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WASHINGTON-Employers' potential liability is expanded by a U.S. Supreme Court ruling last week that it is unlawful for companies to retaliate against former employees who have filed discrimination charges.
The decision, which centered on a case in which an employer allegedly wrote a retaliatory job reference for a former employee who had filed a discrimination claim against the company, is expected to generate relatively few claims and therefore not lead to higher premiums for employment practices liability coverage, insurers, attorneys and consultants say.
These experts say most large employers already minimize their potential risks by refraining from supplying anything other than basic information in job references.
The Supreme Court found in Robinson vs. Shell Oil Co. that Section VII of the 1964 Civil Rights Act, which makes it unlawful to discriminate against any employee or applicant who has filed discrimination charges, extends to former employees as well, even though they are not explicitly cited in the section.
The case involved Charles T. Robinson Sr., an African-American whom Houston-based Shell Oil Co. dismissed as a sales representative in 1991.
Mr. Robinson filed a complaint with the Equal Employment Opportunity Commission, charging racial discrimination prompted his dismissal.
Subsequently, Shell provided a negative reference when Mr. Robinson applied for a job with the Metropolitan Life Insurance Co.
After that, he filed a second complaint with the EEOC, charging Shell had violated the civil rights law's anti-retaliatory provision.
Mr. Robinson then sued Shell in federal court in Baltimore, which dismissed his complaint. In 1995, in a decision that conflicted with other appellate court rulings, the 4th U.S. Circuit Court of Appeals in Richmond, Va., upheld the lower court, ruling that the term "employees" in the section referred only to current employees.
The Supreme Court opinion, written by Justice Clarence Thomas, who formerly headed the EEOC, says that the term employee in the anti-retaliatory section is ambiguous. However, several other sections of the statute "plainly contemplate that former employees will make use of the remedial mechanisms of Title VII," Justice Thomas wrote.
In addition, Justice Thomas noted that according to the EEOC, excluding former employees would "undermine the effectiveness of Title VII by allowing the threat of post-employment retaliation to deter victims of discrimination from complaining to the EEOC, and would provide perverse incentive for employers to fire employees who might bring Title VII claims."
The EEOC filed an amicus brief supporting Mr. Robinson.
"Those arguments carry persuasive force," Justice Thomas wrote, reversing the 4th Circuit decision and permitting Mr. Robinson's suit to proceed.
The ruling expands employers' potential liability just by potentially broadening "the group of plaintiffs that employers may face in employment discrimination lawsuits," said Rich Gissony, an attorney and principal with Towers Perrin in Valhalla, N.Y.
"It's another small notch in the entire trend of broadening the employer's liability," agreed Phillip N. Norton, managing director with Sedgwick Financial Risk Specialists in Chicago.
However, Allen Lenchek, the Rockville, Md.-based attorney who represented Mr. Robinson, said that while "There's no question that laws like this have an impact on employers. . .it is an impact which all of us should be willing to bear in order to live in a just society."
An attorney for Shell could not be reached for comment.
Observers do not expect the decision to raise insurance rates, however.
"I don't see this as having much of a material impact on the rates for employment practices liability insurance," said Nick Conca, vp and claims counsel for Reliance National Insurance Co. in New York. While it does increase employers' potential exposure, "I simply don't see this type of claim as being something that is frequently asserted against our insureds."
However, risk managers should be aware that their general liability insurance polices, which might normally cover defamation, may not respond to a retaliation claim, said James Gray, the New York-based underwriter for Zurich-American Insurance Co.'s employment practices program.
"Companies that don't have employment practices coverage have now probably a non-covered risk relating to their former employees" in cases where charges of discrimination have been filed, warned Mr. Gray.
This decision shows the importance of policy in providing job references, attorneys say. It "really puts a premium on companies having a good policy in the manner in which they will respond to reference requests because there is now an additional form of liability that didn't exist prior to this decision," said Gerald L. Maatman Jr., an attorney with Baker & McKenzie in Chicago.
The decision illustrates the advice that, when giving job references, employers should not admit to another potential employer that a complaint has been filed against them, even when asked point blank, said Gerald Panaro, an attorney with Wilkes, Artis, Hedrick & Lane in Washington who represents employers. An employer may say instead, for instance, that it does not respond to these queries as a general policy, he advised.
Observers note most employers already give out little beyond the bare facts when they provide job references. "Most employers these days are very careful about giving any kind of response to a reference request" other than basic information, said Steve Adelman, an attorney with Lord, Bissell & Brook in Chicago.
Mr. Gray agreed. "I think clearly that companies are extraordinarily careful generally about negative job references and would, in fact, normally say nothing rather than say something negative."
"I think it's a ruling that most employers will not have any trouble complying with because they are already not discriminating on the basis of race," said Pamela Scott, an attorney with the Kwasha Lipton Group of Coopers & Lybrand.
Charles T. Robinson Sr. vs. Shell Oil Co., Supreme Court of the United States; No. 95-1376