Guess what? You know those SEC disclosures about pending litigation that publicly held companies are required by law to make? Well, if an employer says too much, it may be “retaliating” against the litigants.
I am not making this up. International Monetary Systems, Ltd., is facing a jury trial on a retaliation claim made by a former employee. The company is going to trial because it listed the plaintiff by name on the disclosures that it was required to file by the Securities and Exchange Commission. The IMS disclosures named the plaintiff (then a charging party), and said that her EEOC charge was “meritless” and that the company “would vigorously defend.”
Plaintiff Celia Greengrass, now a real estate agent in Albuquerque, worked as an account executive for IMS in 2007 and made an internal complaint about alleged harassment by a manager. Not long after this, she quit, and she filed a charge with the Equal Employment Opportunity Commission alleging sex and national origin discrimination, and retaliation.
In March 2008, about two months after Ms. Greengrass filed her EEOC charge, the company was due to make its annual SEC filings, which require disclosure of “any material legal proceedings, including the principal parties, facts giving rise to the proceeding, and the relief sought.” (Emphasis is mine.) The chief financial officer consulted with an outside firm about whether to disclose Ms. Greengrass’s charge. Details of the consultation are not included in the court’s opinion, but the company did not disclose the charge at all, presumably because it was not thought at that time to be “material.” The company’s quarterly SEC disclosures filed for periods ending March 31 and June 30, 2008, disclosed pending matters but did not identify any parties.
Then, in July 2008, the EEOC made a follow-up request for information related to Ms. Greengrass’s complaint, and the company’s general counsel sent an email to several executives expressing concern about the EEOC’s request and how it might require the company to disclose information about other harassment complaints. (It’s not clear from any of the court decisions why this email was produced despite the fact that it should have been attorney-client privileged. But anyway.)
The company made another SEC disclosure for the period ending September 30, 2008 – after the EEOC’s follow-up request and after the general counsel’s email – and again did not disclose Ms. Greengrass’s identity.
In January 2009, the EEOC asked to conduct interviews in connection with Ms. Greengrass’s charge. The next SEC filing was due April 6, 2009. This time, the company identified everyone who had a pending charge or lawsuit. With respect to Ms. Greengrass, the disclosure stated as follows: “On January 20, 2008, Celia Greengrass filed a sexual harassment complaint with the [EEOC]. The claim is still under investigation by the EEOC but IMS believes the claims to be meritless and will vigorously defend itself.” Another similar disclosure was made in May 2009. After the May 2009 filing, IMS stopped identifying litigants by name.
In September 2009, the EEOC found reasonable cause in connection with Ms. Greengrass’s charge, and the charge was settled in conciliation. The company’s annual SEC filing for 2009 said that the charge had been settled but did not identify Ms. Greengrass or anyone else by name.
Ms. Greengrass was unable to get another job, so she filed another EEOC charge against IMS, this time alleging that IMS retaliated against her by naming her in the 2009 SEC filings. She alleged that the SEC filing came up whenever she Googled her name (NOTE TO READERS – I tried it, and I got the same result – see screen shot below) and alleged that a recruiter told her that she was unemployable because of the SEC filing. The EEOC found cause, and after getting a right-to-sue letter, Ms. Greengrass filed suit in federal court in Wisconsin. The court granted summary judgment to IMS. But Ms. Greengrass took it up to the Seventh Circuit*, where a three-judge panel reversed this week and said she was entitled to a jury trial.
*The Seventh Circuit hears appeals from federal courts in Illinois, Indiana, and Wisconsin.
So, unless IMS gets the decision vacated on review by the full Seventh Circuit (and I hope IMS will try), the case will go to trial.
Does this meet the legal standard for a retaliation claim?
A retaliation claim requires (1) protected activity, (2) adverse employment action, and (3) a “causal connection” between the protected activity and the adverse action. Everyone agrees that Ms. Greengrass engaged in protected activity by filing her original EEOC charge (and making her internal complaint, as well). The Seventh Circuit found, and the district court assumed, that the public disclosure of Ms. Greengrass’s charge and her resulting inability to get another job was an “adverse employment action.” But the district court found there was no reason to believe that IMS made the disclosure “because of” Ms. Greengrass’s EEOC charge. The Seventh Circuit panel, on the other hand, believed that there was enough evidence of causation to send the case to a jury.
The appeals panel found that the timing was suspicious because the disclosure was made after the EEOC had indicated that it was ramping up the investigation. (Although the court seems to have missed the fact that the “ramping up” had actually occurred much earlier and that the first SEC filing afterward did not identify Ms. Greengrass.)
The court also found that the general counsel’s email (which should never have been disclosed in the first place) “evinc[ed] disdain for the EEOC process and animus against Greengrass for filing her complaint.” The court also took into account communications that were made when Ms. Greengrass’s original internal harassment complaint was made — two years before the SEC disclosure.
Finally, the court found that IMS’s flip-flopping on whether to disclose litigants by name was evidence of pretext, even though the company said the flip-flopping was because of conflicting advice it had received from “auditors and others.” (The lower court opinion notes that a CPA/Risk Management employee at IMS expressed concern about disclosing the detailed information, which resulted in the change back to leaving the names off. The appeals court doesn’t mention this.)
Editorial comment: This is the kind of thing that makes American companies want to move to the Cayman Islands. IMS was arguably damned if it didn’t (by the SEC), and damned if it did (by the EEOC). An employer that is trying in good faith to comply with complex and potentially conflicting regulatory schemes should not have to go to trial for retaliation if it “over-complies” – especially when the regulation in question says that “the principal parties” have to be disclosed. I don’t know enough about SEC regulations to even be dangerous, but I am sure that they are open to a good deal of interpretation, and that what a company ought to disclose will often depend on whom it’s asking, what day of the week it is, and what the weather is like. (A lot like consulting with two or more lawyers on the same question.) I hope that IMS will get a rehearing and a better result next time.
But meanwhile, employers should consider themselves warned:
Lesson 1: Yes, you can be liable for retaliation against someone who doesn’t even work for you any more. This issue has been settled since the 1990s. So be careful about the way you treat ex-employees as well as current employees.
Lesson 2: Whenever you are required to disclose pending litigation or administrative charges, avoid saying anything more than absolutely necessary. And be consistent.
Lesson 3: If you decide that you should change your past practice, be sure you have thoroughly documented the reason for the change, the date of the consultation in which the change was recommended, and the name of the auditor or consultant who advised you to make the change. In other words, make sure you have plenty of evidence that your decision to make a change was based on nothing other than your adviser’s opinion about what the law required you to do.
Lesson 4: Who knew? It’s now retaliatory to say that a legal action filed against an employer is “meritless” and that it “will vigorously defend”?
Rant over. Am I off base? Your comments are much appreciated!
. . . AND ALSO OF INTEREST . . .
*And do sign up for Cara Crotty’s webinar on the new Section 503 and VEVRAA requirements! 1-2 p.m. Eastern, Wednesday, February 4.
Image Credits: Except for my Google screen shot, all images from flickr, Creative Commons license: Publicity photo of Gary Coleman and Shavon Ross of Diff’rent Strokes posted by Shavon Ross; photo of Seven Mile Beach in Cayman Islands by James Willamor.