against retaliation; a complaint process with alternative means to register complaints; assurances of confidentiality; a prompt, thorough and impartial investigation; and assurances of immediate corrective action in the event harassment is found.

Employers striving for effective policies after the Faragher and Ellerth decisions turned to educating supervisors to identify harassment and initiate the process of complaint and palliative measures as a crucial part in their exercise of due care. Courts evaluating employee claims after Faragher and Ellerth, stressed that training was important to an employer's use of "due care" to prevent and remedy harassment. For example, in the New Jersey Supreme Court's decision in Gaines v. Beldino,⁴ the Court warned that the mere enactment of a policy and its dissemination are insufficient to avoid vicarious liability.

In Gaines, the employer filed a motion for summary judgment because the employee failed to use the complaint procedures identified in its anti-harassment policy (the Faragher/Ellerth defense). The employee, however, successfully challenged the legitimacy of her employer's policy by demonstrating her fear of the harasser, her reasonable belief that her complaints would not be credited, and by showing that high ranking officials knew about the harassing employee's conduct, but did not take action. The Court found the employee's failure to use the complaint procedures was reasonable and the employer's policy was not effective because: (1) the employer knew about the harasser's conduct but took no action; (2) supervisors evinced a complete lack of training or knowledge about prohibited conduct; (3) the upper management failed to demonstrate harassment was intolerable and (4) the supervisors were ignorant of their responsibility to act when complaints or circumstances indicate potentially harassing conduct is occurring in the workplace.

The lesson from Gaines is well-taken for employers. It is not enough to have a policy. The policy must be implemented and followed. An employer must demonstrate commitment to its policy by the highest levels of management. And when challenged, in an employment suit for example, be prepared to prove its commitment by concrete, identifiable acts in furtherance of the policy.

To make compliance even more challenging, employers are cautioned not to allow the pendulum to swing too far in the other direction and adopt "zero tolerance" policies without important safeguards for the accused. In Grasser v. United Healthcare,⁵ an employee discharged for engaging in sexual harassment claimed that his termination violated New Jersey public policy. Relying upon the "public policy" exception to his at-will employment, articulated in Pierce v. Ortho Pharmaceutical,⁶ he argued that he had not received a fair and thorough investigation by his employer, he was entitled to such an investigation under public policy, and his termination, therefore violated public policy. The employee acknowledged that he asserted a "new cause of action." (However, Lehman described that investigations should be impartial, thorough and prompt, so arguably the employee could have argued that the investigation was flawed under Lehman.) The trial judge agreed with the employee that, as a matter of public policy, New Jersey required employers to provide a thorough and fair investigation. While this case was appealed, the appellate opinion did not address this issue. Consequently, employers may well anticipate claims from employees who have received discipline as a result of a harassment investigation.

IF EMPLOYERS ARE COMPLIANT, WHY ARE EMPLOYEES STILL SUING? HOW CAN EMPLOYERS RESPOND?

Since the decisions in Lehman, Ellerth and Faragher, many employers have heeded the Courts advice and enacted policies prohibiting harassment and discrimination and have conducted periodic training for its supervisory personnel. Consequently, then, one would expect a dramatic decrease in the number of civil lawsuits or agency complaints alleging harassment or discrimination. Unfortunately, no parallel decline has been identified.

The Gallup Organization conducted a survey in November of 2005 and determined that nearly 15% of the employees surveyed believed themselves to be victims of discrimination in the workplace in the last eighteen months.⁷ Despite policies, complaint procedures and training employee perception remains fixed that employers are unlawfully biased in their employment decisions. Looking at these findings, an employer may wonder realistically if there is anything that it can do to alter the perception and, importantly, avoid costly and distracting lawsuits.

While the Gallup poll detailed bad news on perceived discrimination, it did present hope for changing employee perception. The Gallup poll demonstrated a link between employee satisfaction and retention with the perceived effectiveness of an employer's diversity program. Participants in the survey were asked a series of questions about their companies' diversity efforts and additional questions about their employment satisfaction, career plans and willingness to recommend their employer to colleagues. Respondents who viewed their employer's diversity efforts among the top 15% of those companies participating scored 61% on job satisfaction measures. These findings bear out that employers who value diversity demonstrate their commitment to employees in ways that translate to enhanced morale and retention, and concomitantly, less litigation. The Gallup poll provided evidence of real return on an employees Investment to diversity. Interestingly, a study of the financial impact of diversity efforts on 353 Fortune 500 companies showed an even more tangible return on investment This study reported by Catalyst detailed a study of the comparative financial performance of Fortune 500 companies in the second half of the 1990s that displayed a link between gender diversity of senior management and the financial performance of the company.⁸ The researchers opined that a company sufficiently savvy to appreciate diversity management as a means to reach diversity in its consumer base is likely "to be creating effective policies, programs, and systems, as well as a work culture, that maximizes a variety of its assets and creates new ones."⁹

Similarly, a 2004 Study by the National Urban League¹⁰ found that 65% of American workers" believe that a diverse workforce improves creativity and innovation in the workplace. Unfortunately, only 35% of those surveyed by the National Urban League found that their employer's diversity efforts to be effective, leading the researchers to conclude that employers should devote additional efforts to their diversity initiatives.

Other employers have focused their training efforts on developing a new brand of leadership for their organization, from the top down, to address litigation risk, low morale and other systemic problems within the organization. For example, Citigroup embarked upon an ambitious five-point program in the wake of its corporate and litigation woes.¹¹ The first step was to increase communication with its employees company-wide. It set up a system of information gathering as well as providing details of company's growth and progress. It established a training program for managers aimed at developing core leadership skills necessary to lead in the 21st century. With tile help of outside consultants, Citigroup identified one management shortfall as a lack of an emphasis on the long-range value, goals and mission in favor of satisfying short term-goals and emphasis on immediate results. It set up a method to develop talent from within its organization and revamped its performance appraisal process as a means to communicate progress, expectations, and career planning. Lastly, it set up a better control structure as a check and balance system.¹²

Other companies, too, are looking at leadership "branding" in their organizations. Simply put, branding is the type of leadership attributes that deliver results, long-term, for the organization.¹³ Employers today recognize that managing today's workforce requires new skill sets, such as the ability to coach and mentor, effectively delegate and monitor, communicate vision and integrity, build teams and empower leadership at all levels, and to motivate and instill creativity.¹⁴ Gone is the autocratic, dictatorial leadership model. Today's effective leaders are collaborative and inspiring.

In the post-Enron world, employers have learned that enacting Codes of Conduct, or policies alone, will not insulate them from liability. After all, Enron had a Code of Conduct that was sixty-four pages long. Instead, some employers are embracing ethical leadership as a part of their risk avoidance plans.¹⁵ Ethical leadership begins with the highest levels of management and is communicated by direct interactions with employees demonstrating the personal integrity of the leader. A 2005 National Business Ethics Survey reported by the Ethics Resource Center detailed that more than one half of American workers report observing at least one type of ethical misconduct in the workplace.¹⁶ Importantly, employees who worked for employers with a strong ethical culture were substantially more likely to report the misconduct to management than those with a weaker ethical culture. Indeed, the results were 79% to 48%. Significantly, the researchers found that the culture had more impact on the likelihood of reporting than the existence of a compliance plan alone.¹⁷ In order to address misconduct at the earliest opportunity, it is essential that an employer foster and nourish an ethical workplace.

In establishing an ethical culture, trust is a critical component as is shared mission and goals.¹⁸ Personal agendas are cast aside and employees are encouraged to "buy in" to the organization's shared mission and values. Management should demonstrate respect for employees on all levels and be prepared to listen with an open mind. Employers must empower employees to "do the right thing" and not follow orders blindly when they appear unlawful or unethical. There should be a means of redress for employees who have concerns and a haven for making concerns without fear of reprisal.

CONCLUSION

Looking at the workplace as a whole, rather than focusing on discrete statutory compliance, may result in an employer approaching its training program in a more holistic manner. The benefits of diversity initiatives on corporate well being, enhanced employee retention and satisfaction should translate positively to a litigation risk avoidance plan. Creation of a meaningful ethics program and an ethical culture likewise should result in less lawsuits as ethical leaders do not discriminate or harass workers; they comply with workplace employment laws. Lastly, transforming leaders to fit the needs of the organization should result in tangible litigation avoidance benefits as well as employees experience enhanced morale and share in goals, values and vision of the company on a long term basis. Of course, these measures are not instant "fixes" and it is likely that gain will be recognized only over time. The results of these recent employee studies, however, show sufficient promise of reward to guide employers in making this investment.

1. Lehman v. Toys R Us, 132 N.J. 587, 626 A.2d 445 (1993).
2. Faragher v. Boca Baton, 118 S.0. 2275 (1998).
3. Burlington Industries, Inc. v. Ellerth,118 S.Ct. 2257 (1998).
4. Gaines v. BeNno, 173 N.J. 301, 801 A.2d 322 (2002).
5. Grasser v. United Healthcare Corp., 343 N.J. Super. 241, 778 A.2d 521, 528 (N J.Super.Ct, App.Div. 2001).
6. Pierce v. Ortho Pharmaceutical 84 NJ. 58, 417 A.2d 505 (1980).
7. The Gallup Organization, Employee Discrimination in the Workplace, November 10, 2005, a public opinion poll conducted with support from the Society for Human Resource Management, Kaiser Permanente and the United Parcel Service.
8. Catalyst, The Bottom line. Connecting Corporate Performance and Gender Diversity (2004).
9. Id. at 12.
10. National Urban League, Diversity Practices that Work. The American Worker Speaks, (2004).
11. Workforce Management, Interview with Michael Schein, Senior Vice President Global Corporate Affairs, HR and Business Practices at Citigroup, November 21, 2005, at p. 9.
12. Id.
13. Society For Human Resources Management, The Changing Nature of Leadership, Leadership Series Part I, by Nancy R Lockwood, November 2005.
14. Id. see, also, Society for Human Resources Management, Leadership Styles-Overview, Series Part I, by Nancy R Lockwood, November 2005.; SHRM, Effective Employee Communication Practices for Managers, Management Practices Series Part III, by Leslie A. Weatherly; SHRM, Leadership Development, Heather Collins, November 2003.
15. Society for Human Resources Management, Business Ethics Overview, Series Part I, 2005.
16. Ethics Resource Center, National Business Ethics Survey, 2005, Press Release, October 21, 2005.
17. Id.
18. SHRM, Ethical Leadership, Series Parts I through III, Nancy R Lockwood, November 2005.