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COURT LIMITS PERSONAL LIABILITY

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SAN FRANCISCO -- A California ruling will provide managers with immunity from discrimination claims for personnel-related actions, such as firing and disciplining workers.

The ruling will enable managers to make decisions in the best interest of their company -- even though the employer still may be sued for bias -- rather than ones that will minimize their personal liability, according to attorneys.

Some attorneys warn, however, that the decision also could leave managers more free to discriminate, which they say ultimately could hurt the company.

The July 16 California Supreme Court decision in Reno vs. Baird says that while managers can be held personally liable for harassment under the California Fair Employment and Housing Act, they cannot be sued as individuals for discrimination, because personnel decisions are an integral part of their jobs.

"The decision allows managers to do their jobs and make personnel decisions on the merits, instead of worrying about which decision would put them in the best position for possible litigation," said Thomas P. Klein, an attorney with Orrick, Herrington & Sutcliffe in San Francisco. He filed a brief in the case on behalf of The Employers Group, which represents 2,500 California companies. "I think this is a victory for every person employed in the state of California as a manager," said Mr. Klein.

The decision is not expected to decrease litigation. "I don't think it's going to cut back on the number of suits," said Mr. Klein. Instead, it will just "cut back on the number of suits where an employee is named along with the company," he said.

Kimberly Reno, a pediatric nurse employed by a now-defunct nurse registry who claims she was fired in 1992 after her employer learned she suffers from cancer, filed the suit. She sued Marijo Baird, who had been the registry's principal owner as well as her supervisor, on charges that included employment discrimination and discharge in violation of public policy.

The Supreme Court overturned a lower court decision and ruled that Ms. Reno could not sue Ms. Baird as an individual. In doing so, it agreed with a 1996 appellate court decision, Janken vs. GM Hughes Electronics.

Harassment, such as slurs or derogatory drawings, involves conduct that is avoidable and unnecessary, but a manager cannot refrain from conduct that could later lead to a discrimination claim, said the high court's decision.

Managers should not be subject to the "ever-present threat of a lawsuit each time they make a personnel decision," said the court.

"By limiting the threat of lawsuits to the employer itself, the entity ultimately responsible for discriminatory actions, the Legislature has drawn a balance between the goals of eliminating the discrimination in the workplace and minimizing the debilitating burden of litigation on individuals."

Managers guilty of discrimination will not go unpunished, though, says the court. "They will merely escape the cost of defending suit. Supervisors guilty of engaging in unlawful discrimination, and thus causing their employer to incur monetary liability, will often suffer demotion or unemployment. Their reputation with potential future employers will also be affected," the ruling stated.

Even though the decision is about individual employees, it is significant for their employers, "because they call upon their supervisors to make employment decisions," said George W. Abele, of Los Angeles-based Paul, Hastings, Janofsky & Walker, which had filed a brief in the case on behalf of an employers group, the California Employment Law Council.

Had the court concluded that managers could be held personally liable, those individuals "would likely make a decision based on who is less likely to sue them, rather than what's best for the company," said Mr. Abele. A supervisor, for instance, "might keep someone who's less worthy of being kept on, simply because that person is more likely to sue if they were let go or disciplined."

Insurer attorneys say there are other implications to the decision.

David Miller of Walnut Creek, Calif.-based Hoyt, Miller & Angstadt, which represented the defendant, said the decision "takes away a tool of the plaintiff lawyer -- basically, to force settlements out of individuals."

In addition, the decision means companies will not have to take on the sometimes significant cost of defending individual employees in addition to the corporation, said Patricia Gillette of Heller Ehrman White & McAuliffe in San Francisco.

Attorneys warn, however, that the decision also represents a potential danger to employers.

"The challenge for employers in this is making sure their employees don't take this to mean they don't have to still toe the line when it comes to enforcing the employer's policies about discrimination in the workplace, because one of the ways you make supervisors pay attention is to tell them it's going to hit their pocketbook," said Ms. Gillette.

The decision "sends the wrong message to people inclined to discriminate. Ultimately, the decision will hurt not just victims of discrimination but business as well," because managers will feel freer to discriminate, which will lead to more suits, said Phil Horowitz of Lawless, Horowitz & Lawless in San Francisco, who represented the plaintiff.

This is the "only area of the law I've heard of (where) someone can commit an illegal act and get off scot-free," charged Joseph Posner, an Encino, Calif.-based solo practitioner who filed a brief in the case on behalf of the California Employment Lawyers Assn., an organization of plaintiffs attorneys.

"I maintain that the fear of liability is what keeps most people on the straight and narrow. If you have to think about the consequences of your action because you might be held responsible, then that's a good thing," said Mr. Posner.

The court incorrectly assumes that managers who discriminate always face punishment, said Mr. Posner. "I don't think the court's living in the real world," he said. "It sure doesn't happen in the cases that I have."

More typically, the company "forms the wagon in a circle" and claims the individual at fault is as "pure as the driven snow," he said.

Mr. Posner also said the "court treats this matter of personnel decisions as somehow sacrosanct, but I've seen many instances where personnel decisions are made to harass someone."

However, Mr. Horowitz said individuals will continue to be named in suits, but "it'll be under other legal claims," such as defamation and intentional infliction of emotional distress.

Kimberly Reno, plaintiff and appellant, vs. Marijo Baird, defendant and respondent, No. S06547, in the Supreme Court of California.