Winter 2008 Issue

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By Zachary Tuck, Esq.

It is common knowledge among employers that it is impermissible to terminate an employee for discriminatory reasons such as the employee’s race, gender, religion, or national origin. However, it is important for employers to recognize that not only can the reason for an employee’s termination be viewed as discriminatory, but the method by which that employee is terminated can also subject the employer to liability. The recent case of Trustees of Health and Hospitals of the City of Boston, Inc. v. Massachusetts Commission Against Discrimination illustrates this important point.

In the Trustees case, which was decided by the Supreme Judicial Court of Massachusetts in August 2007, five female African-American employees were among eight employees laid off by the employer. It was undisputed that the reason for the layoffs was non-discriminatory. However, the African-American employees challenged the manner in which they were fired, specifically the way they were treated by the employer on the day of the actual terminations.

Prior to the terminations, the employer had developed a written procedure stating how the layoffs would be carried out. Under the procedure to be followed, all employees selected for layoffs would receive no advance notice of their firing, and they would be monitored as they gathered their belongings. When the five complainants were informed that they were being laid off, they were told that the terminations were effective immediately. In addition, they were closely monitored as they packed up their belongings, and were immediately escorted from the building without being permitted to say goodbye to co-workers. Generally, the terminated women felt they were treated like criminals, and had been humiliated and degraded in front of their friends and co-workers.

Conversely, one of the other employees included in the same layoff was a white male. Contrary to the written procedure, he was given advance notice of his layoff. In addition, he was not monitored as he cleaned out his desk, and was permitted to walk freely through the building to say goodbye to his co-workers. In defending against the claims of discrimination, the employer claimed that the white male had different job duties and responsibilities than the complainants and did not handle confidential client records.

The Court held in favor of the complaining employees. In support of its decision, the Court concluded that even though the complaining employees and the one white male employee did not have similar jobs with respect to their duties and responsibilities, they were “similarly situated” for the purposes of the implementation of the employer’s layoff procedure. This comparison of “similarly situated” employees is often a critical factor in the analysis of an employment discrimination lawsuit.

The Court ruled that the differences in job duties and responsibilities between the white male and the female African-American complainants had nothing to do with why the white male received more dignified treatment at the time of the layoffs. The Court further noted that only two of the complainants actually had jobs with access to confidential records, and that in any event the written procedure made no distinction about how the layoffs were to be carried out for employees who handled confidential records versus those who didn’t.

One lesson for employers is that if a written procedure is used to dictate how employee terminations are to be carried out, it is crucial to ensure that the procedure is followed uniformly and fairly. While it is certainly permissible to devise different layoff procedures for different categories of employees and different situations, the differences must arise from legitimate, non-discriminatory business concerns. If a written procedure is created, it should set forth the categories of employees and types of situations where close monitoring or other potentially objectionable means of protecting the employer’s legitimate business interests are to be utilized.

In the Trustees case, the outcome might have been different if the only employees closely monitored were those who did handle confidential records. However, the absence of a legitimate reason for the differential and harsh treatment of all the African-American employees made it obvious, in the Court’s view, that the only explanation for treating the five complainants differently was their race. Because of its failure to ensure that all employees were treated fairly and respectfully in the particular situation, the employer paid a heavy price which could have easily been avoided.
Sean was the sole owner of an accounting firm that was set up as a limited liability company (LLC) under state law. When the firm went out of business, it had not paid any payroll taxes for the preceding 18 months. Perhaps thinking that an accounting business, of all things, should have stayed current in its payment of payroll taxes, the IRS went after Sean personally for the $65,000 in unpaid taxes. A federal court upheld a judgment against him.

The authority of the government to look to the business owner in his personal capacity for satisfaction of the tax liability went back to the formation of the business. Treasury Regulations allow an individual who is the only owner of an LLC to elect to have the business classified as either an “association” or a “sole proprietorship.” In the former situation, the entity is treated like a corporation. In the latter case, which had been selected by Sean, the business is not considered an entity separate from the owner.

Sean challenged the tax assessment against him, but to no avail. The court rejected his argument that the Regulation imposing liability on him as an individual was invalid because the legislation itself, the Internal Revenue Code, does not expressly authorize imposing personal liability on the sole owner of an LLC. The Regulations, like many others issued by the Treasury Department, are intended as a means to “fill in the gaps” left by the Internal Revenue Code.

Notwithstanding the ultimately onerous effect on Sean of his earlier selection under the Regulations, they are not arbitrary, capricious, or unreasonable. When he checked the box on a form choosing treatment of his company as a sole proprietorship, he effectively agreed to be liable for the company’s debts, but he also had benefited by avoiding the double taxation–once at the corporate level and once as an individual shareholder–that comes with treatment as a corporation.
There is no federal law called the “Family Responsibilities Discrimination Act” or the “Caregiver Discrimination Act.” Nonetheless, there has been an increase in claims brought under a variety of federal statutes on behalf of job applicants or workers who assert discrimination by an employer on the basis of family-related decisions. Relevant federal statutes include the Americans with Disabilities Act (ADA), Title VII of the Civil Rights Act of 1964, and the Family and Medical Leave Act (FMLA). If the employer is a government entity, the claim may be couched in terms of a violation of constitutional rights.

The trend is clear enough that the federal Equal Employment Opportunity Commission (EEOC) recently published an extensive “Enforcement Guidance” on the subject. (Go to In it, the EEOC sets out to assist investigators, employees, and employers in determining whether a particular employment decision affecting a caregiver may unlawfully discriminate under federal law.

Recommendations for Employers
Some basic recommendations may be gleaned from the EEOC Guidance and relevant court cases. For example, when an employer interacts with, or makes decisions about, a job applicant or an employee, the employer should focus on the requirements for the job, not on the individual’s family circumstances. It is also important for an employer to avoid any tendency to assume that a decision made for the employee’s “own good,” even if made in good faith, can only be seen as benevolent. It could well be considered discriminatory, since an action that an employer sees as generous may be seen by a court as paternalistic and resting on stereotypical thinking.

The EEOC Guidance includes a collection of 20 examples of prohibited discrimination, each of which falls within 1 of 6 categories: (1) sex-based disparate treatment of female caregivers; (2) pregnancy discrimination; (3) discrimination against male caregivers; (4) discrimination against women of color; (5) unlawful caregiver stereotyping; and (6) hostile work environment.

A few of the prohibited scenarios from the examples are illustrative:

* An employee, who is the mother of two preschool-aged children, is passed over for an executive training program, where some of those chosen were not as qualified, and the only people chosen who had young children were men.

* An employer refuses to temporarily relieve a pregnant worker of the part of her job that requires lifting heavy objects, despite her doctor’s advice to avoid such lifting. An investigation shows that the employer previously had allowed the reassignment of lifting duties for both male and female workers due to injuries or other medical conditions.

* Although he is subject to a union contract allowing up to one year of unpaid leave to care for a newborn child, a male teacher is denied his request for such leave, with an explanation that “[w]e have to give childcare leave to women.” The male teacher is told to request the shorter-lasting unpaid emergency leave instead.

* A previously good relationship between an employee and his supervisor deteriorates rapidly when it is learned that the employee’s wife has a severe form of multiple sclerosis. Despite his history of good performance, the employee is removed from projects, subjected to unrealistic deadlines, yelled at in front of his co-workers, and told by the supervisor that the co-workers doubt his ability to do his share of the work, “considering all of his wife’s medical problems.”

In the Courts
In one of the leading-edge court decisions, a school psychologist who was denied tenure in her position with an elementary school sued the school district and school officials, alleging that she was subjected to employment discrimination based on gender stereotypes. The employee was terminated after her maternity leave.

A federal appellate court ordered that the case proceed to a trial and, in so doing, it set an important precedent in some of its pronouncements. For example, “sex plus” or “gender plus” discrimination, involving a policy or practice by which an employer classifies employees on the basis of sex, plus another characteristic, such as motherhood, is actionable in a civil rights case brought by a public employee. In other words, it is possible to support a claim based on discrimination against a sub-class of men or women, and not just the class of men or women as a whole.

In addition, the court confirmed that gender-based stereotyped remarks can be evidence that gender played a part in an adverse employment decision. This principle applies as much to the supposition that a woman will conform to a gender stereotype (and therefore will not, for example, be dedicated to her job when she has young children) as to the supposition that a woman is unqualified for a position because she does not conform to a gender stereotype.

The school psychologist claimed that her supervisors repeatedly told her that her job was “not for a mother,” and that they were worried that, as the mother of “little ones,” the employee would not continue her commitment to the workplace. Such decision-making-by-stereotype runs counter to the relevant federal statutes.
An owner of a second home that is both rented out and put to personal use at different times in any given year should bear in mind the considerable differences in income tax liability that flow from how the two types of uses are allocated. Each year, for tax purposes, the home will be considered as either a residence or rental property, with important differences in the resulting tax calculations. The bottom line is that treatment of the home as rental property is advantageous for the owner, and keeping down the personal use of the property allows it to be so characterized.

If personal use of the second home is less than the greater of 14 days or 10% of rental days, the home will be considered rental property. Flowing from this classification is the ability to deduct repairs, maintenance, insurance, and depreciation costs. In addition, if the expenses exceed the income from the property, the taxpayer can deduct the loss, subject to passive loss rules. Generally, passive losses up to $25,000 may be deducted if the adjusted gross income (AGI) is under $100,000. The ability to deduct passive losses declines as the AGI increases, eventually phasing out at an AGI of $150,000.

If the owner exceeds the personal use threshold for treatment as rental property, the home is treated as a “residence.” In that case, the owner can deduct expenses only up to the amount of rental income, and no loss deductions are allowed. In addition, before there can be any deduction for operating expenses, the owner must use up the property’s share of mortgage interest and property taxes to offset the rental income, which effectively wastes deductions.

In short, if as an owner of a second home you rent the home for a substantial part of the year, but you also just cannot stay away from the place (that’s why it’s called a vacation home, isn’t it?), enjoy the time away but be prepared for tougher treatment by the IRS.
Jim Rudolph and Jim Singer recently spoke at a seminar for the National Association of Credit Managers of New England (NACMNE). The topic was “Legal Remedies for Creditors in the Construction Business.” They also presented a seminar for a client on “Pursuing and Defending Delay Damages on Construction Projects.”