High Court to Hear "Cat's Paw" Liability Case

Pat Edgar has never met Stephen Peters. In fact, Edgar, who fired Peters from his post as a salesman at Coca-Cola Bottling Co. (BCI), didn't even work in same state as Peters, let alone know he was black. However, that didn't stop Peters from filing suit against the company alleging racial discrimination as a motivating factor behind his September 2001 dismissal.

The EEOC took Peters' case, arguing that BCI was liable for discrimination because Peter's immediate supervisor, Cesar Grado, harbored racial bias against black employees, which the EEOC said directly influenced Edgar's termination decision. The 10th Circuit agreed.

But the case, BCI Coca-Cola Bottling Co. of Los Angeles v. EEOC, didn't stop there. On Jan. 5, the Supreme Court granted cert to hear the case. And if the High Court backs the 10th Circuit's ruling, it could make companies more vulnerable to lawsuits under the "cat's paw" theory--which allows an employee to sue if an upper-level manager took an adverse employment action based on a subordinate supervisor's recommendation, even if the ultimate decision maker was unaware of the subordinate's discriminatory motive.

"This is a major issue and it will have tremendous impact on how employers go about handling their HR management," says Todd Presnell, a Nashville-based attorney at Miller & Martin who is representing BCI before the Supreme Court. "If the 10th Circuit's opinion remains intact, it is really going to discourage employers, particularly large employers, from continuing to implement centralized decision-making processes."

Circuit Contradictions

"Cat's paw" liability cases aren't a new phenomenon. Several circuits have ruled on similar cases in recent years. However, those courts disagree about what the standard is for finding a company liable for a subordinate employee's bias.

"Some appellate courts have inquired into whether the lower-level supervisor was influential on the decision making process, while others have looked at whether the subordinate employee was involved in the process," says Rosario D. Vega-Lynn, an employment attorney with Rosario D. Vega-Lynn Law Offices in New Mexico.

On the employee-friendly end of the spectrum sits the 5th Circuit, which requires plaintiffs to demonstrate that their immediate supervisors had some "influence" over the actual decision maker in order to prevail.

The 4th Circuit sits on the opposite pole. In Hill v. Lockheed Martin Logistics Mgmt. Inc., the 4th Circuit ruled in January 2004 that an employee couldn't establish liability unless the actual decision maker harbored a discriminatory motive.

In BCI, the 10th Circuit rejected the 4th Circuit's standard as being "so strict as to undermine the deterrent effect of subordinate bias claims." The 10th Circuit adopted an intermediate standard that requires a plaintiff to establish a causal link between the subordinate's bias and the adverse employment decision.

But in addition to setting a causation standard, the 10th Circuit also suggested that decision makers need to conduct an investigation before taking any disciplinary actions. That could be costly and burdensome for employers.

"One thing that really scares a lot of companies is that the 10th Circuit seems to require an investigation by the HR manager every time there is employee discipline at issue," Presnell says. "In my case [Edgar] had more than 1,000 employees under her and if she were to have to interview and perform a full-blown investigation for every disciplinary action, regardless of how minor, it would stop the process in its tracks."

A Supreme Decision

Presnell and many other attorneys are hoping the Supreme Court's decision will prevent this from happening.

"We want a standard of subordinate bias liability that encourages employers to implement anti-discrimination policies but also reporting mechanisms outside the chain of command that employees can use to report discriminatory conduct, so it can be discovered by the employer and eradicated," he says.

Presnell says that if the Supreme Court adopts the 10th Circuit's reasoning, it could lead to a host of problems. Not only would companies have to interview every single employee involved in an adverse employment action, but they also would have to conduct investigations before taking disciplinary actions in minor cases such as employee absences.

However, most employment attorneys don't predict the High Court's ruling will go so far. Most experts say that even if the Court rules in Peters' favor, it will do so in a way that does not overburden employers.

"[The Supreme Court justices] are going to be very cognizant of what the impact may be on summary judgment practice, and I doubt they will open the floodgates, even if they rule for the plaintiff," says George Lenard, managing partner of St. Louis-based law firm Harris Dowell Fisher & Harris.

While the case has the potential to shift the employment landscape, it's not going to be an earthquake. In fact, many employers are already doing what the 10th Circuit decision suggests.

"I can image some of the justices are going to say you are burdening employers unnecessarily because almost every decision will have to be reviewed," says Barbara Brown, a partner in Paul Hastings Janofsky & Walker's Washington, D.C. office. "But the reality in most large companies is that every decision does have more than one level of review."

Oral arguments will take place April 18, and Presnell expects the court to issue a decision by late June.

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