Contribution, Indemnification or Contract

Northwest Airlines remains viable. In Lipiro v. Remee Prods., 75 F.Supp.2d 174 (S.D.N.Y. 1999), an employer was sued for sexual harassment and retaliation under Title VII and the New York State Human Rights Law (ie, Executive Law ' 296 — the New York analog to Title VII) (the NYSHRL). The employer sued one of its managers on the grounds that she failed to investigate or report several incidents of sexual harassment that were brought to her attention by the plaintiffs, and that her omissions exposed the employer to liability. The employer sought to recover the costs it suffered as a result of the plaintiffs' Title VII action. Citing Northwest Airlines, the court held that the employer was unable to recover these costs from the manager. Further, in addition to the bases identified in Northwest Airlines, the court held that Title VII did not provide for individual liability, and consequently, the employer could not shift its Title VII liability to the manager by seeking contribution from her.

State Law

While it seems clear that employers cannot seek contribution under federal law, courts have reached a different result when considering a right to contribution under state law. Rodolico, which extended the holding of Northwest to foreclose attempts at indemnification under the ADEA, found that certain provisions of New York law would permit attempts to seek contribution. In Rodolico, the plaintiffs were laid off as part of a reduction in force, and brought suit under the ADEA and the NYSHRL. Their employer sought to file a third-party complaint against the plaintiffs' union on the grounds that it breached its duty to fairly represent its members, by participating in and ratifying a collective bargaining agreement and a performance appraisal process, both of which allegedly violated the ADEA and the NYSHRL. The court noted that while the ADEA did not allow for contribution, New York's Civil Practice Law and Rules (CPLR) 1401 expressly provided such a right. Rodolico held that “where a union is alleged to have participated in the underlying acts that are the root of the discrimination claim, the NYSHRL in conjunction with [CPLR] 1401 affords the named defendant employer the right to seek contribution from the union.” Put another way, the existence of an explicit statutory right to contribution under state law which was absent from Title VII or the ADEA) enabled the employer to seek contribution from the union.

As further support of the right to contribution under state law, Rodolico cited the existence of liability for aiding and abetting under the NYSHRL. The court's rationale was that if the union aided and abetted the employer's allegedly discriminatory conduct, the union's behavior amounted to conduct reinforcing the discriminatory practices the NYSHRL was designed to eliminate. According to the court, granting immunity from contribution in such circumstances “would result in fostering employment discrimination in the workplace,” and thus run directly counter to the purpose of the NYSHRL.

Courts in Michigan and Maine have rendered similar decisions. In Donajkowski v. Alpena Power Co., 596 N.W.2d 574 (1999), the Michigan Supreme Court, citing the Michigan contribution statute, permitted an employer being sued for sex discrimination based upon the terms of a collective bargaining agreement to seek contribution from a union that was party to the agreement. Similarly, in Flaherty v. S.D. Warren Co., 1999 WL 33117090 (D. Me. Jan. 26, 1999), the court held that an employer could seek contribution against a union for disability discrimination claims brought against the employer under the Maine Human Rights Act (MHRA). The court observed that Maine courts take a different approach than the Supreme Court in Northwest Airlines, in that they hold that a statute does not provide an exclusive remedy in the absence of express language to that effect. As the MHRA did not expressly exclude actions for contribution, the employer was entitled to sue the union for contribution for any damages awarded against it.

In contrast, however, a Massachusetts court has determined that an employer does not have a right of contribution under state law. In Thomas v. EDI Specialists, Inc., 437 Mass. 536, 773 N.E.2d 415 (Mass. Sup. Jud. Ct. 2002), an employee sued her employer for pregnancy discrimination under the Massachusetts counterpart to Title VII (G.L. c. 151B). In turn, the employer sought contribution from one of the plaintiff's co-workers (whom the plaintiff identified as responsible for the discrimination), and cited the existence of the Massachusetts contribution statute as support for its claim. However, the court held that allowing a right of contribution would interfere with the Massachusetts legislature's preference for resolving discrimination claims at the administrative level. The court noted the procedural protections G.L. c. 151B provides to defendants (ie, notice and the ability for conciliation), and further observed that neither G.L. c. 151B nor the regulations promulgated by the Massachusetts Commission Against Discrimination, provided a method by which a defendant could join a third party. As a result, a third-party defendant was potentially deprived of the opportunity to participate in the administrative process and resolve the case. Further, the court observed that G.L. c. 151B “clearly evince[d] an intent to reduce discrimination in the workplace by holding employers responsible for the discriminatory actions of their employees, regardless of whether these actions were authorized or supported by the employer or its policies.” In the court's opinion, this draconian result was the Massachusetts legislature's intent, and any changes to permit contribution under G.L. c. 151B were the province of the legislature.

Employers have also brought suit under a common law right to indemnity. In Degener v. Hall Contracting Corp., 27 S.W.3d 775 (Ky. 2000), the plaintiff sued a clinic for violations of the Kentucky Civil Rights Act, alleging that a physician had sexually harassed her by creating a hostile work environment. The clinic sued the physician for indemnity – ie, for recovery because it was exposed to liability because of the wrongful act of the physician, with whom it was not equally culpable. The court permitted the suit for indemnity, noting that the facts before it fell directly within the parameters of common law indemnity. Similarly, in Biggs v. Surrey Broadcasting Co., 811 P.2d 111 (Ok. Ct. App. 1991), an employer settled a sexual harassment lawsuit brought by an employee for $65,000, and sought indemnification against the employee's manager (who was allegedly responsible for the harassment) for the costs of the settlement. The court held that under Oklahoma law, an implied contract of indemnity may arise between one who is constructively or vicariously liable for a tort and the wrongdoer, and thus the employer was entitled to seek indemnification from the manager.

Contract

Another avenue for recovery is for the employer to contract with an employee to indemnify and hold it harmless for any acts of discrimination or harassment committed by the employee. In Thomas, the Massachusetts Supreme Court alluded to this possibility, noting that “employers may protect their interests by contracting with employees for indemnification and enforcing that contract in a separate action, if the employer is held liable for the employee's discriminatory behavior.” This statement, however, was dicta, and has not been tested in the courts.

Though an appealing option, indemnification agreements engender their own issues:

• Would the employer have to wait for a determination of liability before seeking indemnification, or could the employer seek indemnification if a case settles?
• Would an employee be obligated to indemnify an employer that settles a spurious claim for significant amounts of money?
• What level of culpability would be required to hold the employee liable for indemnification?
• How much would an employee have to contribute to events leading to the filing of a claim for an employer to seek indemnification? For example, what if the employee is one of several alleged harassers?
• What happens if the harassment is perpetrated by a third party or a temporary employee?
• Are these agreements unconscionable under state law?
• Is continued employment sufficient consideration for such agreements?
• What happens if an employee refuses to sign?

Given these (and other) difficult questions, employer should confer with counsel before asking their employees to sign indemnification agreements.

Jason S. Aschenbrand is an associate in the labor and employment department of Winston & Strawn LLP's New York offices.

Faced with hefty legal bills, damage awards, or settlements as a result of discrimination or harassment claims, employers have attempted to recover costs from third parties whom they perceive as causing or sharing responsibility for the problem. To this end, employers have sued unions and even their own employees in an effort to spread the financial responsibility. The theories behind such suits, and their results, have been mixed.

Supreme Court Authority

The United States Supreme Court examined the issue of whether an employer held liable to its female employees for back pay under the Equal Pay Act and Title VII was entitled to seek contribution from unions that allegedly bore at least partial responsibility for the statutory violations in Northwest Airlines, Inc. v. Transport Workers Union of America , AFL-CIO, 451 U.S. 77 (1981). In that case, the Court held that neither Title VII nor federal common law expressly creates a right to contribution. Northwest Airlines has been cited as authority for denying a right to contribution under the ADEA ( see Rodolico v. Unisys Corp. , 189 F.R.D. 245 (E.D.N.Y. 1999)) and the ADA ( see Lane v. United States Steel, 871 F.Supp. 1434 (M.D. Ala. 1994)).

Northwest Airlines remains viable. In Lipiro v. Remee Prods. , 75 F.Supp.2d 174 (S.D.N.Y. 1999), an employer was sued for sexual harassment and retaliation under Title VII and the New York State Human Rights Law ( ie , Executive Law ' 296 — the New York analog to Title VII) (the NYSHRL). The employer sued one of its managers on the grounds that she failed to investigate or report several incidents of sexual harassment that were brought to her attention by the plaintiffs, and that her omissions exposed the employer to liability. The employer sought to recover the costs it suffered as a result of the plaintiffs' Title VII action. Citing Northwest Airlines, the court held that the employer was unable to recover these costs from the manager. Further, in addition to the bases identified in Northwest Airlines, the court held that Title VII did not provide for individual liability, and consequently, the employer could not shift its Title VII liability to the manager by seeking contribution from her.

State Law

While it seems clear that employers cannot seek contribution under federal law, courts have reached a different result when considering a right to contribution under state law. Rodolico, which extended the holding of Northwest to foreclose attempts at indemnification under the ADEA, found that certain provisions of New York law would permit attempts to seek contribution. In Rodolico, the plaintiffs were laid off as part of a reduction in force, and brought suit under the ADEA and the NYSHRL. Their employer sought to file a third-party complaint against the plaintiffs' union on the grounds that it breached its duty to fairly represent its members, by participating in and ratifying a collective bargaining agreement and a performance appraisal process, both of which allegedly violated the ADEA and the NYSHRL. The court noted that while the ADEA did not allow for contribution, New York's Civil Practice Law and Rules (CPLR) 1401 expressly provided such a right. Rodolico held that “where a union is alleged to have participated in the underlying acts that are the root of the discrimination claim, the NYSHRL in conjunction with [CPLR] 1401 affords the named defendant employer the right to seek contribution from the union.” Put another way, the existence of an explicit statutory right to contribution under state law which was absent from Title VII or the ADEA) enabled the employer to seek contribution from the union.

As further support of the right to contribution under state law, Rodolico cited the existence of liability for aiding and abetting under the NYSHRL. The court's rationale was that if the union aided and abetted the employer's allegedly discriminatory conduct, the union's behavior amounted to conduct reinforcing the discriminatory practices the NYSHRL was designed to eliminate. According to the court, granting immunity from contribution in such circumstances “would result in fostering employment discrimination in the workplace,” and thus run directly counter to the purpose of the NYSHRL.

Courts in Michigan and Maine have rendered similar decisions. In Donajkowski v. Alpena Power Co. , 596 N.W.2d 574 (1999), the Michigan Supreme Court, citing the Michigan contribution statute, permitted an employer being sued for sex discrimination based upon the terms of a collective bargaining agreement to seek contribution from a union that was party to the agreement. Similarly, in Flaherty v. S.D. Warren Co., 1999 WL 33117090 (D. Me. Jan. 26, 1999), the court held that an employer could seek contribution against a union for disability discrimination claims brought against the employer under the Maine Human Rights Act (MHRA). The court observed that Maine courts take a different approach than the Supreme Court in Northwest Airlines, in that they hold that a statute does not provide an exclusive remedy in the absence of express language to that effect. As the MHRA did not expressly exclude actions for contribution, the employer was entitled to sue the union for contribution for any damages awarded against it.

In contrast, however, a Massachusetts court has determined that an employer does not have a right of contribution under state law. In Thomas v. EDI Specialists, Inc. , 437 Mass. 536, 773 N.E.2d 415 (Mass. Sup. Jud. Ct. 2002), an employee sued her employer for pregnancy discrimination under the Massachusetts counterpart to Title VII (G.L. c. 151B). In turn, the employer sought contribution from one of the plaintiff's co-workers (whom the plaintiff identified as responsible for the discrimination), and cited the existence of the Massachusetts contribution statute as support for its claim. However, the court held that allowing a right of contribution would interfere with the Massachusetts legislature's preference for resolving discrimination claims at the administrative level. The court noted the procedural protections G.L. c. 151B provides to defendants (ie, notice and the ability for conciliation), and further observed that neither G.L. c. 151B nor the regulations promulgated by the Massachusetts Commission Against Discrimination, provided a method by which a defendant could join a third party. As a result, a third-party defendant was potentially deprived of the opportunity to participate in the administrative process and resolve the case. Further, the court observed that G.L. c. 151B “clearly evince[d] an intent to reduce discrimination in the workplace by holding employers responsible for the discriminatory actions of their employees, regardless of whether these actions were authorized or supported by the employer or its policies.” In the court's opinion, this draconian result was the Massachusetts legislature's intent, and any changes to permit contribution under G.L. c. 151B were the province of the legislature.

Employers have also brought suit under a common law right to indemnity. In Degener v. Hall Contracting Corp. , 27 S.W.3d 775 (Ky. 2000), the plaintiff sued a clinic for violations of the Kentucky Civil Rights Act, alleging that a physician had sexually harassed her by creating a hostile work environment. The clinic sued the physician for indemnity – ie, for recovery because it was exposed to liability because of the wrongful act of the physician, with whom it was not equally culpable. The court permitted the suit for indemnity, noting that the facts before it fell directly within the parameters of common law indemnity. Similarly, in Biggs v. Surrey Broadcasting Co. , 811 P.2d 111 (Ok. Ct. App. 1991), an employer settled a sexual harassment lawsuit brought by an employee for $65,000, and sought indemnification against the employee's manager (who was allegedly responsible for the harassment) for the costs of the settlement. The court held that under Oklahoma law, an implied contract of indemnity may arise between one who is constructively or vicariously liable for a tort and the wrongdoer, and thus the employer was entitled to seek indemnification from the manager.

Contract

Another avenue for recovery is for the employer to contract with an employee to indemnify and hold it harmless for any acts of discrimination or harassment committed by the employee. In Thomas, the Massachusetts Supreme Court alluded to this possibility, noting that “employers may protect their interests by contracting with employees for indemnification and enforcing that contract in a separate action, if the employer is held liable for the employee's discriminatory behavior.” This statement, however, was dicta, and has not been tested in the courts.

Though an appealing option, indemnification agreements engender their own issues:

• Would the employer have to wait for a determination of liability before seeking indemnification, or could the employer seek indemnification if a case settles?
• Would an employee be obligated to indemnify an employer that settles a spurious claim for significant amounts of money?
• What level of culpability would be required to hold the employee liable for indemnification?
• How much would an employee have to contribute to events leading to the filing of a claim for an employer to seek indemnification? For example, what if the employee is one of several alleged harassers?
• What happens if the harassment is perpetrated by a third party or a temporary employee?
• Are these agreements unconscionable under state law?
• Is continued employment sufficient consideration for such agreements?
• What happens if an employee refuses to sign?

Given these (and other) difficult questions, employer should confer with counsel before asking their employees to sign indemnification agreements.

Jason S. Aschenbrand is an associate in the labor and employment department of Winston & Strawn LLP's New York offices.