Tuesday, August 21, 2012

Turning the Tables

New ImageIt’s pretty well established that, for the  antidiscrimination statutes at least, there’s no personal liability, (a position which has always seemed questionable to me but as to which I’m in the distinct minority). The effects of this rule, however, can be blunted if an employer can obtain indemnification from the supervisor responsible for the violation. Such efforts are rare, but they are not unknown, and a recent example illustrates the point. Howard University v. Watkins, 2012 U.S. Dist. LEXIS 58863 (D.D.C. April 27, 2012), denied a former assistant dean’s motion to dismiss the university’s claims of indemnification and fraud.

The case arose out of a disabilities discrimination claim brought against Howard by one Goodwin, which settled for $253,000 in damages and attorneys’ fees.  The university had terminated Goodwin, on Watkins’s recommendation for what she claimed were his “behavior problems”; Howard claimed it would not have done so had Watkins revealed her knowledge of Goodwin’s HIV status and that she had denied him a requested accommodation.

Looking to common law indemnification arising from express or implied contracts, the court found that Watkins would be liable if Howard proved its allegations. The court also upheld Counts for fraudulent concealment, fraud, and misrepresentation. The distinction between the various Counts suggests that the defendant might have been liable even if she had not been guilty of fraud, perhaps the discrimination itself.

Under this case, then, the true perpetrator would be responsible for all harm caused by an act of discrimination, presumably not only any settlement or judgment paid by the employer but also the employer’s own costs of the defense of an action. To the extent that employers can utilize indemnification, problems of agents’ pursuing their own interests rather than those of their principal would be reduced.

So why don’t employers frequently resort to indemnification? The obvious reason is that they have the usual remedy of firing the supervisor rather than pursuing an expensive claim that may well lead to an uncollected judgment. Few former “acting assistant deans of students” will be able to pay quarter million dollar judgment, and pursuit of the claim itself is costly (the case was filed in Maryland in 2006 and still had not been tried in the District of Columbia when the opinion was handed down).

Then there’s the question of employee morale.  Few universities would want their deans to fear that they may be on the hook for far more than their annual salaries. In Watkins itself, the employer may well have thought that the defendant’s conduct was so outrageous that few other supervisors would feel threatened by the lawsuit. There might also have been a felt need to back compliance and human resources divisions by taking action against a supervisor who Howard thought had pulled the wool over the University’s eyes.

But beyond these concerns, the cause of action has its own problems. Northwest Airlines v. Transportation Workers Union, 451 U.S. 77 (1981), rejected indemnity or contribution under Title VII or the Equal Pay Act because it would disrupt the “comprehensive character” of statutory remedies. Watkins distinguished that precedent because it had recognized that indemnification might be permissible where state law provided the rule of decision and allowed for indemnification. Thus, it was critical to the case that (1) the DC Human Rights Act barred the underlying conduct; (2) the plaintiff in the original suit had sued under the DCHRA; and, apparently, (3) the Human Rights Act itself permitted individual liability, presumably because that statute’s comprehensive scheme would not be disrupted.  This combination of circumstances will not always obtain.

Finally, there’s the question of whether the Howard gave Watkins the opportunity to approve the settlement. Even where a judgment is concerned, an indemnitor must prove that it mounted a reasonable defense before an indemnitee s liable. When a settlement is concerned, the indemnitor is also supposed to tender the defense to the indemnitee or at least give her the opportunity to respond to the proposed settlement.  


Thanks to Joanna Solloway for her help with this.


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State law can vary. For example, under Massachusetts' anti-discrimination statute, although there is no right of contribution, Thomas v. EDI Specialists, Inc., 437 Mass. 536(2002), there is personal liability. See, e.g., Beaupre v. Cliff Smith & Associates, 50 Mass. App. Ct. 480, 492(2000) ("we have no hesitation in stating that our law clearly rejects the defendants' contention that Smith cannot be held individually liable under c. 151B for his active sexual harassment of the plaintiff"). This is one reason (among others) that plaintiffs in Mass. prefer to bring claims under state law rather than Title VII.

Posted by: James A.W. Shaw | Aug 21, 2012 7:08:05 AM

For University employees (as in the case you mention), one would think that there would also normally be contractual indemnification issues. At Nebraska, for example, the University agrees to indemnify employees for any actions occurring within the scope of employment (and certainly a supervisor discharging a subordinate would seem to fit within that category). Our indemnification provision does not have any exceptions for malfeasance in the discharge, etc. Interestingly, however, the University agrees to DEFEND the employee against claims only if the employee has not acted with malfeasance. So our Bylaws seem to contemplate a situation in which the University can refuse to defend an employee who fires a subordinate in bad faith, but if the employee is found to be liable, the University would have to indemnify him. I don't know how common the specific provisions of our Bylaws are with regard to indemnification, but I would be surprised if most Universities (and probably most large organizations) do not have some contractual rules about indemnification that would come into play in the kinds of situations you describe.

Posted by: Willborn | Aug 22, 2012 5:27:53 AM

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