Proactive Lawsuit Prevention LEADERSHIP Strategies

The focus of my business is about teaching other businesses how to prevent lawsuits. Much of my time is spent teaching awareness raising seminars, law based topics and CYA skills (that stands for Cover Your …you can figure it out on your own.) That is, I often train employees, management, human resources and even in-house counsel how to implement policies and procedures so that when an employee has an internal complaint, the company is primed to diffuse the lawsuit-bomb in order to avert a disgruntled employee from suing. These are what I have termed Proactive Lawsuit Prevention Strategies.

For example, sexual harassment lawsuits are prevented when an employer has a strong policy which prohibits harassment, when employees are trained to take complaints to receptive managers, when human resources is prepared to investigate it, and when the company responsibly acts to remedy the harm done. These are examples of Proactive Lawsuit Prevention Strategies and spreading this dogma is the mission of my business.

Yet, in reading a recent Harvard Business Review article, “The Big Idea: Leadership in the Age of Transparency” (April 2010) by Christopher Meyer and Julia Kirby, it occurred to me that I needed to be invoking an even more proactive “leadership” characteristic into my own curriculum. In their article, Meyer and Kirby make the case that “the true measure of corporate responsibility – and the key to a business’s playing a proper role in society – is the willing, constant internalization of externalities.” In my area of expertise, the “externality” is the extremely, remote, potential litigation. More than CYA tactics which prevent actual lawsuits, companies need to be looking at internalizing all the externalities inherent in employee relations, even the conflicts which may not necessarily give rise to litigation under the current laws or the externalities that a business is not forced to “pay for” by order of a court.

For example, although federal and state laws (Title VII and the Fair Employment & Housing Act (FEHA) in California) protect certain categories from unlawful harassment, i.e. sex, race, religion, etc., companies seeking to stand out as having leadership strategies would also respond to harassment based on “unprotected" categories. That is, when human resources receives a complaint from an employee that she is being “harassed” based on her weight or she complains about a singular “blond joke,” whether she can actually meet the legal criteria for a valid claim with the EEOC or Department of Fair Employment & Housing (in California) should be irrelevant. A leading company takes ownership of all complaints made by employees and seeks to provide a workplace free of any conduct that interferes with an employee’s ability to work optimally.

Why? According to Meyer and Kirby, the rationale goes beyond, “it’s the right thing to do.” Their article puts forth that our corporate society has become literally transparent. So that hiding a wrong is no longer an option. For example, the campaign by Phillip Morris in the 1980s to conceal evidence which linked smoking to lung cancer could not occur in today’s society of social media, whistle blower protections and instant messaging. According to the authors, “the worst of all worlds is to be made responsible, and still not be considered responsible.”

I agree with this premise that transparency demands higher accountability and recent case law supports it as well. In the case of Pietrylo v. Hillside Restaurant Group, disgruntled employees began a Myspace page which maligned their managers’ inappropriate behaviors. Although the company sought to force the employees to remove the page, the damage to the company’s reputation had been done. In a recent investigation I was asked to conduct, after interviewing the company’s employees, I learned that some employees, in reaction to the corporate officers’ secretive conduct, reactively began an anonymous blog which purposely leaked confidential company information to all employees. The availability of social media, the access to technology and the flattening of companies corporate structures encourages transparency. The company’s leadership role is to accept this and to act accountable to transparency’s offspring - heightened corporate responsibility to all externalities.

In the legal realm, that means protecting employees from conduct which has yet to be protected fully under the law, but which is still detrimental. For example, many companies employ an equal-opportunity bully. That is a person, who does not discriminate, but bullies all underlings similarly. Often under these circumstances, an employee may not be able to maintain a claim of unlawful harassment absent a showing of discriminatory behavior. (Although recent EEOC actions suggest that the agency and courts are beginning to recognize this behavior as actionable. See E.E.O.C. v. National Education Association (male supervisor’s temper tantrum had a disparate impact on female employees even when he treated male employees similarly.) A company that protects its employees from “bullying” by disciplining the bully is demonstrating its leadership by refusing to allow its employees to be mistreated, whether it can be “forced” to or not by a court of law or agency.

Similarly, employees who “haze” new employees must also be disciplined whether the law prohibits the specific hazing behavior or not. This is another example where a company can maintain a leadership policy which prohibits any hazing activities whether or not an employee can maintain a cause of action or not. (Some courts recognize hazing employees as actionable when the elements of sexual harassment or assault exist. The U.S. Supreme Court set this precedent in Oncale v. Sundowner Offshore Services.

What are other Proactive Lawsuit Prevention Leadership Strategies or other examples that you can think of? What legal externalities should your company internalize and act to remedy?

No Woo-ries For California Employers

Ninth Circuit Hears Landmark Tip Pooling Case

On February 23, 2010, the U.S. Court of Appeals for the Ninth Circuit issued an opinion in Misty Cumbie v. Woody Woo, Inc. The court held that where the employer paid at least minimum wage before tips to restaurant wait staff, the employer did not violate the Fair Labor Standards Act (“FLSA”) when it required the wait staff to participate in tip pooling with the kitchen staff.

This case involved an Oregon restaurant that tip-pooled. Tip pooling typically involves collecting all tips received by directly tipped employees (such as a waitress) so that they may be then redistributed among a larger group of employees (customarily the bussers and other “front of the house” employees.) In this case, Misty Cumbie was a waitress at Vita Café, owned by Woody Woo and Aaron Woo, where her tips were redistributed in a tip pool to members of the kitchen staff or “back of the house.” Ms. Cumbie argued that the “tip-pooling” violated the FLSA.

Under the FLSA, employers must pay their employees a minimum wage. 29 U.S.C. § 206(a). The FLSA’s definition of “wage” recognizes that under certain circumstances, employers of “tipped employees” may include part of such employee’s tips as wage payments. 29 U.S.C. §203(m). This is called a “tip credit.” Oregon law prohibits employers from paying their employees subminimum wages. Therefore, Vita Café did not take a “tip credit” and paid Ms. Cumbie Oregon’s minimum wage (which is higher than the federal minimum wage) plus her apportionment of tips from the tip-pool. As a result, the U.S. Court of Appeals for the Ninth Circuit affirmed the trial court’s ruling and held that there is nothing in the FLSA which prohibits tip-pooling, even to members of the kitchen staff, when the employer does not take a tip credit. This case is significant for employers, such as restaurant owners, casinos, hotels, spas and others, where tips and tip-pooling is a customary part of that industry.

Cumbie v. Woo Does Not Significantly Alter Tip-Pooling Rules for California Employers
Similar to Oregon Law, California does not allow employers to pay subminimum wage. Therefore, California employers cannot take a tip credit and in the circumstances set forth in Cumbie v. Woo would also be exempted from the tip pooling restrictions of the FLSA. Nevertheless, California Labor Code §351 has specific tip pooling regulations for California employers. Recent California cases have interpreted this section of the Labor Code to allow tip pooling for most employees in the chain of service to customers, including busboys and bartenders. In Etheridge v. Reins Int’l California, Inc. the California Court of Appeal for the Second District, in a holding similar to Cumbie v.Woo, stated that tip pooling which included members of the kitchen staff and dishwashers did not violate the state law. Nevertheless, California case law clearly prohibits tip pooling when it includes supervisors, managers and shift managers, but carved out an exception in the case of Jou Chau v. Starbucks Corp., by allowing Starbuck’s shift supervisors to share in an apportionment of tips from a tip box.

Rules and Tools for Tip-Pooling
Employers in the effected industries, via their capable human resource departments, should implement the following Proactive Lawsuit Prevention Strategies:

1) Ensure that nonexempt employees receive minimum wage for all hours worked and that the tips are supplemental to their wage.

2) Explain to all employees that the reasoning behind tip pooling is to ensure a team oriented atmosphere and to be fair to all employees whether they directly interface with the customers or provide support to those who do.

3) Emphasize the critical importance of team work and team benefits over individual rewards (such as tips) by having employees “train” in each role of a restaurant before they become servers. That is, they will be less inclined to resent tipping out the cook when they intuitively realize that their “tip” is contingent upon the kitchen staff’s hard work and efficiency.

4) Create policies and procedures that keep employees happy and reward them for their hard work in addition to tips, making them value their workplace and less inclined to sue.

5) Be clear from the first day as to who is a participant in the tip pool. In California, those who are managers or supervisors may not participate in the tip pooling. State in writing and inform employees how the tip pool will be distributed.

6) If the employer operates in more than one state, ensure that the company complies with federal law as well as the state laws where it operates. This may involve learning the different statutes and regulations for each jurisdiction.