Insurance Agencies And The Employment Civil Rights Laws Of California And The Ninth Circuit, Part 1

Could your agency be the target of a $1 million employment civil rights suit? In an age that has seen million-dollar recoveries against firms for various kinds of discrimination, it is prudent to understand the law and to try to take preventive measures. (The numbers appearing in parentheses refer to legal citations at the end of the article.)

A Brief History
The civil rights laws of the United States started with the Bill of Rights, the constitutional amendments outlawing slavery after the Civil War, and the Civil Rights Acts of 1866 and 1871 (1). It is only in the 1960s, however, that they began having a wide impact on business. Title VII of the Civil Rights Act of 1964 extended protection against job discrimination because of race, religion, or national origin (2). Opponents of the legislation added sex in an attempt to kill the bill, but the bill passed with sex discrimination in it, and sex discrimination is probably the area in which the legislation has had its greatest impact. Age discrimination against people 40 and over was added in 1967 (3). Protection for the handicapped began with provisions affecting federal contractors in 1973 (4), and was extended more generally by the Americans with Disabilities Act in 1990 (5).

Today, the hot areas of civil rights legislation relate to who is handicapped and what accommodations need to be made for them, the area of sexual harassment, and discrimination because of sexual orientation. In addition, the causes of contract and tort wrongful discharge suits are often linked to civil rights statutes. Such suits are often costly to defend and have the potential for large judgments that might not be covered by liability insurance.

Protected Persons
Protected classes of people are the central reason for civil rights legislation. Our lawmakers viewed these classes as subject to widespread discrimination in employment, and in need of protection. Persons discriminated against in employment because of race, national origin, religion, sex, or being over the age of 40 can thus claim the prerogatives of protected classes. The handicapped is one protected minority class we are all vulnerable to joining. Employers must be conscious that these classes have special legal protection, particularly in the supervision of managerial employees who may discriminate against these protected classes because of their status or give the impression they are doing so.

The number of protected classes has been increasing to include new classes and expand old ones. Currently, both sexes are being extended protection against sexual harassment in the workplace (6). Employment discrimination because of sexual orientation is illegal in some states, such as California (7), although at present such actions are not generally illegal under federal law (8). Protection also extends to persons who are retaliated against because they complained of violations of civil rights statutes (9). Such federal developments have been paralleled and sometimes anticipated by legislation in California (10) and other states.

Even though they are well intended, civil rights laws can create serious problems for businesses, including insurance agencies, because of the difficulty in keeping up with their requirements and because they open the doors to improper claims.

'Classic' Discrimination Because of Race, Religion, National Origin, Sex, or Age
The original Civil Rights Act of 1964 and similar California statutes banned employment discrimination in hiring, promotion, demotion, or firing, on the basis of race, religion, national origin, or sex. Employment discrimination against persons over 40 and under 65 because of age has been illegal since 1967 under federal law (11), as well as under California law (12).

Title VII, the federal statute outlawing employment discrimination because of race, religion, or sex, applies to employers in interstate commerce with 15 or more employees (13); age discrimination applies to staffs of 20 or more (14). The California FEHA statute, which is similar but broader in scope, applies to employers with five or more employees. However, it is dangerous to rely on these thresholds in agency planning, since other laws may apply to discriminatory conduct. For example, the original Civil Rights Act of 1866 may apply to private racial discrimination, and has no threshold (15). Similarly, a California sex discrimination case that was barred by the California Fair Employment and Housing Act's five-employee threshold was allowed to proceed as a violation of 'public policy' under the California constitution (16). Small agents should not assume that they're invulnerable to claims based on employment discrimination.

How a Civil Rights Case Could Be Proved Against your Agency
Presenting proof of discrimination is central to civil-rights job litigation. Typically a plaintiff's case is shown by a mixture of statistical data, coupled with some anecdotal evidence of bias toward the protected class.

To prove a prima facie case of discrimination in hiring, promotion or demotion, or layoffs, the plaintiff must prove:

• The plaintiff's membership in the protected class 
• That the plaintiff was qualified for the post 
• That the plaintiff was rejected-after which there either existed a continued need for the post, or the post was filled by someone outside the protected class (17), such as a younger employee in the case of age discrimination (18), or the position remained open (19).

Once the plaintiff establishes a prima facie case of discrimination, the burden is shifted to the employer to show that the plaintiff's treatment did not result from discrimination (20). The employer can attempt to prove non-discriminatory reasons for the action. The employer's reasons might not be accepted if the court finds discrimination based on statistics plus other evidence supporting the plaintiff's argument that the real reason was discrimination (21). It often does not take much additional evidence to show a discriminatory motive; sometimes a remark is enough. Employers should be aware that if the statistics for their firm seem to establish a pattern of discrimination against protected persons, they start with at least one strike against them.

One defense exercised increasingly by employers is to use the litigation discovery process to establish additional non-discriminatory reasons for a failure to hire or a discharge, such as employee theft, misrepresentations on employment applications, or the like. This can provide at least a partial defense against a civil rights suit (22). Even if the employer cannot justify the original failure to hire or dismissal, the evidence acquired after the alleged discrimination incident can provide a justification. However, the employer must show that the wrongdoing was sufficient to permit termination on that ground alone, and the employee may still be able to recover damages up to the date the wrongdoing was discovered. However, reinstatement and future damages would be barred.

The age discrimination statute normally applies to persons between 40 and 65. It is not necessarily illegal to seek persons with relatively limited experience for a particular position. In EEOC v. Insurance Co. of N. Am. (23), a person with 30 years' loss control experience was not asked to interview for a loss-control position that required two years of experience, because the company felt the older person was 'over-qualified' and would spend too much time on simple claims. The court held that over-qualification did not establish age discrimination (24).

Replacing one discharged employee with another employee who is over the age of 40 is not a defense to an age discrimination claim (25). However, laying off a 63-year-old employee and retaining a 39-year-old employee with more seniority was allowed (26).

Where Agencies May Be Vulnerable
In the agency context, hiring ordinarily should not be a problem, since most agents know the law and obey it. In recent years, problems have arisen more often in promotion and in demotion or firing. Dismissals can lead to substantial damages when the person dismissed suffers serious wage losses over a long period. Demotions can also have this effect, particularly when they are found to constitute a 'constructive discharge' (enabling an employee to quit and still sue the employer for discharging him or her). Recoveries in these cases can hover in the six- or seven-figure dollar range.

The most serious allegations of employment discrimination arise when it's contended that an entire group of persons, such as women, are discriminated against in hiring or promotion. For example, major insurance carriers have faced charges that women were discriminated against in receiving agency appointments or promotions. Settlements of such class actions have run in the millions of dollars.

Some Examples
St. Mary Honor Center v. Hicks (27) concerned a discharged minority halfway-house employee. He contended that he was a minority who was demoted and discharged, and replaced by a non-minority, which the Court said established a prima facie case of discrimination. The employer gave reasons, which the district court ruled false. However, the lower court also found there was insufficient evidence to show the real reason was discrimination. The U.S. Supreme Court upheld the lower Court's decision-but also said that a prima facie case by the employee, coupled with disbelief of the reasons given by the employer (particularly if they seemed to be fabrications), could in certain situations be sufficient to prove a cause of action for discrimination, but this circumstance did not compel a judgment for the plaintiff.

Another example of how a dismissal can lead to a discrimination judgment can be found in Harris v. Hughes Aircraft (28). The plaintiff was a minority accountant. In 1987, his supervisor began to downgrade his performance and also instructed him not to participate in outside minority groups or list them in his self-evaluations. Evidence showed that he had been repeatedly passed over for promotion, while white workers with less experience moved up. He was laid off in 1989, despite evidence that his department's work had increased. He received an award of $140,000 in compensatory damages and $975,000 in punitive damages.

In the St. Mary's Honor Center case, the judge believed that the plaintiff had been discriminated against, but that he had not shown it was because of his race rather than for personal reasons. In Harris v. Hughes Aircraft, on the other hand, the jury decided that the discrimination against the plaintiff was because of his race. The lesson for employers appears to be that reasons given for demoting or firing a minority or other protected employee should be substantial and legitimate, and that great care should be taken not to give an impression of discriminatory motives.

Footnotes:

1. 42 U.S.C. 1981 ff.
2. 42 U.S.C. 2000e.
3. 29 U.S.C. 621 ff.
4. Rehabilitation Act of 1973, 29 U.S.C. 701 ff.
5. 42 U.S.C. 12101 ff.
6. Harris v. Forklift Systems, Inc. (1993) U.S., 126 L.Ed.2d 295, 114 S.Ct. 367.
7. Labor Code 1102.1.
8. Holloway v. Arthur Anderson & Co. (9th Cir. 1977) 566 F.2d 659.
9. Title VII, 704(a), 42 U.S.C. 2000e-3(a).
10. For example, the Unruh Civil Rights Act, Calif. Civil Code 51 ff; the Fair Employment and Housing Act, Calif. Govt. Code 12900 ff.
11. 29 U.S.C. 621 ff.
12. Govt. Code 12920. Jennings v. Marralle (1994) 8 Cal.4th 121, 32 Cal.Rptr.2d 275, held that the FEHA applied to age discrimination for employers of five or more, and that there was no common law prohibition of age discrimination.
13. 42 U.S.C. 2000(e)(b).
14. 29 U.S.C. 630(b).
15. 42 U.S.C. 1981 ff; Jones v. Alfred H. Mayer Co. (1968) 392, U.S. 409.
16. Badih v. Myers (1995) 36 Cal.App.4th 1289, 43 Cal.Rptr. 229, concerning sex discrimination. Contra was Jennings v. Marraalle (1994) 8 Cal.4th 121, 32 Cal.Rptr.2. 275 involving age discrimination not protected by the California constitution.
17. McDonnell Douglas Corp. v. Green (1975) 411 U.S. 792, 36 L.ed2d 668, 93 S.Ct. 1817.
18. Messick v. Horizon Indus, Inc. (9th Cir. 1995) 62 F.3d. 1227.
19. Warren v. City of Carlsbad (9th Cir. 1995) 58 F.3d. 439.
20. St. Mary's Honor Center (1993) ___U.S.___, 125 L. ed2d 407, 113 S.Ct. 2742.
21. Washington v. Garrett, Secretary of Navy (9th Cir. 1993) 10 F.3d 1421.
22. McKennon v. Nashville Banner Publishing Co. (1995) 130 L.Ed.2d 852, 115 S.Ct. 879; Cooper v. Rykoff-Sexton, Inc. (1994) 24 Cal.App.4th 614, 29 Cal.Rptr.2d 642.
23. (9th Cir. 1995) 49 F.3d. 1418.
24. EEOC v. Newport Mesa Unified Sch. Dist. (CD Cal 1995) 893 F.Supp. 927 similarly held there was no age discrimination in preferring lower-paid starting teachers.
25. O'Connor v. Consolidated Coin Caterers (U.S. Supreme Court 1996) 96 C.D.O.S. 2222.
26. Chaffin v. Textron, Inc. (ED Cal. 1994) 861 F.Supp. 972.
27. (1993) U.S., 125 L.Ed.2d 407, 113 S.Ct. 1817.
28. (1993) 19 Cal.App.4th 1552A, 23 Cal.Rptr.2d 343.