Employment Practices Risk Management Association

Spring 2008 Law Updates

U.S. Supreme Court Rules that Admissibility of Co-Workers’ Evidence of Discrimination Must Be Decided on a Case-by-Case Basis

On February 26, 2008, the U.S. Supreme Court rendered its decision in the important case of Sprint/United Management Co. v. Mendelsohn, 2008 U.S. LEXIS 2195 (Feb. 26, 2008), excerpted Kissel, Pesce, Hirsch & Wilmer, April 10, 2008, which involved allegations of age discrimination under the Age Discrimination in Employment Act. In that case, the issue was the admissibility of so-called “me, too” evidence, i.e., testimony by co-workers alleging similar discrimination by the employer, although by different supervisors or decision-makers who played no role in the adverse employment decision at issue in the litigation. The Court unanimously ruled that such evidence may be permitted in discrimination cases at the discretion of the trial courts. 

The Court declined to bar such evidence as a matter of law on the grounds it is always legally irrelevant or too prejudicial. Rather, the Court held that trial courts need to make caseby- case determinations on whether to admit “me, too” evidence of discrimination by other alleged victims of discrimination. The Court thus “conclude[d] that such evidence is neither per se admissible nor per se inadmissible,” and remanded the case to the district court to conduct a case-specific analysis as to whether the probative value of the evidence outweighed prejudice and delay to the employer. In its holding, the Court provided scant direction to the lower court on how to exercise discretion, except to state that it should conduct a fact based analysis of the evidence, “including how closely related the evidence is to the plaintiff’s circumstances and theory of the case.”  

As noted in the February 27, 2008 issue of the New York Times at A17,

 “While [Sprint/United Management Co. v. Mendelsohn is] technically a victory for the employer, because an adverse ruling was vacated, the decision is likely to prove more favorable in the long run to discrimination plaintiffs. That is because many lower courts… have been dismissing cases, granting summary judgment to employers on the ground that co-workers’ testimony, which often provides the strongest proof of a pattern of discrimination, is inadmissible.

“Under the Supreme Court’s case-by-case approach, plaintiffs will have a greater chance of surviving summary judgment and getting their cases before a jury…. Because juries are often sympathetic to the plaintiffs claiming discrimination, employers usually focus on getting cases dismissed before trial.”  

Hotel Chain Faces $50 Million Class Action Lawsuit Alleging Sex Discrimination, Harassment against Women

By Sabrina Golmassian, excerpted Las Vegas Business Press, March 10, 2008 (from lawyersandsettlements.com, March 19, 2008). Allegations of physical abuse, groping and demands for sex are outlined in a 72-page complaint filed in U.S. District Court in February against Fairfield Resorts and Wyndham Vacation Resorts. Six women, the initial plaintiffs in the class action, say they suffered a discriminatory work environment while employed at Wyndham Grand Desert Resort in Las Vegas, and faced retribution if they spoke out against their male coworkers.

The complaint alleges that managerial staff members at the property formed "a brotherhood of predators who bonded by terrorizing, intimidating and victimizing female employees." The suit seeks $50 million in damages and attorney's fees. The alleged victims were employed at the Wyndham Grand Desert Resort in a variety of capacities.

Fairfield Resorts, one of the world's largest vacation ownership companies, recently settled a $3 million dollar sex-discrimination class action lawsuit against its Nashville, Tenn., resort facility. David Sanford, the attorney who represented the Nashville plaintiffs, says he is "disheartened that the consent decree that was entered (in the 2006 lawsuit) affected only Nashville," and that despite Fairfield's promise of instituting a "zero tolerance" policy nationwide, the discrimination continues at other resorts. According to the latest complaint, "Sexual harassment and gender discrimination are deeply ingrained in Fairfield's corporate culture."

Wyndham officials, including communications executive Lisa Burby, spokeswoman Betsy O'Rourke and other current executive were contacted for this story but refused to comment. The company's policy, they said, is to avoid commenting on pending litigation.

Rania Dante, former employee of Wyndham Grand Resort in Las Vegas and a plaintiff in the Las Vegas lawsuit, says she was "abused in every way possible." Dante claims she was aggressively recruited to join the company based on her sales experience, yet was denied the opportunity for advancement because of her unwillingness to have a romantic relationship with her supervisor. Dante claims she was eventually discharged in April 2005 due to a denied request for medical leave. The complaint cites numerous violations of the Family and Medical Leave Act, and also alleges that the company refused to grant pregnancy leave to female employees.

A detailed examination of Wyndham reveals a complicated corporate structure. Wyndham Worldwide is the world's largest hotel franchiser, according to the company Web site, with nearly 6,500 hotels on six different continents.

The company also operates such budget brands as Super 8 and Travelodge hotels, as well as upscale accommodation properties. Wyndham Vacation Ownership is a subsidiary of Wyndham Worldwide (ticker symbol WYN on the New York Stock Exchange), and has three brands, one of which is Wyndham Vacation Resorts. The brand markets time-shares and property management services as a parent corporation to Fairfield Inc., which does consumer financing for vacation ownership resorts such as the Wyndham Grand Desert Resort in Las Vegas. According to company literature, the brand "supports more than 16,000 employees globally."

"Unfortunately, as big as this company is, they can't seem to train honorable employees," Dante said. "It's not good for a company of that caliber to do this." Complaints from other exemployees are pending before the U.S. Equal Employment Opportunity Commission and other local labor groups. "I'd love to see a change," Dante said. "But it's always different people, same pattern."

At-Will Doctrine Survives New York’s Highest Court Challenge: Court Rejects Attempt to Treat At-Will Employment Claim as Tort Claim; Contract Providing for Termination “At Any Time” Upheld  

In Smalley v. Dreyfus Corporation, 882 N.E.2d 882 (N.Y. 2008), excerpted Kissel, Pesce, Hirsch & Wilmer, April 30, 2008, the New York Court of Appeals recently reaffirmed the state’s long-standing rule that, absent certain special circumstances, an employer has the right at any time to terminate an employment at-will for any reason or no reason. In Smalley, five at-will employees sued their former employer, the Dreyfus Corporation, for fraudulent inducement to enter into and remain in the employment of Dreyfus. Plaintiffs alleged that they either remained in or accepted employment with Dreyfus’s Taxable Fixed Income Group (TFIG) based on assurances that Dreyfus would not merge the group into the fund management company of Standish, Ayer & Wood. (Dreyfus’s parent corporation, Mellon Financial Corporation, acquired Standish, Ayer & Wood in March 2001.) Although between 2001 and 2004 plaintiffs were told at various times that no merger with Standish would take place, in late 2004 the two groups did merge and in February 2005 Dreyfus fired all members of the TFIG.

Plaintiffs conceded that they were at-will employees; the employment contract each plaintiff signed stated that “I understand that such employment will be for an indefinite period and may be terminated at any time, with or without notice.” However, plaintiffs contended that they were not pursuing a breach of contract case, but rather a legally cognizable tort claim for fraudulent inducement, because Dreyfus misrepresented a present material fact and the plaintiffs alleged injuries distinct from termination.

On appeal, the Court of Appeals reversed the Appellate Division’s 4-1 decision upholding plaintiffs’ fraudulent inducement claim on a motion to dismiss, and instead ruled that plaintiffs failed to state a cause of action. In so holding, the Court of Appeals reiterated New York’s employment at-will rule, stating that “New York law is clear that absent ‘a constitutionally impermissible purpose, a statutory proscription, or an express limitation in the individual contract of employment, an employer’s right at any time to terminate an employment at will remains unimpaired.’” (Citation omitted.) The court continued, “[t]hus, either the employer or the employee generally may terminate the at-will employment for any reason, or for no reason,” and noted that for decades the court had “repeatedly refused to recognize exceptions to, or pathways around, these principles.”

Notably, whether these type of employment cases sound in contract or tort may not be so easy to decide. In Smalley, for example, four out of five Appellate Division judges decided the plaintiffs had stated a claim for fraudulent inducement because the majority found that the defendants’ alleged misrepresentations did not necessarily involve promises of continued employment but rather could be interpreted as misrepresentations of existing fact relating to the merger of two asset management groups.

Employees of Computer Servicing Company Sue for Overtime Pay; Class Action Sought

By John Gallagher, excerpted Detroit Free Press, Feb. 16, 2008 (from lawyersandsettlements.com, Feb. 20, 2008). In a lawsuit with potentially wide-ranging impact, a group of workers at computerservicing giant EDS is suing the employer for failing to pay overtime. Six current or former EDS employees were named as plaintiffs in the lawsuit, which was filed this month in U.S. District Court in Detroit. If the court certifies the case as a class action, potentially thousands of EDS workers might be covered, the plaintiffs' lawyers said.

The case could have ramifications beyond EDS, as large numbers of Americans move into jobs in the so-called knowledge economy that involves working with or servicing computers in the workplace. "This case is one of several that are going on right now that we're aware of that are really looking at the information-systems position," said Maureen Crane, an attorney for the plaintiffs with the Royal Oak firm Pitt, McGehee, Palmer, Rivers & Golden. "It's a growing sector of our job market, where companies are hiring companies like EDS to supply their computer labor."

Under the federal Fair Labor Standards Act, companies are required to pay an overtime premium of 150% of the base pay rate for hours beyond 40 per week. The law allows for various exemptions for salaried positions, generally considered management and supervisory roles.

The lawsuit alleges that EDS improperly labeled its technical-service workers exempt to strip them of their overtime protections. In response, Travis Jacobsen, a spokesman at EDS, said the company was committed to complying with all applicable labor laws, including wage and hour laws. "In instances where we've learned that an employee has been misclassified, we've taken action to promptly correct the situation," he said. "EDS intends to vigorously defend itself in this litigation. Given that this is ongoing litigation, it would be inappropriate for us to comment further."

Crane said the EDS workers were not doing any work that could be considered managerial and thus exempt, but were of the typical "help desk" type of service worker. "These are the people who are going in and actually installing software or hardware, and then they're maintaining the system, fixing bugs in the system, doing routine maintenance of the system, dealing with user problems," she said. The EDS case is similar to a lawsuit that computer giant IBM settled with its technical service workers in November 2006. In that case, IBM paid out $65 million to about 37,000 workers and their attorneys.